When to Drop Collision Coverage from Your Car Insurance

In these difficult economic times, people are holding onto their cars longer. As your car ages, the insurance premiums that you pay each year are likely to drop due to the reduced value of your car. Every year you put off buying a new car means more money you save from not having to make monthly car payments on a new car.

You also save from not paying insurance premiums on a brand new car as well. It makes a lot of economic sense to keep your car for as long as you can. At some point, it will not be worth the cost of paying the premiums for collision coverage on your car. You should note that if you are still making car payments to a lender, they most likely will require collision coverage.

The reason you should consider dropping collision at some point, is that your insurance company will never pay out more than the market value of your car minus the deductible. As your car ages in terms of years and mileage, its market value continues to drop. As the value of your car drops, the cost of labor and parts for repairing damage to your car stays the same or may even increase. There will come a time when your car's value won't even be enough to pay for a crushed fender, never mind the more serious damage that can occur in an accident.

Determining the market value of your car is easily done by going to Kelly Blue Book and using their online calculator. Once you've done this, you can do some Internet research on the average cost to repair a car after an accident. The figure that you get will be very loose but if your car's value falls well short of this, you may wish to consider dropping collision coverage from your auto insurance policy.

You might be thinking that even if your car's value doesn't cover the cost of repair after an accident, the insurance payment can go towards buying another car. However, this assumes you will get into an accident that totals your car. Another point is that if you weren't paying the collision premiums, the saved money could go towards your new car purchase.

There is no set rule about the exact point at which you should drop your collision coverage. This decision is easy to make when your car's market value is very high or very low. When it's somewhere in the middle, other factors such as your tolerance for risk will come into play.

Need help figuring out if you’re ready to drop collision coverage? Call your independent insurance agent for an evaluation of your coverage needs.