Collision insurance isn’t mandatory in most states, but your lender may require it for a car lease. Drivers with paid-off cars still choose to purchase collision insurance as protection in case of an accident. This policy covers most types of damages to your vehicle but may become less beneficial as the car gets older.
What Is Covered by Collision Insurance?
Here are the types of damages covered under collision insurance:
- Collisions with another vehicle, where you are fault
- Crashing into an object like a tree or mailbox
- Accident with uninsured/underinsured motorists
In a car accident scenario where the other driver is at fault, you can file a claim with their insurance company to cover the costs of repair.
Collision Coverage Vs. Property Damage Liability
Property damage liability insurance has become mandatory in almost every state. However, this policy has a low coverage limit, with a minimum range of $5,000 to $10,000. If the at-fault driver only has the state-required property damage limits, it wouldn’t be enough to pay for replacement if your car is damaged beyond repair. Instead, you will be reimbursed up to the limit of the driver’s coverage, and then your collision insurance would kick in to cover the remaining costs.
How Much Will a Collision Coverage Cost?
According to the National Association of Insurance Commissioners, each person’s cost of insurance differs due to various factors. For example, you may pay less because of discounts and group policies that are typically cheaper than individual ones.
Some providers do not sell collision coverage as a single policy; instead, you will have to buy it along with comprehensive coverage. Sometimes, you may be required to buy comprehensive coverage because you have an active loan or lease that requires both.
Collision insurance tends to cost significantly more than comprehensive insurance as collision claims are more common. However, there are effective ways to reduce your premium, like increasing your deductibles.
Do You Really Need Collision Insurance?
Policyholders with old cars may be less enthusiastic about keeping collision coverage. This is because you are only paid the actual value of your vehicle at the time of the accident. If your car has become old and worn out, its value would have depreciated significantly, and your payout will be insufficient to purchase a replacement. Collision coverage becomes less useful when the vehicle starts to cost more to maintain than it would pay you after a crash.
If you are still unsure whether to drop collision insurance, you can make some calculations to determine the gains and losses. You should only keep it if it’s worth the premium you’re paying, so start by comparing the value of your car and your deductible. To determine whether it’s worth what you’re paying for it, compare the value of your car and your deductible. It isn’t a good investment if your deductible is equal to the value of your car, or your car is worth less than your deductible.
If there is a significant difference between your deductible and your car’s value it may be a smart investment. Do not hesitate to revisit its worth as your car ages to know if you should keep it.
Typically, car owners usually drop collision and comprehensive coverage if they’ve been using the car for half a decade or when the mileage reaches 100,000 marks. In recent times, policyholders tend to make this decision based on the value of the car and its replacement parts. Some top car brands may hold high values longer than less popular brands, so the costs of repair or replacement may significantly exceed the deductible even after five years of usage.