When does one need to drop collision insurance?
If you possess a vehicle and regularly use public roads, you typically lack flexibility in selecting specific types of auto insurance coverage.
Your state regulations likely require you to obtain a combination of liability car insurance, uninsured motorist coverage, and possibly personal injury protection.
Additionally, you may consider obtaining collision and comprehensive insurance, which is often mandatory for those with a car loan or lease.
This coverage helps cover repair costs in cases of damage caused by incidents like car accidents, fires, or floods.
However, as your vehicle ages and decreases in value, you may contemplate whether it is advisable to discontinue collision and comprehensive insurance.
Collision and comprehensive car insurance
Collision and comprehensive car insurance represent two types of coverage typically considered optional but may be obligatory if you are financing or leasing your vehicle.
Both cover the expenses associated with vehicle damage or replacement (in the case of total loss), but the choice between them depends on the specific nature of the damage.
Collision insurance is designed to assist in covering the costs incurred due to damage caused by a “collision” with another object, such as a different vehicle, utility pole, or guardrail. It also extends coverage to repairs associated with a rollover accident.
On the other hand, comprehensive insurance, despite its name, is not truly all-encompassing.
It provides coverage for vehicle damage resulting from events like flooding, fire, vandalism, theft, damage caused by fallen trees, or contact with an animal.
Both collision and comprehensive coverage involve a deductible, which is the amount subtracted by your insurer from your claim payout.
For example, if a tree falls on your car, requiring $4,000 in repairs, and you have comprehensive coverage with a $500 deductible, your insurer will issue a check for $3,500.
You are then responsible for covering the remaining $500 for the repairs.
When to drop collision insuranceWhat Do Collision and Comprehensive Insurance Cover?
Car insurance companies commonly offer collision and comprehensive insurance as a combined package, but it’s essential to recognize that these are distinct forms of coverage addressing specific issues:
- Collision Insurance:
- Purpose: Covers expenses for repairing or replacing your vehicle after an accidental collision.
- Scenarios: Applicable when your car collides with objects such as another vehicle, guardrail, pole, or tree.
- Comprehensive Insurance:
- Purpose: Covers costs associated with repairing or replacing your car in various non-collision situations.
- Scenarios: Applies to theft or damage caused by events like floods, fires, collisions with animals, falling objects (e.g., tree branches), and acts of vandalism.
Understanding the unique coverage offered by collision and comprehensive insurance is crucial for making informed decisions about your car insurance policy.
How much does collision coverage cost?
Collision coverage costs about $814 annually or $68 monthly, based on our rate analysis.
Your charges depend on factors like your insurer, location, and your vehicle’s make and model.
Is Collision and Comprehensive Insurance Required?
No state requires collision and comprehensive insurance, yet they’re valuable and shouldn’t be overlooked.
For car loans or leases, these coverages are often mandatory to protect the lender or lessor.
Eric Poe, Cure Insurance CEO, notes lenders worry about accidents deeming the vehicle a total loss.
In such cases, insurance payouts go to the lienholder, preventing the policyholder from leaving the unpaid loan.
Dealers that lease vehicles typically insist on full coverage car insurance, including collision and comprehensive coverage.
Amy Bach, executive director at United Policyholders, stresses dropping coverage isn’t viable for leased or financed cars.
If you fully own a newer car and can afford a replacement, skipping collision and comprehensive coverage is an option.
This choice may substantially decrease overall insurance costs, potentially saving hundreds annually.
Making the Decision to Drop
Traditional advice was to drop collision and comprehensive insurance after 5-6 years or 100,000 miles.
Decision now depends on factors like car value and replacement part costs.
High-end cars, like Mercedes, may justify longer coverage compared to economical models.
Replacement part expenses could exceed the deductible, influencing the coverage decision.
Modern vehicles involve intricate computer systems, extending repair scope beyond traditional work.
Eric Poe cites replacing a Cadillac Escalade headlamp costing $2,349 as an example.
Older drivable vehicles with significant depreciation may warrant dropping one or both coverages.
Maximum payout for these vehicles, determined by car value minus deductible, may be minimal.
Owners of classic cars often choose classic car insurance based on the car’s “agreed value.”
“Agreed value” considers factors like car condition or specialized repair parts, explains Loretta Worters.
Can you drop one coverage and not the other?
If you’re financing or leasing a vehicle, your lender or lessor typically mandates both collision and comprehensive coverage. If you own your car, the decision to eliminate one or both coverages is your prerogative.
For example, if your car is stationary and not susceptible to damage from other vehicles, you might consider discontinuing collision coverage while retaining comprehensive.
The latter is more affordable and assists in covering repair costs after natural disasters, vandalism, or theft.
Alternatively, if you prioritize coverage for repairs following a collision but aren’t as concerned about scenarios covered by comprehensive insurance, you could opt to keep collision insurance and forego comprehensive coverage.
How long should on keep full coverage
If you finance or lease a vehicle, maintain full coverage until completing payment is essential.
Once the lease or loan concludes, you can opt to discontinue full coverage, but this decision may not always be optimal.
Full coverage typically encompasses liability insurance, a state requirement, and other mandated coverages like personal injury protection (PIP) or uninsured motorist coverage.
Eliminating or reducing these coverages might lead to non-compliance with state law.
Additionally, dropping collision and comprehensive coverage is a possibility but may expose you to significant out-of-pocket expenses, especially for newer or costly-to-repair cars.
When determining your car insurance needs, always consider your state’s requirements, budget, and assets actively
Bonventure Hillman: Risk Management & Analysis Specialist
Location: Arkansas
Expertise:
- Risk Management Strategy
- Data-Driven Insights
- Financial Planning Solutions
Summary:
- Skilled analyst tackling complex risk management scenarios.
- Joined the Insurance Blob in 2023, contributing beyond reporting.
- Transforms data into actionable insights for diverse audiences.
- Dedicated to accuracy and strategic thinking, he is a valuable asset to the team.
Education:
- Bachelor of Science in Actuarial Science, Arkansas Tech University, USA.
Contact email
Bonventure@insuranceblob.com
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