As far as auto insurance policies go, collision insurance is the one that can give financially-savvy drivers a lot of trouble.
It’s not mandatory in the same way that, say, property liability coverage is in our state.
But at the same time, the North Carolina Department of Transportation observed that 281,685 traffic crashes were reported in 2018. A number like that is enough to make you wonder if you might be better off keeping your collision coverage.
As a result, it isn’t always easy to know when to drop collision insurance policy.
However, you’re in luck.
We’re going to explain what collision insurance is, and then we’re going to tell you when or if you should downgrade your car insurance policy. Just keep reading.
What Is Collision Insurance?
Collision insurance is exactly what you would have guessed it is from the name.
It’s a form of insurance that gives you coverage if you ever need to repair or replace your vehicle in the aftermath of a collision. Interestingly enough, however, collision insurance isn’t just for situations where you’ve been t-boned by another driver. This type of insurance may cover you even if you crash into objects like mailboxes or trees or a particularly bad pothole.
4 Situations Where You May Be Able To Drop Your Collision Insurance
As far as auto insurance goes, there can be a fine line between keeping a coverage option available for “just in case” and being over-insured.
Luckily, there are a few telltale signs that can give you a sense of whether or not you need your collision coverage:
1. You Don’t Get Into Accidents All That Often
Some people just have bad luck when it comes to accidents. And if you’re the type of driver who runs out of fingers while you’re counting your accidents and fender benders, it’s probably better to be safe than sorry.
On the other hand, if you’re not an especially accident-prone person and collisions are a once-every-other-decade kind of event for you, then it could be a sign that you don’t need collision coverage that badly.
2. The Premiums Are Worth More Than the Cost of Replacing Your Car
According to Investopedia, cars can lose as much as 20% of their value the moment you drive them off the lot.
For obvious reasons, this is not great for your net worth. But it can also have serious implications for your insurance needs.
Let’s say you have a car that you would have to pay $10,000 to replace and let’s say you’re also a super-cautious driver.
You would have to pay an annual collision insurance premium of $1,000 for 10 years to cover the cost of your car. If accidents are a once every 30 years kind of event for you, the cost of your premiums could be higher than the cost of repairing or replacing your car out-of-pocket.
3. You Have a Sizable Emergency Fund
Insurance is designed to provide you with financial help in situations so that you’re not stuck with sudden and unexpected expenses that might be difficult to cover all at once.
When you have enough money in your account to comfortably cover the cost of repairing or replacing your car, collision insurance doesn’t benefit you in the same way.
If your emergency savings could buy your car several times over and then some, then it might make sense to save yourself some money by dropping your collision insurance.
4. Your Policy Probably Wouldn’t Pay Out
If the cost of your repairs doesn’t exceed your deductible, you may not be able to cash out your policy if you’re in an accident.
Typically this isn’t an issue for most drivers.
But if your old car is worth, say, $400 to replace, but your deductible is set at $500, you’re unlikely to get the money you need in order to replace your car through insurance.
If that’s you, then you may be better off just leaving that money in savings.
The 2 Situations Where You Should Keep Your Collision Insurance
That being said, there are at least a couple of exceptions to the “collision insurance may be optional” rule of thumb. We’re going to go over those now:
Situation #1: You Don’t Have Enough Savings To Cover You in the Event of an Accident
We mentioned earlier that if you can comfortably buy a new car, you may not actually need collision insurance. However, the opposite is also true.
Sometimes life can deal you a bad financial hand. Many of us are all just a few bad months away from struggling to put food on the table.
We get that.
But if you’re financially in a place where you would lose your car if you were ever in a collision, the best decision may be to keep paying for collision insurance. Even if you’re the most careful driver this side of the Atlantic Ocean, accidents can happen at any time.
And if you’re not in a position where you could manage that financially that’s okay. But dropping your collision insurance may not be an option if that’s the case.
Situation #2: You’re Financing Your Car With a Loan
If there’s one thing you can say about money lenders, it’s that they are dead serious about not losing money if they can help it.
So much so that if you’ve obtained your car through financing, some lenders will require you to carry collision insurance so that they’re not left holding the bag if you get into an accident.
There’s no point in being clever or trying to get out of your requirements on this one because if you ever were involved in a collision, and that’s if you could get away with dropping your collision insurance, the financial consequences would more than likely not be worth it.
Here’s How You Know When To Drop a Collision Insurance Policy
A lot of people see insurance as something you have to have. For them, it’s just a part of having comprehensive auto coverage.
With collision insurance, that’s not necessarily the case.
It’s not always easy to know when to drop a collision insurance policy, but if you read any of those signs and said, “That is definitely me.”, it could very well be time.
Contact Amistad Insurance Services today to learn more about how we can help you get coverage for all of your auto insurance needs.