Collision coverage is an important type of insurance for car owners to have. This coverage can help to repair or replace a vehicle that’s been damaged by negligence on your part. It can also help you when you get into an accident with an uninsured or under-insured driver. Unfortunately, though, collision coverage is expensive, which is why many people opt out of it. Opting out is most common among people who’ve had their car for several years and who are willing to just cut their losses if something happens to it.
Ultimately, you’re the only one who can decide if and when you should drop collision coverage. However, there are definitely smart ways to go about making that decision.
Not Worth It...
When deciding whether or not you should drop collision coverage, you’ll want to consider the value of the vehicle versus how much you’re paying to hold the coverage. The general rule of thumb is that if you’re paying 10% of the car’s value or more in coverage per year, it’s probably not worth it. You’d be better off saving up that money to put toward a new car when the time comes.
You Can Afford to Replace the Vehicle
Collision coverage is expensive; there’s no doubt about that. What makes it even more frustrating is that you’re paying for something you may never use. If you can honestly afford to replace the car without too much trouble, why bother paying all those fees for collision coverage? Instead, you could just put the money you would have spent into a savings account to help you in the event of an emergency.
You’re Running Low on Cash
Conversely, you may need to drop your coverage if you find yourself in a financial jam. If you need to save money for a while, it’s okay to let this coverage fall by the wayside. Is it risky? Yes. However, sometimes in life you do have to take your chances. Just make sure that, as soon as you’re able, you get your coverage back because, if you’re short on cash, that’s a pretty good indicator you wouldn’t be able to replace the car out of pocket.
As you can see, there are a lot of factors to think about when considering dropping collision coverage. Make sure you think long and hard about what’s truly best for you before you make any big decisions.