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UPDATED: Mar 13, 2020
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Are you wondering if now is the right time to drop your collision insurance coverage?
Collision insurance pays for the repairs or replacement of your vehicle up to your vehicle’s pre-accident value if you accidentally cause a car wreck. Dropping your collision insurance means that if you are the at-fault driver, you will have to pay for your car repairs or a new car.
In order to determine if it makes sense to drop your collision insurance, you will have to look at your current and future finances and the age and value of your car.
If you determine that you cannot afford to drop collision insurance, you can always use a comparison tool to find a cheaper full coverage insurance policy.
Reasons to Keep Your Collision Insurance
There are certain instances where you might have to keep your collision insurance and certain instances where you might want to keep it for your own peace of mind.
- Your Car Is Not Paid Off – If your car isn’t paid off, you are probably obligated to keep your collision insurance by the financial institution holding your car loan. This is because if you get into a car wreck and then miss a payment, your financial institution wouldn’t be able to get as much money for your vehicle if they were to repossess it.
- You Don’t Have the Funds to Repair Your Car – If you do not have the funds available to repair your car in the event of an accident that was caused by you, you should keep your collision insurance. When you get into a car accident that wasn’t caused by the other driver, your collision insurance pays for the repairs to your car up to the value of your car prior to the accident minus your deductible.
- You Cannot Afford the Down Payment for a New Car – If you get into a car accident that was determined to be your fault and your car is totaled, you would be responsible for purchasing a new vehicle with funds from your own bank accounts. With collision insurance, your insurance company would assess the value of your car just prior to the accident and send you a check for the value minus your deductible.
- You Plan on Teaching Your Kids to Drive – If you have teenagers that are ready to begin the process of learning how to drive, you may want to keep collision insurance on your car. New drivers and drivers that are learning to drive are more prone to making mistakes and getting into car accidents.
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*based on a survey of 1,000 car insurance customers
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Reasons to Downgrade Your Car Insurance Policy
Downgrading your car insurance policy from collision to liability only can save you money on your monthly car insurance payment, but you should make sure you are doing it for the right reasons.
- You’ve Paid off Your Car – Paying off your car means that you no longer have to keep collision insurance due to the requirements set forth by your lending institution.
- Your Car Isn’t Worth Very Much – If your car is only worth a few thousand dollars, you may want to cancel your collision insurance, especially if you have the funds to put a down payment on a new or newer car.
- You Don’t Drive Very Often – If you are retired or work from home and your car is paid off, it may not make much sense to keep collision insurance on a car that sits in your driveway for long periods of time.
- You Can No Longer Afford Collision Insurance – If your car is paid off and your budget is tight, it may make financial sense to downgrade your car insurance in order to ease the strain on your monthly budget. However, it is important to understand that liability insurance only pays for damages to the other person’s vehicle.
Alternatives to Downgrading
If you determine that it is not in your best interest to downgrade your auto insurance coverage, you can always use a comparison tool to find policies from different insurance carriers.
By shopping around, you can view the prices and coverage of other carriers to find more affordable car insurance that includes collision insurance.