Dropping collision insurance or any other coverage that’s not required by law can help you save on your insurance premiums. But it can cost you if you’re in an accident: Without adequate coverage, you can get stuck paying for repairs out of pocket.
Deciding when to drop collision insurance isn’t an exact science, and it’s important to understand the risks before you do. Here are some things to consider that can help with your decision.
Before you decide whether you want to keep collision insurance, it’s important to understand how it protects you. Collision coverage can help pay for repairs if your car is damaged in a crash with another car or a stationary object, such as a retaining wall or guard rail. Without it, you could be stuck with thousands of dollars in repairs that you would have to pay for out of pocket.
RELATED STORIES: Penalties for Driving Without Car Insurance by State
Your insurance company calculates the amount of money they’ll reimburse you based on your car’s actual cash value. That’s the amount the insurer will pay toward repairs, minus your deductible. Your deductible is the amount you have to pay before the insurance company pays.
You get to choose your car insurance deductible when you buy your policy. Deductibles for auto policies typically range from $100 to $2,500. And your insurance company will let you know what your options are when you apply.
When selecting your deductible, it’s important to choose an amount you can afford to pay if you need to file a claim. A lower deductible will minimize your out-of-pocket costs if you’re in an accident, but your premium will be higher. On the flip side, a higher deductible typically reduces your premium, but it increases the amount you have to pay when you file a claim.
Maintaining collision coverage can help protect your finances if you’re in a crash by paying for repairs to your vehicle. In general, it’s a good idea to have collision coverage if:
There’s no doubt that having collision coverage can save you a bundle if you’re in an accident. But there may be times when it doesn’t make sense to continue paying for car insurance collision coverage.
If you don’t have an auto loan or lease, you can drop collision insurance at any time. However, if you’re still paying off your auto loan or you’re leasing your vehicle, you need collision coverage.
“The lender is going to require proof, and if you don’t have it, they’ll force place collision insurance at an extremely high rate,” says Espenschied. If that happens, you’ll likely pay a lot more than if you had bought a policy on your own. So make sure you have coverage if you have a lease or loan.
