Collision Collage

You may be a careful driver and convinced that you’ll never be involved in a car accident, but the research doesn’t bear this out. According to “AllState’s America’s Best Drivers Report,” on average, every American driver will be involved in an accident once every 10 years. If you frequently drive at night or in an urban area, you are generally at higher risk for accidents.

Three Ways Collision Coverage Helps You

Unlike liability insurance, which pays for damage to the other driver’s vehicle if you cause an accident, collision coverage will pay to fix or replace your own vehicle, regardless of who is at fault. Although collision coverage is optional, if your vehicle is fairly new or worth more than several thousand dollars, it might be worth it, for the following reasons:

  1. If you crash your own car, collision coverage will pay for the cost to repair it, or if the cost to fix it is more than the vehicle is worth, your insurer will pay to replace it based upon its market value at the time of the accident. It is important to note, however, that you’ll be responsible for the deductible you chose when you added collision coverage to your policy.
  2. If another driver causes an accident that damages your vehicle, collision coverage will pay for your damages and go after reimbursement from the other driver’s insurance company.
  3. If you didn’t purchase comprehensive coverage for vandalism, theft and natural disasters, you can usually claim those losses under your collision coverage, if you have it.

But When Is Collision Coverage a Waste?

If you drive a vehicle that’s worth less than $5,000, it may make sense to pay for accident damage out of pocket instead of paying for collision coverage. For example, over the course of four or five years of paying for collision coverage, you might end up paying more in premiums than your vehicle is actually worth. If your vehicle is currently worth about $10,000, it will likely be worth $5,000 or less in five years, due to depreciation. At that point, dropping collision coverage might be a good decision.

Another valid reason for dropping collision coverage is if your risk of getting into an accident relatively low you, because you drive your vehicle infrequently — less than a few thousand miles per year. Generally, the more valuable your car, the more frequently you drive, and the denser the traffic you drive in, the higher your risk of accident, making your need for collision coverage greater.

How to Decide Whether or Not Collision Makes Sense For You

If you’re thinking of dropping collision coverage, don’t do so until you’ve thoroughly researched a few things, specifically:

  • The current value of your vehicle, according to NADAguides, Kelley Blue Book, or another comparable resource.
  • The annual premium that you pay for collision coverage.
  • What collision coverage will cost over a three- or four-year period compared to what your vehicle will actually be worth.

One way to drop collision coverage and keep some peace of mind is to put an amount of money comparable to what collision coverage costs into an emergency vehicle fund to use for unexpected repairs or maintenance.

But if you’re not absolutely sure that you’ll be disciplined enough to save this money and be able to pay to have your car repaired or replaced should you get into an accident, it might be best to hang onto your collision coverage after all.

Image by David Antis (urban woodchuck).

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