Many people with newer cars keep collision coverage on their policies, but they also may not know when or if they should drop this coverage. While there's no set rule for determining whether collision coverage becomes unnecessary for your particular situation, there are some simple considerations to make if you're debating whether or not you should keep it on your policy. I’ve outlined them here but please keep in mind a quick conversation with Doyle Insurance can walk you through a couple of simple scenarios to help you make the best decisions.
What's your vehicle's actual cash value?
This is one of the easier things to determine because you can find several sources that will provide actual cash value (ACV) estimates online or through publications. Common sources for ACV estimates are N.A.D.A. Guides, Kelley Blue Book and Black Book. These will give you a good idea of what your vehicle is worth.
Remember to be realistic about the condition of your vehicle. Get a realistic ACV estimate. If your vehicle has dents, sun damage, torn upholstery, etc., these may lower your vehicle's ACV.
How much do you pay for collision coverage?
Factor in the price you pay for collision coverage. If your collision premium is $250 for a six-month policy term, you're paying $500 per year to insure your vehicle against damage that may never happen. For your situation, is the cost worth the potential risk? If your vehicle is worth $2,500 and your collision premium is $500 per year, you're paying 20 percent of your vehicle's value for one insurance coverage. On top of that, the most you'd receive in a total loss settlement would be $2,000, and that doesn't factor in the amount you're paying for collision coverage. Should you keep collision at this point? Well, it depends on your personal situation — more on that later. Keep in mind that collision premiums generally decrease as your vehicle ages, so the cost for collision coverage may be less next year than it is this year.
What's your collision deductible?
What deductible did you choose when you added collision coverage to your policy? Did you select a $500 deductible? $250? $1,000? It is important to consider the amount of your deductible because, if you ever have to use collision coverage, you'll be responsible for paying that amount out of pocket.
What services or options would you forfeit if you drop collision coverage?
Finally, consider what else you're bypassing by dropping collision coverage. If you don't have Collision coverage, will forfeiting options for other coverages affect you negatively? Depending upon who your coverage is written with you may, for example not be able to purchase Rental coverage.