This question comes up all the time.  When is it time to drop collision coverage on your car? 

In 1973, when I started in this business, people dropped collision as soon as their car loan was paid off.   That was usually three years.  Back then the average new car cost less than $10,000 and was worth half that three years later.  $5,000 was a lot more money than it is now, but people felt comfortable taking the risk.

Now you pay anything from $15,000 to $100,000 for a new car and, three years later it can still have a big value… even though the percentage might not be a whole lot different than it was in 1973.  Another thing is that car loans now are going for up to seven years and, if you have a loan, the bank will demand that you keep collision coverage in force. 

So, when to drop collision coverage?  Here are three factors I suggest you consider:

1.       How likely are you to have a crash?  There is really nothing to go on here except your history. If you have been driving for 30 years and have never had an accident, chances are you won’t have one now.  If there is a new driver in the house you may want to keep the collision coverage for a while.

2.      The value of the car vs. the cost of the coverage.  If you have a car that is still worth $20,000 you may feel that paying $400 for collision coverage is okay.  However, if the car is only worth $5,000 you may feel differently.

3.      Your ability to absorb the loss.  We have customers that buy brand new cars but refuse collision coverage because the cost of the car is peanuts to them.  We have other customers driving fifteen year old rust buckets that keep the collision coverage.  Most of us are in the middle and need to make our own decision on this.

Ask yourself all three of these questions and make a judgment based on your answers.  If you have never had an accident, drive a bomb and can afford to replace it without insurance money, it may be time to let the collision coverage go.  If you drive a nice car, crash all the time and have no money, keep the collision!

In my own case, I thought it out like this:  My 2010 Subaru is worth $16,000.  My collision premium is only $260 per year (with a $1,000 deductible).  I don’t crash but I have been hit twice while my car was parked.  So, even though I could financially handle replacing the car, I am keeping collision coverage for another year or so.  Oh, also, there is another driver in my household (I am not mentioning any names) that makes me kind of nervous when she gets behind the wheel.

Thank you all for taking time to read this article.  Please contact me with any questions or comments.

Lan Rice

Lan@prkinsurance.com