Unless you live in Virginia or New Hampshire, where auto insurance is not required (but definitely recommended), premium payments are a fact of life for most drivers. While insurance is a necessity if you wish to drive, it doesn’t mean there aren’t ways to shrink its burdensome cost. One such way to reduce your premium is to consider dropping your auto policy’s collision coverage.
In the event you collide with another vehicle or object, such as a light pole or mailbox, collision insurance coverage will pay for the cost of repairs. If you have a loan on your vehicle, your lender will likely mandate this coverage. However, this is optional coverage if you own your vehicle outright.
It is important to note collision coverage differs from comprehensive coverage. Comprehensive provides coverage for events outside of your control, including theft, acts of God, or striking a deer. It is common to also consider dropping comprehensive if you decide to eliminate your collision coverage.
Although there isn’t a hard and fast rule to guide us as to when to drop collision insurance, many financial and insurance experts suggest applying a 10% rule. The advice states drivers may want to consider dropping collision coverage when its premium exceeds 10% of the vehicle’s value.
For example, let’s assume your automobile is valued at $6,000 and your policy includes a $500 deductible. If your vehicle is totaled your insurer would pay you $5,500 ($6,000 less deductible). Therefore, if your collision premium is $550 or more, you may want to consider dropping the coverage.
The 10% rule of thumb works well for most automobile owners. But there are other considerations which may lead you to ditch the coverage. If you drive very infrequently, have sufficient savings to cover any damage, and drive in exceptionally unpopulated areas, you may find the cost of collision insurance isn’t justifiable. Like any financial decision, ultimately the right choice is the one that fits your needs. And remember needs do change over time, meaning that what you decide today should be evaluated on a regular basis in the future.
If you are questioning if you still should have collision on your auto policy, or if you are looking for ways to reduce your insurance costs, give us a call. We can help you review your options and determine what is best for you.