One of the most common questions asked of an insurance agent is “my car is older now should I drop collision coverage from my vehicle because of its age?” This is a difficult question to answer because there is no set rule, it depends largely on the individual and how they feel about taking on the risk themselves of paying out of pocket in the event their car is damaged in an accident. Remember collision coverage is referred to as first party coverage. It covers your own car in the event it is damaged in an auto accident. There are a few points that need to be considered when making the decision to remove collision coverage from your policy.
Knowing the actual cash value of your car is the first step, you can get estimates online through Kelly Blue Book or N.A.D.A. Guides. Many people say “well my car is 12 years old but it only has 60,000 miles on it, so it must be worth quite a bit”. It is important to remember that while the condition of the car is a factor in determining actual cash value, the car still may have depreciated more than you think. At this point it is important to put aside any sentimental value you may have for the car and stick to values in the Kelly Blue Book or N.A.D.A Guide.
The second factor to consider is your deductible. This is the amount that you must pay first before the insurance company makes their payment. Carrying a high deductible is a big factor in deciding if you should continue to carry the coverage at all. If you carry only a $250 deductible and are satisfied with the premium you are paying it may worth carrying collision on older vehicle. Conversely if you have a $1,000 deductible and the car is only worth $1,500 you may not want to keep collision. The amount of premium you pay for the coverage is often an overlooked factor in deciding if you should keep collision. If your car’s collision premium is expensive you need to weigh that as well.
Finally, I think it is important to consider your driving history and habits and try to determine your own risk of having an accident. An accident can happen to anyone at any time. However, if you have had a few claims in the past years or you drive many miles in highly congested traffic conditions or in a large city you may want to keep the coverage on a little longer. If you drive 3 miles to work each day on back roads your risk is considerably less.
The following is a quick example of the general thought process of determining whether to remove collision or not.
The blue book value of a 2000 Ford Taurus with 125,000 miles on it is about $1,600.00; this is the most you will get in a claim settlement. Now considering a deductible is $500 and the premium (for example) costs another $175 per year you are looking at a net gain of $925.00 ($1600-$500-$175) by carrying collision. If you think your risk factors are moderate or low, it may be worth removing the coverage.
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