This is how you decide whether you still need collision insurance for a car

It doesn’t matter how old your car is, you need collision insurance if you have a car loan or lease. But what if you don’t lease your car and your loan is paid off?

Collision insurance is not required by law in any state, but it can provide valuable coverage if you have an accident. Whether or not it’s worth the price will depend on multiple factors, including what you can afford to pay for repairs, the value of your car, how much it would cost to repair, and more.

In this article, we’ll show you a few things to consider to help you decide whether collision insurance for an older car makes sense. But first, let’s see how it can protect you.

Why is collision insurance important?

Collision insurance can help cover the repair or replacement costs of the vehicle if you are involved in an accident with another car, are hit by an uninsured driver, roll your vehicle or collide with a fixed object such as a telephone pole or mailbox. But if you have an accident and don’t have collision coverage, the insurance company won’t help. You have to pay out of pocket to repair your car.

Also see: Do you think your home is fully insured against hurricane damage? Beware of these policy loopholes

How much coverage do I need?

When you buy collision coverage, you don’t select policy limits like you do for liability coverage. Instead, the insurance company agrees to reimburse repair or replacement costs up to the actual cash value of your car at the time a covered incident occurs.

For example, if you have an accident and your car is worth $17,000, they will pay up to $17,000 in repairs (minus your deductible). But if the car is only worth $5,000, they’ll pay up to $5,000 in repairs (minus your deductible).

When do you have to get rid of collision insurance?

It can be difficult to decide whether to stick with collision coverage. And you may be surprised by the things that shouldn’t necessarily influence your decision.

“Age was a factor. Mileage used to be a factor. But some cars retain their value,” said John Espenschied, owner of the agency, Insurance Brokers Group. So that’s no longer a good way to decide whether to keep collision insurance on an older car.

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For example, if your car is 10 years old but still worth $10,000, it’s probably worth paying a few hundred dollars a year for collision coverage. On the other hand, if it’s seven years old and only worth $3,000, it might not make sense to have a collision.

Run the numbers

If you keep your car long enough, there comes a time when you have to ask yourself whether maintaining collision coverage is worth the cost you have to pay for it, year after year. And don’t forget your own risk.

If you need to make a collision claim, you must pay your deductible before your insurance coverage starts. When the cost of the premium plus your deductible is close to the value of your car, it may not be worth having more.

For example, let’s say your collision coverage has a deductible of $1,000 and your premium is $400 per year. If you have to file a claim, you will pay a total of $1,400 out of pocket. If the value of your car is $2,000, the insurance company will pay up to $1,000 for repairs ($2,000 value – $1,000 deductible). In that case, collision coverage probably isn’t worth it.

Also see: The States Where Auto Repair Is Most Expensive

But let’s say instead of $2,000, your vehicle’s value is $7,500. In that case, the insurance company will pay up to $6,500 ($7,500 value – $1,000 deductible) for repairs. So it’s probably worth paying the premium for the extra protection.

How do insurance companies determine the value of a car?

If your car is totaled in an accident and you have collision coverage, the insurance company will reimburse you for the actual cash value of the vehicle immediately before the accident. To determine the value of the car, insurers look at multiple factors, including the make, model, age, mileage, options and wear.

Espenschied says most settlements go smoothly, but if you’re not happy with the insurance company’s offer, he recommends negotiating. “You want to make sure you are assessing the value based on the features or options you have on that car. And look at the retail prices on the spot.”

If you can’t buy a comparable car in comparable condition for what the insurance company is offering, let them know. And explain what similar cars are sold for in your area. To find out the fair market value of your car, check out KBB’s tool which allows you to enter the year, make and model of your car.

Also see: Why you might not make it to the next gas station?

The point of negotiation is not to get a Lamborghini to drive your Ford, F,
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it is to make you whole again. If you cannot come to an agreement, let the insurance company know that you would like a third party valuation.

“Most personal auto policies have a review clause that says the insurance company should hire a third-party appraiser… to show how they get to [the settlement amount]Espenchied said.

How much does collision insurance cost?

The average cost of collision coverage is nearly $300 a year, according to the Institute of Insurance Information. But insurance companies determine the premiums on a case-by-case basis. And costs can vary significantly based on multiple factors, including:

  • Year of manufacture, make and model of the vehicle

  • Repair and replacement costs

  • Availability of replacement parts

  • Your age

  • Where do you live

  • Much more

According to Espenschied, one of the biggest factors influencing your collision premium, in addition to your age and vehicle type, is your credit score.

“Credit goes to the responsibility of the individual. They proved that [a lower credit score] is one of the factors of inattentive driving.”

“If you think your rates are on the high side, I recommend that you shop around at least every few years. Don’t feel obligated to stay with any particular company. All carrier rates go up and down [over time]Espenchied said.

This story originally ran KBB.com.

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