Many drivers assume they can’t afford collision coverage because it provides protection in the case of an accident that is not your fault. While coverage is important, every car owner must do a cost-benefit analysis to determine whether the protection is worth it.
What situations do you need collision insurance coverage? Let’s take a look at some scenarios where collision coverage is necessary. Collision coverage is essential for protecting your vehicle, especially if it’s new. Without collision coverage, you might be stuck with a loan payment, no car, and no money to purchase another.
If you own an older vehicle with an outstanding loan, collision coverage is essential. Without collision coverage, your car may not be able to pay the loan. You would be left with a lot of debt and no other way to get to work.
Things get more complicated
It is important to have collision insurance in place while your car is still new. However, if you have an outstanding loan on your car, it can make the decision process a little more difficult. If your car is fully paid off, you should take a look at the true market value of the vehicle and decide if collision coverage is worth it.
Kelly Blue Book is a great resource for getting an estimate of the car’s value. Insurance companies use this guide to determine the value of vehicles declared total loss. Kelly Blue Book will likely be one of the tools your company uses if your vehicle is involved in an accident that makes it immobile. The guide will help you to identify your vehicle and make an honest assessment about its condition and mileage. Although you can supplement the Kelly Blue Book information with other sources such as newspaper classified ads or prices charged by local lots, it is better to stick to the lower end of the value range.
If the real market value of your vehicle is lower than $3000, then it might be time to cancel collision coverage. Before you make your final decision, it is important that you review your itemized bills to see exactly how much coverage you are paying. You should also ensure that you have the financial resources to purchase a used car or make a down payment for a new car in case your car is damaged in an accident. Dropping collision coverage is a bad idea if you don’t have enough money saved in an emergency fund.
You can save money by dropping collision coverage and build up your emergency fund. If your collision coverage costs you $150 per month for a six-month policy, you could save $300 annually by dropping it. You can protect yourself against vehicle loss if you are fiscally responsible and put aside money each month.
Each driver will ultimately decide what coverage is best for him or her. There are no two situations exactly the same and there is no set of rules that will tell you when collision coverage is not necessary. The $3000 car price is a good guideline, but it’s just that: a guideline. To determine whether collision coverage is worth the extra cost, you will have to evaluate your financial situation.