When to Drop Collision Coverage on an Older Vehicle


You have the option to purchase collision coverage when you buy car insurance. Collision coverage is unique in that it covers your car and only your vehicle in the event of an accident. Liability insurance covers damage to another driver’s vehicle if you are responsible. This type of coverage is mandatory. Collision coverage is a great way to save money if you’re in an accident that causes expensive repairs. Collision insurance may become less valuable as your car ages and could end up costing more than you are worth.

How Collision Coverage Works

Collision coverage covers the cost of repairs up to the vehicle’s total value, less your deductible. Collision insurance is priced at a monthly premium, just like other car insurance. You have two options: either a higher monthly premium or a higher deductible. Higher premiums will result in a higher monthly cost, but you won’t have to pay much extra if your car gets damaged. You will be paying a lower monthly rate if you have a higher deductible but you will need to pay more to cover any repairs.

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A higher deductible is a good choice if you have enough money and feel confident you will not be in an accident. If you don’t have a lot of savings, it might be a good idea to opt for a higher monthly premium to ensure that you won’t suddenly be forced to pay a large amount of money if you are involved in an accident.

Why drop coverage on older cars?

As your car ages, its value decreases. The value of your collision insurance also decreases. Let’s say you have a $10,000 car with a relatively new engine and it is only a few decades old. Monthly premiums for collision coverage are $40 per month, which is approximately $480 per annum, and there is a $400 deductible. Your insurance company would pay $3,600 for repairs if you were in an accident that caused $4,000 worth of damage. It may be worth paying a few hundred dollars per year to have your damages covered in the event of an accident.

Let’s take another example. Your car is 10 years old and only worth $2,000. With the same $400 deductible, you still pay $480 per annum for collision coverage. If your car sustained $4,000 damage in an accident, your car will likely be declared totaled. The insurance company will pay $1,600 to repair the car ($2,000 car value plus $400 deductible), even though it would still cost $2,000 to fix. If your car is only worth $2000, you would lose a lot of the coverage value. You may lose a lot of the value of your collision coverage on a car worth only $2,000.

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The owner can decide to end collision coverage. You may choose to keep the coverage if you are insecure about it, even if you have an older vehicle. Your collision coverage could end up costing you more in the long-term than it’s worth once your car is no longer of any value. If you are in an accident, it is worth looking at the car’s current value and comparing it to the cost of repairs. Dropping collision coverage can save you hundreds, or even thousands of dollars if the repair costs are likely to exceed the vehicle’s value.