We all know car insurance is required but when it comes time to buy it, all cars – and all drivers – are not created equal. Different amounts of insurance are needed for different times in your life, and minimum requirements will vary depending on what state you live in.
One important – but sometimes confusing – aspect of car insurance is collision coverage. Collision insurance is designed to cover the repair or replacement costs in case you’re in an accident, whether it involves another driver or running into a stationary object, like a tree or a fence. It can also be helpful in cases when your car is hit by a driver with insufficient insurance.
Although collision insurance is not required by law, if you’re buying or leasing a car you’ll typically be required by the lending institution to purchase both collision and comprehensive coverage. When the car loan is paid off, you can decide to keep or drop your collision coverage.
Know your insurance needs
Just because you’re no longer required to carry collision insurance doesn’t necessarily mean you shouldn’t.
Factors to consider when deciding if you still need collision coverage include:
- How much does the insurance cost you? Typically, collision coverage costs a few hundred dollars every year. If you have had several accidents on your driving record you may be paying even more. To help make your decision, look at how much you’re spending on the coverage.
- Can you afford to repair or replace your car? One of the benefits of collision coverage is it will pay for those major repairs. All it takes is one accident to disable your car and leave you with repair bills. If you’re not in a financial position to take on those repairs out of pocket, you probably need to maintain your coverage.
- What’s at risk? The cost of replacing a car goes beyond the actual dollar amount of repairing it; there’s also the disruption created to your daily life as you work through the repair or replacement process. Remember that you’ll need to make sure you have enough money to repair or replace your car because your insurance company won’t be able to help you if you do not maintain collision coverage.
Decide how much coverage to buy
One way you can lower the overall cost of buying collision coverage is by carrying the highest deductible that fits your budget. If you plan to use collision coverage only for major damages, you may want to consider setting the deductible higher, which will help lower the cost.
Your best plan of action is to research your costs and weigh your options, then talk with your insurance agent about your overall coverage and what is best for your particular situation.