Should I buy collision insurance? Many car owners ask themselves this question -- especially if their cars are relatively old and do not have a loan balance remaining. Various insurance and financial experts have differing opinions when it comes to the topic of collision insurance.
Collision Insurance Explained
Collision insurance is designed to cover the cost of repairing your car if you are involved in an accident. This coverage will also pay the fair market value of your car if it's declared a total loss and therefore more cost-effective to replace instead of repairing. Collision insurance does not cover the cost of repairing any other vehicles or property involved in an accident.
Collision insurance is usually considered an optional insurance, and this is why the question of "Should I buy collision insurance?" often arises when car owners review their insurance coverage options. In an attempt to lower the cost of premiums, many people consider raising their policy deductibles and eliminating collision coverage.
Should I Buy Collision Insurance for a New Car?
Most insurance advisers agree that collision insurance is an essential coverage for new cars. The same advice is usually given for cars with a good amount of value still attached to them. Some finance companies require borrowers to keep collision insurance as long as the loan remains intact.
It's a sound financial decision to have collision insurance coverage for a car that you still owe money on, but if you are considering skipping it make sure your get approval from your finance company.
Keep in mind that your finance company has a say in how much insurance coverage you carry on the vehicle as long as you have a loan intact.
An older car that does not have much value attached to it may not need collision insurance, but it depends largely on your comfort level. Many people would rather carry full coverage regardless of the fair market value of the vehicle because they want to be covered no matter what the circumstance. On the other hand, if you take a look at the total cost of the monthly premiums associated with the collision insurance and then compare it to the replacement cost of an older car you may find that it's a better financial decision to skip collision insurance entirely.
Consider a car that has a fair market value of only $2,800. Instead of paying a monthly premium for insurance that will give you $2,800 if the car is totaled, you could put that money into an interest bearing savings account and use the money to purchase another car when the time comes. In the meantime, you'll earn interest on the money instead of sending it to an insurance company every month.
Fair Market Value Information
You will want to find out the fair market value of your car in order to reliably determine whether it makes financial sense to keep collision coverage or if it's a better monetary decision to skip it altogether.The fair market value of your vehicle is determined by several factors, including:
- The year, make, and model of the vehicle
- The mileage on the car
- The condition of the car
- Extra features on the car, such as a sunroof or leather interior
The fair market value of your car is different from the trade-in value. To find out the fair market value of your car, check out a reliable source such as Kelley Blue Book online.
If you are trying to trim monthly expenses by lowering your insurance premium you need to keep in mind that some states have minimum insurance regulations in place which dictate how much insurance coverage drivers must have at all times. Although collision insurance is usually considered an optional coverage, be sure to check with your local Department of Motor Vehicles to make sure that the changes you plan to make with your car insurance policy does not go against state law.