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Best of: When Should You Drop Collision Coverage?

Posted by Allison Ruuska on 12/31/2007 at 1:00 PM

Many people with newer cars keep collision coverage on their policies, but they also may not know when or if they should drop this coverage. While there's no set rule for determining whether collision coverage becomes unnecessary for your particular situation, there are some simple considerations to make if you're debating whether or not you should keep it on your policy. We've outlined them here.

 

What's your vehicle's actual cash value?

This is one of the easier things to determine because you can find several sources that will provide actual cash value (ACV) estimates online or through publications. Common sources for ACV estimates are N.A.D.A. Guides, Kelley Blue Book and Black Book. These will give you a good idea of what your vehicle is worth.

If you're not sure which source to use, you can contact your insurance company to see how its claims department determines ACV in your area. Often, one of these guides is used by claims representatives to establish a vehicle's ACV.

Remember to be realistic about the condition of your vehicle to get a realistic ACV estimate. If your vehicle has dents, sun damage, torn upholstery, etc., these may lower your vehicle's ACV.

How much do you pay for collision coverage?

Factor in the price you pay for collision coverage. If your collision premium is $250 for a six-month policy term, you're paying $500 per year to insure your vehicle against damage that may never happen. For your situation, is the cost worth the potential risk?

If your vehicle is worth $2,500 and your collision premium is $500 per year, you're paying 20 percent of your vehicle's value for one insurance coverage.

On top of that, the most you'd receive in a total loss settlement would be $2,000, and that doesn't factor in the amount you're paying for collision coverage. Should you keep collision at this point? Well, it depends on your personal situation — more on that later.

Keep in mind that collision premiums generally decrease as your vehicle ages, so the cost for collision coverage may be less next year than it is this year.

What's your collision deductible?

What deductible did you choose when you added collision coverage to your policy? Did you select a $500 deductible? $250? $1,000? It is important to consider the amount of your deductible because, if you ever have to use collision coverage, you'll be responsible for paying that amount out of pocket.

If you selected a $500 collision deductible and you pay $250 every six months for your collision premium, you could be paying $750 out of pocket to have and use collision coverage for each policy term, so consider what you're able to handle financially. Would the amount paid by your insurance company help you after you've paid your deductible?

What can you afford out of pocket?

Sit down and think about what's best for you, right now. If you're living paycheck to paycheck, a $500 settlement from your insurance company may be exactly what you need to replace a totaled car. However, if you've amassed a pretty comfortable financial nest, you may be able to afford $5,000 or more out of pocket.

Before you decide, also consider more than just money factors. If you drop collision coverage and have to replace your vehicle unexpectedly, are you able to spare the time it takes to shop for a new car? If you're without a car for a few days, will you be able to get to work or other scheduled engagements without your vehicle? Is a rental car feasible until you find a new vehicle?

What services or options would you forfeit if you drop collision coverage?

Finally, consider what else you're bypassing by dropping collision coverage. If you don't have Collision coverage, will forfeiting options for other coverages affect you negatively? For instance, if you have a Progressive policy and you drop Collision coverage, you won't be able to purchase Rental Reimbursement coverage.

Progressive offers our time-saving concierge level of claims service to policyholders who use their Collision or Comprehensive coverage for a claim in areas with claims service centers. Those who've used this service applaud the efficiency of it, since all they have to do is drop off their vehicles at a service center. Progressive handles the repairs, including estimating damage, delivering the car to the body shop and bringing it back when it's ready. Rental car offices are on site, too, which means you don't have to travel to another location for a rental. Without Collision or Comprehensive coverage, however, the service is not available to policyholders.

So, both time and money are factors to consider before you drop collision coverage.

Should you keep collision coverage or drop it?

Your personal situation purely drives this decision. If you have a $1,000 collision deductible on a vehicle that's worth $1,000, you're basically paying for insurance that's not going to pay you when you need it. Some people choose higher deductibles because the premium is lower, which means up-front costs are lower. Think about this before making your decision. Focus on what you can handle, including time and money considerations, before you decide. You may be surprised at what you discover.

The information in this blog may vary based on your particular state or situation. Always refer to your insurance policy for your specific coverages.

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Comments

I have always been impressed with Progressive's outstanding customer service. As a college student, finances are always a top priority for me since sometimes I am living paycheck to paycheck. I highly applaud their efforts here for fairly informing the public about all the sides to consider when purchasing collision insurance. Well done Progressive and as a loyal customer I am happy to see you making this information available.
Posted on 5/9/2012 at 4:57 AM by Samantha
@Samantha: Thanks for the compliment! Glad we could help!
Posted on 5/9/2012 at 9:14 AM by Progressive
The question i have is, if im in a collision that isnt my fault, do i have to pay the deductable?
Posted on 6/4/2012 at 4:02 AM by branson
@Branson: With most collision claims, you’d be responsible for paying the amount you chose as your collision deductible. If you'd like, you can change your deductible; generally, this doesn't change your premium much. For more information, call us anytime at 1-800-776-4737.
Posted on 6/7/2012 at 9:08 AM by Progressive
If an automobile is totalled can progressive still provide rental for the time it takes to purchase a replacement automobile?
Posted on 8/6/2012 at 12:58 PM by Nate
Hi, What is deductible comprehensive in Customaization. Thanks D
Posted on 8/6/2012 at 3:39 PM by Dinesh
Not Happy. I have been a "Loyal" Progressive customer for a about 6 years for our 3 cars, 2 adults, no accidents, no tickets or claims. JUST GOT A HIKE OF $242 / YR - time to shop around. Customer service says "all Wis. policyholders will get similar HIKE." But in this economy???
Posted on 9/10/2012 at 11:44 AM by m schuetz
I recently financed this honda accord 01 and i dont know of what insurance company would best fit my pocket
Posted on 1/19/2013 at 2:38 AM by mayki
If I never made it to get the estimate from the progressibe claims center but did file claim when the accident happened, can I be reimbursed for repairs I paid for ouy of pocket?
Posted on 4/7/2013 at 6:08 AM by Eva And The Fam Bam

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