How Much Are You Paying?
- Whether you should keep your collision insurance depends in part on how much it is costing you, and how much your car is worth. You can check the value of your car by using the N.A.D.A. or Kelly Blue Book websites, and then subtract your deductible to determine how much you would be paid should your car be totaled. For example, if your car is worth $5,500 and you have a $500 deductible, the most you could get from the insurance company is $5,000. Then determine the annual cost of your collision insurance by multiplying the monthly cost by 12 or the semi-annual cost by two. If you pay $250 every six months, your annual cost would be $500, or 10 percent of the maximum you could get if your car was totaled. If your annual premium is 10 percent or more, you should consider dropping the insurance.
How Much Could You Afford for an Accident?
- Even if your collision insurance costs a higher percentage of your car's value, you may want to keep if you do not have the funds to replace your car in case of an accident. When you cancel your collision insurance, you will have to pay the replacement cost out of pocket if you are at fault.
- If you have a loan out on your car, you may not be able to drop collision insurance even if you wanted to because of the terms of your loan. Most lenders require collision insurance to insure that even if the car gets wrecked, you will still be able to pay off at least a large part of your loan. Even though you might not be responsible for the accident, the responsible party might not have auto insurance and may not be able to pay, even if you win a lawsuit against that person. The financial burden will still rest on you.