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Noyes, Hall & Allen Blog

When Should I Drop Collision Coverage?

February 3rd, 2012     Noyes Hall & Allen

This is a question our clients commonly ask. When does it make economic sense not to insure your car against collision?  Here are our slightly oversimplified rules.

“The 3 Rules of  Tens”

We’ve created these simple rules to help you consider when it’s less risky to remove collision coverage from your Maine auto insurance policy:

  • TEN PERCENT – When collision coverage costs more than 10% of the book value of your vehicle plus your collision deductible.  For example, if the book value of your vehicle is $3,000 and your collision deductible is $500, consider removing collision coverage if it costs more than $350 per year for that vehicle.
  • TEN YEARS – If your vehicle is more than 10 years old, it may no longer have enough value to warrant insuring.
  • TEN TIMES – If you have 10 times your collision premium in a “rainy day fund”, you probably have enough of a cushion to put a sizable down payment on a replacement vehicle. In the example above, if your “rainy day fund” has at least $3500 in it, you might reasonably risk dropping collision coverage. If you don’t, you would probably need the insurance proceeds to help you make a down payment on another vehicle.

When Should You Keep Collision Coverage?

There are some times when you should definitely NOT drop collision coverage:
  • You have a loan or lease on the vehicle. Your loan or lease contract requires you to carry collision coverage for the length of the agreement.
  • You have only one vehicle. Most multi-car families can limp by on one car while one is in the body shop. But, if you’re a 1-car household, you’ll probably want coverage to rent another while yours is being repaired. Also, you’ll definitely need to buy rental car insurance on vacation if you don’t have collision coverage on at least one vehicle on your policy.
  • You’re worried about being hit by an uninsured driver.  If you have no collision coverage, someone hits you and it’s their fault, their insurance will pay. But, what if you are hit by an uninsured driver? Obviously, there’s no one else to pay; if you don’t have collision coverage, you’re on your own to repair your vehicle.  Maine’s ratio of uninsured drivers is quite low: 4%. But, we’re also inundated with drivers “from away” during tourist season. Many other states have much higher rates of uninsured drivers.
As you can see, there is no single answer to the question of when to insure collision or not. It depends on the vehicle, your financial situation, how much collision coverage costs, and your  own risk tolerance.  If you live in Southern Maine and have an insurance question, call Noyes Hall & Allen Insurance at 207-799-5541. We represent many different insurance companies, and are happy to help.

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There are 2 comments for “When Should I Drop Collision Coverage?”
  • Keith Luke thinks:

    If you frequently drive in either New Hampshire or Massachusetts you should also be wary of dropping your collision insurance. New Hampshire doesn’t have the same stringent requirement that drivers cary liability insurance that Maine does, and Massachusetts is a no-fault state. Same as in divorce, “no fault” mean that regardless of the circumstances, if you are in an accident it is YOUR insurance that pays for damages – not the other driver. Even if he or she is at fault. That’s correct – if you left your car parked in a restaurant parking lot in Saugus and a drunk driver slammed into it, they would NOT be responsible for the damage to your car – your own insurance company would pay the claim, and if you aren’t carrying collision insurance, you may as well have slammed your own car into a brick wall. So – even if you are a good driver – if you travel to NH or Massachusetts on a regular basis think very carefully before dropping collision insurance.

  • Ted thinks:

    Keith, I’m not sure what you say above is true for MA. We were just in an accident, and our insurance (Amica) covered both us and the other person. I also had someone hit my car last year, and her insurance company (can’t remember which one) determined she was at fault and paid for all of my expenses. Fault is definitely determined in an accident and used for figuring out who pays, so I think you may have old information.

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