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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?
- 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.