This is a question our clients commonly ask. When does it make economic sense to drop collision coverage from your auto insurance? Here are our slightly oversimplified rules.
“The 3 Rules of Tens”
It might be helpful to consider three things when evaluating the risk you take when you 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. If you pay $350 a year for collision insurance and your “rainy day fund” has at least $3500 in it, you might reasonably risk dropping collision coverage. If you don’t have that much saved, you would probably need the insurance proceeds to help you make a down payment on another vehicle.
The Risk of Removing Collision
- Hitting someone when you are at fault – or partly at fault
- Someone hits your car, and is at fault, but doesn’t have insurance (or enough insurance)
- Someone hits your parked car and doesn’t leave a note.
- Running over debris in the road and damaging your car
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 4%. That’s among the lowest in the country. But, we’re also inundated with drivers “from away” during tourist season. Other states have many more uninsured drivers.