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Is collision coverage a necessity for me? This is a question many people ask themselves when thinking about their car insurance options. Most people will choose to keep collision coverage on their auto policy if they have a newer vehicle, but do you know how to determine when it becomes uneccessary? Here are a few simple items to consider that will help you make an educated decision.
What is the Actual Cash Value of your vehicle?
One of the easiest things to determine is a solid estimate on what your vehicles ACV, or Actual Cash Value is. There are multiple sources that you can use to help determine this, such as KBB, Black Book, and NADA Guides. These will all give you a good idea of what your ACV is, and most likely, are the tools that your insurance company’s claims department uses.
It is important to be truthful when estimating your vehicles Actual Cash Value. Take into account any dents, damage, wear and tear, or mechanical issues your vehicle may have, as these items may very well lower your ACV.
How Much Does Your Collision Coverage Cost?
Is the cost of collision coverage worth the potential risk? In many cases, you are protecting your vehicle against damage that may never happen. You can easily factor the cost of collision and it’s value. If your vehicle is worth $3,000 and you pay $750 per year for a collision premium, you’re paying 25 percent of your vehicle’s value for one insurance coverage.
Take into account the fact that the most you would receive in a total loss settlement would be $2,500. And that doesn’t event account for what is being paid in collision coverage.
One thing to keep in mind is the fact that collision premiums typically decrease as your vehicles age, so your cost may go down the following year.
Deductibles Matter Too
It is important to consider the amount of deductible you chose when signing up for your collision coverage. Do you know what yours is? $250? $500? $1,000?
If you have a $750 per year premium and a $500 deductible, it will now cost you $1,250 out of pocket annually to have and use collision coverage. Does the amount paid out by your insurance company help after your deductible has been paid?
What Can You Afford?
What works the best for you? If you live paycheck to paycheck, a $750 settlement from your insurance company might be just the thing you need to replace a totaled car. However, if you are financially stable and have a nice savings built up, you might be able to afford $5,000 or more out of pocket.
What Else Will You Lose If You Drop Collision Coverage?
Some insurance companies allow you access to coverage options that are dependent on others. For instance, one insurance company may not offer rental reimbursement if collision coverage is not carried on your policy.
It’s important to check with your agent to see what you could potentially lose if you drop or forfeit your vehicles collision coverage.
So, What’s The Answer?
This decision is one that is unique to every personal situation. Your financial stability, vehicle type and age, and other factors will help influence your decision on this. If you have a $1,000 deductible for collision on a vehicle that’s worth $1,000, you’re essentially paying for a premium that won’t help you when you need it. Carefully consider your individual situation while making your decision. Please feel free to contact O’Quinn Insurance Services with your auto insurance questions.