Do I Need Collision Insurance If My Car Is Paid Off? - Kelley Blue Book

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collision insurance and when to drop

If you have collision coverage, it can help pay for vehicle repairs if you’re in an accident or hit a stationary object, such as a mailbox or fence.

Lenders typically require it, but it’s optional if you don’t have an auto loan or lease. So, how do you know if you need collision insurance once your car gets paid off?

It depends on the current market value of your vehicle, how much you can afford to shell out if your car needs repairs, and how much risk you’re willing to take by driving without it.

What is Collision Insurance?

Collision insurance helps pay for car repairs after a crash, whether that crash occurs with another car or the sign at the end of the street. Here’s how it works.

Collision coverage has a deductible that must get paid before the insurance company will cover any repairs. Deductibles often range from about $250 to $1,500. When you purchase a policy, you get to choose the amount that’s right for you. Increasing your deductible typically lowers your premium and vice versa.

After you pay the deductible, the insurance company will reimburse you for the cost of repairs — up to the current market value of your vehicle. If the cost to repair your vehicle exceeds the current market value, the insurance company will declare it a total loss and write you a check for the market value, minus your deductible. You can use the money from the insurer to help buy a new car.

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How Do I Know If I Need Collision Insurance If My Car is Paid Off?

If you’re still paying off your auto loan or lease, your lender will probably require you to have collision insurance because it helps protect their investment if the car gets totaled. But if you own your car outright, you get to choose whether to carry it.

The market value of your vehicle is one of the biggest factors to consider when deciding whether having collision coverage is worth it. Not sure how much your car’s worth? Check out Kelley Blue Book’s car valuation tool, which shows you the current market value of your car. After selecting your car’s make and model, you can choose trim levels and other options for more accurate pricing.

Once you know how much your car is worth, you can decide whether it makes sense to pay for collision coverage. If your car is only worth $1,500 and you have a $1,000 deductible, paying the additional premium to keep collision coverage doesn’t make sense. The most you can get from the insurance company after a covered incident is $500. But if your car is paid off and worth $10,000, spending a few hundred dollars a year for collision coverage makes sense since the insurer would reimburse you for up to $9,000 in repairs.

When deciding whether to keep collision coverage, you’ll also want to consider how much you can afford to pay for repairs and how much risk you’re willing to assume by driving without it.

How Much Does Collision Insurance Cost?

According to the Insurance Information Institute, the average cost of collision coverage is about $290 per year. But the price can vary significantly based on multiple factors, including your age, the type of vehicle you drive, your driving history, where you live, and many more.

To find out exactly how much you would need to pay to get collision coverage for your vehicle, you’ll need to get an insurance quote. Policy costs can vary widely among insurers, so it’s a good idea to get pricing from multiple insurance companies before purchasing coverage. Shopping around may save you hundreds of dollars.

What Happens If I Don’t Have Collision Insurance?

If you don’t carry collision insurance, what happens will depend on several factors. If you’re in an accident and another driver is at fault, their insurance company should pay for the damage. But if you caused the accident or the police can’t determine who is at fault and you don’t have collision coverage, you’ll need to cover the repair costs. Your insurance company won’t help pay for the damage.

Ways to Save on Collision Insurance

If you decide it’s worth it to maintain collision coverage, there are some things you can do that may help reduce the cost.

Increase your deductible. Typically, the higher your deductible, the lower your premium.
Drive safely. Drivers with clean driving records often qualify for lower rates than drivers who have moving violations.
Pay your bills on time. People with higher credit scores typically qualify for lower insurance rates.
Bundle your policies. Many insurance companies give discounts to customers who buy more than one policy.

Remember, collision insurance only covers the cost of vehicle repairs. If you’re in an accident and your car is undrivable, you’ll have to pay for towing and a rental car if your policy doesn’t cover these expenses. You may want to consider adding this type of coverage to your policy for additional protection if you don’t already have it.

Regardless of the coverage options you choose, it’s a good idea to periodically review your policy to ensure you have the protection you need if you’re in an accident.