You just made the last payment on your car loan. What a great relief that is, right? When doing this, you will now have more options with the car insurance coverage types you choose because you will not have a lender dictating what you must have. So, you might want to consider dropping the collision coverage on your car. If you are unsure if you should or not, here are some factors to help you decide.
What the Value of Your Car Is Today
When you have collision coverage, it is there to protect you against losses you can experience to your car from causing an accident. To determine if you should keep collision on your car after paying it off, it is a good idea to look up the current value of your car. Looking up the value will help you determine how much risk you are taking if you cancel the collision coverage.
Suppose your car is worth $5,000 and you totaled it. Would this $5,000 loss devastate you? If so, keep your collision coverage. If not, then canceling it might be all right.
If you find out your car is worth only $1,500, keeping collision coverage might not be worthwhile, but to find out, you should look at the cost of your collision coverage.
What the Cost for Collision Coverage Is for Your Car
Your insurance documents should list how much each type of coverage is for your car, and you should look for the line that reveals the cost for the collision coverage on your car. If this coverage costs more than 25% of the car's value for six months of coverage, then carrying this coverage is probably not worth it.
For example, assume your car is worth $3,000 and your collision coverage costs $700 for six months. This cost would be less than 25% so keeping the coverage could be worthwhile. If your car was only worth $2,500, then paying $700 every six months might not be worth it.
It is always a good idea to compare the costs of coverage to the value of a car when making the decision as to whether or not to keep the collision coverage you have.
Choosing collision coverage for a car is often the best way to go, unless the car is not worth a lot of money. If you would like advice about your car and the coverage you need, talk to an auto insurance agent.Share