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Car Insurance: When to Think About Dropping Your Collision Coverage

by Amy Walters

If you feel that the cost of auto insurance is becoming a burden, it may be time to think about dropping your collision coverage. Collision is the coverage that will repair or replace your car in the event you get into an accident, whether it’s your fault or not. It is often the most expensive part of insurance coverage.

Before you call your agent to cancel, it’s important to make sure that you’re making the decision that is best for your unique needs.

How Much Is Your Vehicle Worth?

Suppose your car is worth $2500 and you’re paying $250 per month to keep your collision coverage. In 12 months, you will have paid out $3000, more than the car is worth. Rather than spending the money on collision coverage, it might be wise to put that monthly $250 into a savings account which you can use towards the purchase of another car.

Will Canceling Collision Affect Other Policies?

Before canceling your collision policy, check with your insurance agent to make sure that other policies you have with the company will not be negatively affected. Some insurance companies, for example, won’t allow you to take out rental or home owner’s insurance if you don’t have a collision policy with them.

Do You Still Owe Money on the Car?

If you still own money on the car, the lender usually will not allow you to cancel collision coverage in favor of liability-only insurance. If you drop your collision coverage, most banks will purchase replacement coverage ̶ at far more expensive rates ̶ and add the balance to your monthly payments.

How Often Do You Use Rental Cars?

If you use rental cars on a regular basis, you might want to consider keeping your collision coverage. Collision coverage protects you should anything happen to the rental car while it is in your possession. The alternative is to purchase the insurance offered by the rental car company, but this can take a hard hit on your wallet.

How Many Cars Do You Own?

If your family depends on only one car to get around, you might want to think twice about canceling your collision coverage. This is especially true if you do not currently have the funds or the credit to finance or buy another car and if you rely on your car to get you to and from work.

What Are Your Alternatives?

One quick way to lower insurance premiums is to increase your deductible, or the amount of money you have to pay out-of-pocket before your insurance coverage kicks in. Again, consider the value of your car. If your car isn’t worth $1000, then there’s no point to having a $1000 deductible.

The cost of car insurance can get you down sometimes, even if you work for a stable company like Pool Guard Manufacturing, Wal-Mart or McDonald’s. You can lower your premiums significantly by canceling your collision coverage, but before you make that decision, be sure you’ve thought through all of the issues.

Byline: Carly is an aspiring writer who currently works for a Pool Guard Manufacturing company. In her spare time she loves writing about anything and everything. She loves that blogging allows her to share her writing with people all over the world.

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