Author Topic: When to Drop Collision Coverage?  (Read 15982 times)

NICE!

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When to Drop Collision Coverage?
« on: June 13, 2012, 08:34:31 PM »
I'm seeking mustache-growers' opinions on a car insurance topic here. The basic question is this: at what point do you drop collision coverage on your car (other person running into your car, you backing into a light pole, etc)? How about comprehensive (theft, hail, etc)?

My situation is this - 2003 Honda Accord with 125k miles. No major maintenance issues yet. Using KBB plus a discount due to my car's actual appearance (no garage for 2 years), I conservatively estimate that it is worth $4k. 6 month premium on all this with a high deductible and high liability coverage is about $380. Dropping collision and comprehensive takes it down around $150 to $230ish.

Is it worth it at this point or should I wait another year or two when the car is worth less? The car will likely still be in the 125-127k mile range in a year's time, so I don't anticipate a steep depreciation.

Thoughts? I'm personally leaning towards paying the extra money for another year or two.

gooki

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Re: When to Drop Collision Coverage?
« Reply #1 on: June 13, 2012, 09:03:57 PM »
For a saving of $460 a year it's not a huge deal either way.

If your cars value is under 5x the additional cost of annual collision cover then I'd drop it (this assumes you have access to funds, to replace the vehicle outright should you have to, or alternatively be able to do without a car for a period of time)

If your cars value is between 5x and 10x annual collision cover I very much feel it's a personal choice based on your risk level and driving competency.

If your cars value is more than 10x the additional cost of annual collision cover then I think it's prudent to have it.

NICE!

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Re: When to Drop Collision Coverage?
« Reply #2 on: June 14, 2012, 04:02:21 AM »
Thanks for the inputs - looks like my numbers weren't clear enough, it would only be a savings of $300/year. I've heard the 10x ratio before, does anyone know the origin of that rule?

And yes, I'd be able to replace the car. I'd actually use the opportunity to see how long I can go without one, though. I'm considering doing it just to put myself in that situation - not necessarily rooting for my car to be totaled or stolen, but not dreading it either. I suppose that's an argument for selling it, but I might be moving to a less transit-friendly area in a year.

jrhampt

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Re: When to Drop Collision Coverage?
« Reply #3 on: June 14, 2012, 06:17:10 AM »
I may deserve to get punched in the face for this, but we have three cars (I have one, husband has two), and I handle the car insurance ($630/6 months for all three).  Mine is a 2001 Toyota Echo bought for about 5k in 2006.  It has less than 100k miles on it still, but some dings and dents.  I've never carried collision on it.  I may have had comprehensive at some point, but have since dropped it - I don't think anyone will steal it, since all my friends seem to think my car is pretty funny, but I did have to replace the passenger's side window once, and it's not really worth paying for the extra coverage.  He's got a 2005 Jeep and a 2010 VW turbo-diesel something or other.  We have comprehensive on the VW, but no collision on either one.  We haven't had car accidents in years and I guess we figure are good enough drivers that we're willing to take the risk that we won't cause one.  I thought about dropping comprehensive on the VW as well, but it's still relatively new, and if a tree branch fell on it or something it would be nice to have.

trammatic

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Re: When to Drop Collision Coverage?
« Reply #4 on: June 14, 2012, 07:07:49 AM »
Old auto insurance actuary here!

The 10x number comes from the idea that the average driver will get into an accident roughly every 10 years.  If you get into an accident every 5 years, then keep the coverage since you'll only pay half of the cost of replacement every 5 years.

That average frequency assumes average annual mileage, which is somewhere around 12k/year.  If you drive less than that, then you're less likely to have a collision loss (and an animal hit under comprehensive).  So for a MM'er who drives 6k/year, then the ratio should go higher...somewhere up to 20x.  Since you drive so little, I'd definitely get rid of collision.

The likelihood of theft or fire should be included in the rate, so you're not making up tons of ground there.  '03 Accords are a bit less likely than average to be stolen, (http://www.iihs.org/research/hldi/ictl_pdf/ictl_0904.pdf) so I'd probably lean to dropping comprehensive as well.  However, chances are that collision makes a much larger proportion of your rate...if collision is less than $100/yr or so, it might be worth keeping it if it helps you sleep at night.

One small correction to the OP: Collision does not cover other people running into your car.  If they are at fault, then it is THEIR property damage coverage that covers repairing your car.  If they don't have adequate property damage, you need either uninsured or underinsured motorist depending on your state.  In any event, collision only covers damage to your car when you are at fault.

tooqk4u22

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Re: When to Drop Collision Coverage?
« Reply #5 on: June 14, 2012, 08:40:46 AM »
Also factor in the deductible - you said you have a high deductible, if it is $1k then if your car is totaled you and only worth $4K the net to you is $3K.  Therefore, you are basically paying $300 extra for this benefit.   

Matt K

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Re: When to Drop Collision Coverage?
« Reply #6 on: June 14, 2012, 08:47:54 AM »
Old auto insurance actuary here!

The 10x number comes from the idea that the average driver will get into an accident roughly every 10 years.  If you get into an accident every 5 years, then keep the coverage since you'll only pay half of the cost of replacement every 5 years.

That average frequency assumes average annual mileage, which is somewhere around 12k/year.  If you drive less than that, then you're less likely to have a collision loss (and an animal hit under comprehensive).  So for a MM'er who drives 6k/year, then the ratio should go higher...somewhere up to 20x.  Since you drive so little, I'd definitely get rid of collision.

The likelihood of theft or fire should be included in the rate, so you're not making up tons of ground there.  '03 Accords are a bit less likely than average to be stolen, (http://www.iihs.org/research/hldi/ictl_pdf/ictl_0904.pdf) so I'd probably lean to dropping comprehensive as well.  However, chances are that collision makes a much larger proportion of your rate...if collision is less than $100/yr or so, it might be worth keeping it if it helps you sleep at night.

One small correction to the OP: Collision does not cover other people running into your car.  If they are at fault, then it is THEIR property damage coverage that covers repairing your car.  If they don't have adequate property damage, you need either uninsured or underinsured motorist depending on your state.  In any event, collision only covers damage to your car when you are at fault.

Can I click a "+1 insightful" somewhere for this? Thanks for sharing that Trammatic.

arebelspy

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Re: When to Drop Collision Coverage?
« Reply #7 on: June 14, 2012, 03:44:54 PM »
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Bakari

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Re: When to Drop Collision Coverage?
« Reply #8 on: June 15, 2012, 02:13:42 PM »
How much your current car cost, or is worth, is irrelevant to how much insurance you need.
Its a psychological trick to think of insurance in terms of the value of what is being covered.
What matters is what it would cost to replace.

If your car was totaled, would you be willing (and able) to buy a used car for $3000?  If so, thats the number to compare in your math.
Subtract the deductible, as tooqk pointed out, leaves you with $2000 of real benefit.

You are paying an extra $300 a year for the coverage.  In 6.5 years the premium is more than what it would have cost to replace it yourself.

As trammatic pointed out, collision only covers it in the event that a crash is your fault (otherwise the other person's insurance would pay). 

Based on your past experience, do you expect to total a car every 6.5 years?  Hopefully not!
Not only do you have to adjust for mileage, you also have to adjust for driving habits.  If you are less reckless than the average driver, your risk of causing a crash drops dramatically.

Of course, if you could get by without a car, that means the real benefit is $0, for which you are spending $300 every 6 months.

Maybe your insurer is different, but afaik you normally have to get comp and coll as a set, you can't have one without the other.  In which case there is no point in considering them separately.

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Re: When to Drop Collision Coverage?
« Reply #9 on: June 15, 2012, 05:18:38 PM »
Bakari, I think you've convinced me. I'm certainly willing to spend $2-4k for a used car in the (unlikely) event that I total my car. Also, I recently learned there's a good (95+%) chance I will be leaving somewhere for half a year in October and I won't be bringing my car. So basically all I'm paying for is another 4 months of coverage when I could be using that time to get myself psychologically adjusted to a lower level of insurance so I can continue it when I come back.

Trammatic, thank you for the theft information - that helps me feel more comfortable about not having protection for such an event. I also appreciate the learnin' on basic insurance facts.

Thanks for the thoughts!

adam

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Re: When to Drop Collision Coverage?
« Reply #10 on: June 20, 2012, 11:43:08 AM »
My wife brought this up the other day.  We have full coverage on her 2007 Ford Fusion (which is paid off) with a $250 deductible and pay something like $370/6 months.  I think the car is worth about $7.5k with 107k miles on it.  I told her it would probably be worth keeping the coverage for a while, but maybe looking at bumping up the deductible.