I have a 2001 Honda CRV with 69,000 miles. The loan was paid off in January 2008. My deductible is $500.00. Should the collision coverage be dropped? What factors should be considered when deciding to keep or drop coverage?
Can you afford to do the body + mechanical repairs or replacement for your own car if it is damaged in a collision? That's the key. Body repair is expensive, and even backing into a pole can cost you well over $1K. Even good drivers can have accidents, and you just need to make sure that if an accident you cause totals your car, that you can afford to replace it, because no insurance company will in that case.
If the accident is the other driver's fault, their insurance will pay for damages to your car.
On Patriot's Day '07, we had a huge Nor'easter. I was driving thru the marina to check on our boat. As I drove thru the large metal gate a gust of wind hit the gate & blew it into the side of my Honda Odyssey Touring. The gate, in essence, harpooned itself into the rear passenger quarter panel. I was stuck on the gate unable to move forward nor backward. I had to hike thru the storm to find some guys to help get my car loose. It took 3 large men to free my van.
The damage was over $3,500!! Freak accident? Yes, but nevertheless it happened & it was expensive. If you're comfortable with either paying a large repair bill or replacing the car if should be totalled...then drop the collision coverage. If a $3,500 bill gives you the shudders...probably best to keep the coverage.
I don't believe that the insurance company will ever pay for repairs which exceed the value of your car. I assume that they use the Blue Book or similar source to determine the value. You may want to call your insurance agent and ask at what dollar point would the vehicle be totalled. I keep my cars for as long as they are reliable, so at some point, collision coverage would not be worth it.
It's true that you can easily sustain $3,000 in damages, but if your car is only worth $1,500, they'll just write you a check for $1,500.
If the "incident" was judged to be your fault ... the insurance co. won't be writing you any cheque.
I drive old cars. Don't cost much. If they were totalled .. the insurance co. wouldn't pay much.
I haven't carried collision insurance for years.
Bought a 19-year-old Mazda 323, standard tranny, good shape, a year and a half ago, $2,500.
Had an "incident" that includes appearing that I ran a red light, just about exactly a year ago. A vehicle crunched my rear wheel, driver's side, so that it tracked crookedly.
Felt that it was likely that the vehicle has a substantial number of good kilometres in it, still.
And it costs a lot of precious energy, including substantial increases in pollutants and global warming, to build a new vehicle.
Fixed the old one - cost several hundred more than I'd paid. Plus about $200. towing fee (that I'd have had to have paid, in any case).
I felt that the extra fee, that would involve only a small amount of fabricated goods, but quite a lot of labour, was largely a contribution to reducing energy use, plus warming and pollution.
It would have made more sense to have gone out to buy another $2,500. car (but not hugely so, it seems to me). But, whether I bought another or repaired mine ... I more or less paid for two cars in one year.
Another issue that no one has mentioned ... if you plan to fix your own car ... or scrap it and run around looking for a replacement ... while going to work and doing other necessary tasks ... how are you travelling?
Sticking a gun/knife in (as-of-that-moment former) friend's ribs to require him/her to drive you around?
Whichever you choose ... you pay for that, as well.
If you choose to repair ... and part way through it takes a while to source a part (which may happen somewhat more frequently with foreign-built cars ... and somewhat more freqently if you insist on using new parts) ... your vehicle may be unavailable for a few weeks.
Using a rental? Additional costs.
How much money have ya got in the account labelled "Replacement vehicle for when this one evaporates"?
How much in "Emergency Fund"?
What percentage of your total current income needs to go for pretty well essential stuff? Is a fairly substantial portion of your current income "discretionary"?
How secure is your employment? Is there a second income? How secure is that?
If your job should happen to evaporate ... what possibility of finding comparable employment (income, that is)? How soon?
How many kids ya gotta help eddicate (or self/partner at full cost) ... and how many years from now?
What if, being part of a family, one partner becomes incapacitated (or dies)? Presence or absence of dependents a major factor.
Parents to possibly need support/care for? How soon?
(How many dogs/cats to support?)
All of these, plus other stuff, as part of one's total financial picture, may affect all aspects of it (especially if one is living fairly close to the line).
Don't you think?
If you could go buy a house and come close to paying cash for it ... no problem ... agreed?
ole joyful ... personal financial advisor for over 20 years
P.S. A substantial financial cushion = financial freedom.
No cushion = next to no freedom.
Are you sure about that? My MIL just had a car accident that was her fault and for which she was ticketed, and the insurance company wrote the check for the value of her car, which was totalled.
graywings, what ole joyful was alluding to, was that if the OP dropped his collision coverage and then caused an accident, his car would not be repaired by the insurance company.
Also, this is a "no fault" insurance area - when my Taurus was crunched in the first accident, I guess that the driver of the gravel truck that was following me was judged at fault ... but for whatever reason ... it was my insurance company that wrote me the cheque for my car.
When I ran the red light - I having been found at fault - no cheques. No rental while mine was in the shop, either.
Since this is a no-fault area, and if I'm considered not at fault, as my insurance company writes my cheque, they should charge a low collision fee when they know that my car, that they might need to replace, is a cheapie.
I wonder whether anyone has pointed out to them that advantage that they enjoy? And that they should share with us frugal guys that drive cheapie cars?
Enjoy your privilege of being able to drive.
find the value of the car.
Add up the cost of the deductible plus the cost of the comp and collision coverage for two years. If the cost of the insurance is more than half the value of the car, drop it to liability.
Although insurance is mandatory in every state, not everyone has it. You may want to carry comprehensive and uninsured motorist property damage (if it's available in your state) in place of the collision. It's generally a better rate. You're then covered for anything that is NOT your fault.
drop the coverage when you can self insure for the value of your car. all insurance companies pay value of the car or repair which ever is LESS minus your deductible. if you can afford this drop it, if not keep the coverage.
Car Value: $2000
Damage from accident: $3000
insurance pays: $2000 (value
"No-fault" has to do with medical payments not property damage. in no-fault states your ins pays for your medical bills regardless of who is at fault. this is to reduce lawsuits.
if you do not have collision cov the ins does not pay your car damage. the liability portion of the policy never pays for your damage.
fyi: i am an ex claims guy.
I debated dropping my collision coverage on a 10 year old car, a 96 Camry. But I kept it because the collison coverage wasn't very expensive, about $150. a year. I totaled the car in 2006.
The insurance company (State Farm) paid me replacement value of the car including sales tax, minus my $500. deductable. They wrote me a check for over $5,800. So in my case I was glad I kept the collision coverage.
So cosider how much the coverage is costing you a year. Ask your insurance company how it figures out payment in case the car is totaled or in an accident.
I think the answer is pretty simple, when you can afford to self-insure it is probably financially worth it. Its probably easier to state as when you can afford to take the loss. If you can survive a total loss without much change in your overall financial picture, then why pay for insurance. The insurance company already did the actuary science to determine your risk, so you can just add that amount of your premuim to your savings/investments and come out of ahead (no need to pay admin and profit to the ins co.).
A 5-10k loss is alot harder for someone living paycheck to paycheck with little savings, than someone frugal with a postive cash flow and 50k in liquid savings. You can also imagine the frugal guy would save the additional money from no insurance payment, while the less frugal person would add it to disposable income. You just need figure which guy you are?
Drop it when the car is worth less than your deductible.
I had an accident that caused $4000 damage to my car (which was worth about $6000 and paid-for). No collision coverage = $4000 instant credit card debt to pay for repairs.
Not having collision coverage was a stupid gamble. I lost.
You have to consider what you have paid in premiums over the years for collision coverage. I bet that, assuming you have owned this or any car about 10 years, you paid almost $4000 for this coverage, and the money wasn't being saved by you and therefore not collecting interest. Not knowing the details of your specific situation, it is hard to crunch the numbers.
Here's a concise guide.
Here is a link that might be useful: When to drop collision coverage
I own four old cars, all running thanks to a really good mechanic. One is a "92 Sable with over 260,000 miles on it. But it's never been in an accident. My daughter, age 18, will be using it starting September to get to and from her job and the community college she'll be attending. To me, it's the ideal teen car. Big, ugly, dependable, and if she gets in an accident the body of the car will make a good cushion. Do I have collision on it? No. Its book value is probably around $500. The deductible is $500. But if she gets in a fender bender she'll be okay.
I looked up the Blue Book Value is on a 2001 Honda CRV with 69,000 miles. Of course I don't know all the details on this car but the value came up over $13,000. I wouldn't drop collision coverage on a car worth that much even if you do have enough cash money to replace it.
From my understanding, insurance companies stop depreciating a car after 6 yrs. If your car was worth $10,000 when it was 6 yrs old then for the rest of that car's life you will be paying insurance based on a $10,000 vehicle value. But if you total it, they cut you a check for the actual blue book value (minus any pre-existing damage they find).
If you can handle the risk, get rid of collision when the car turns 7 yrs old. Othewise you are paying too high of a rate.
The average person who has insurance loses. Insurance companies call that profit.
I drop the coverage usually after 5-7 years depending on BlueBook. I don't carry C&C on my 7 year old minivan which is worth $10,000 right now. That coverage costs me $300 per year if I want it.
1. I've been driving over 20 years with no tickets and no accidents. I'm low risk.
2. I bike to work, annual mileage is very low so even less risk.
3. I have several times the value of the vehicle available in a liquid emergency account, so I can afford the loss if I have to.
Also be careful out there with all these wild statements about fault and insurance. The OP is in a no-fault state like Michigan (where I live). In no fault, if you want coverage you buy it. If you do not carry C&C coverage and your car is totalled through another drivers fault, their insurance will not pay you more than the standard deduction ($500) for your loss.
Windsorbecks, thank you for trying to make me feel better :) I'm still annoyed by my financial mistake, years later! Funny how that is.
Thinking back to the numbers I crunched at the time, I remember having dropped collision about three years before my accident, saving about $800 each year. So I saved $2400 total in premiums.
But having to put $4000 on a credit card to fix the car was far more difficult and upsetting than paying those premiums would have been. It took me a year to pay it off, writing HUGE checks each month. I think the interest ended up being something like $600 total. And paying off that debt as quickly as possible set back my home remodeling/moving plans by a whole year.
I did sell the car a few years later for $4500 (Jeep Grand Wagoneer, the last year they made the old style), so maybe I sort of got some of the money back then. Although I paid $10,000 for it initially. Cars are expensive!!
I've got collision NOW, though. Learned my lesson.
My agent told me after five years drop it.
When you no longer need the car for transportation.
Here's my two cents . Have had two collisions in 30 years of driving. imagine what I've spent on insurance lol My point
Wife pulled out of drive same time as neighbor . neighbor hit pickup just behind drivers door . Looked like a fender bender until moved had actually damaged left rear wheel .
Since it couldn,t be driven was wondering how to get estimates (3 required 500 deductible . insurance co sent flat bed tow truck out and move to garage . Provided rental car and since the necessary parts were not in stock required almost 3 weeks for repair . Provided 3 visits to garage plus a final vist that I was satisfied with the repair . The rental car was both delivered to my house and returned to the agency .Gave me itemized list of what was repaired and why with emphasis on the bearings was given a one year guarantee and they contacted me 3 times after the repairs plus a checkup.
Might add that they also replaced the tire and rebalanced the others . my wife complained that the color did not quite match on the body repairs and they repainted the entire truck!! have no idea what all these services would have cost but certainly a big chunk of the premiums?/ lol anyway i'm still maintaining full coverage .
and the truck is 14 years old !!! lol
Hi Pipersville Carol (if you're still around),
If, having dropped the coverage of $800.00 annually three years ago, you'd *really* self-insured, that is, hung on to the fee that you'd paid previously, you'd have had $2,400. in savings, plus a smidgeon extra, interest rates being what they've been, lately.
As a financial advisor, I told lots of clients ... and others who'd listen ... that it would be well for them to build a financial cushion of three - six months' income, so that they wouldn't be sweating blood in about a month in case their current income disappeared. Even better, in the recent uncertain economic climate, to have nine months' to a year's income on hand.
I don't always have it myself ... but I have a (rarely used) credit card to cover the current cost, and an (also rarely used) line of credit at the bank, fully secured by stock certificates for a lower rate of interest, which I draw on to pay off the credit card debt in full at the next billing date, to avoid that 18% or so interest rate (or something like 28% if you have to use a store-issued card). Then to pay down the line of credit as quickly as possible, especially as the interest is not deductible.
I think that I wrote a post either here or in "Money Saving Tips" asking whether the readers had ever been in handcuffs. Some of the readers, knowing my rather quirky sense of humour, wondered whether they were in for some sexually-related story ... but ... many people are in financial handcuffs, lacking a financial cushion. And ... they've put them on themselves!
And if they have major debts, e.g. credit card, they're in leg irons, as well.
These are troubling times in our countries ... few have received substantial wage increases in years, and one can find almost no one to suggest that, for most of us, that's about to change any time soon.
But the prices keep going up ... and the official rate of about 2% annual rate seems somewhat suspect, if you've visited a grocery store in recent times. Few figure that such is about to change, any time soon, either.
So - we'd better get used to living on less.
Less troublesome for me, to be 85 two days from now, than for you who are younger, with more years to plan for and (most likely) live.
Good wishes for a great New Year. May it bring the fulfillment of some of your dreams ... and the envisioning of some worthwhile new ones.