When your vehicle grows older, you may be tempted to lower your car insurance coverage in order to save money. After all, as the value of your vehicle goes down, you may not need as much coverage as you did before.
There are other things to consider when thinking about dropping your coverage, however—such as the value of your vehicle compared to how much repairs would cost out of pocket.
What is Collision Coverage?
Collision coverage provides compensation for damages to your vehicle caused by a collision with another vehicle or object. If you strike a vehicle or a median, for example, collision coverage can help cover the damages.
So when is the right time to drop this coverage?
Well, that depends.
If you have a loan on your vehicle, you may be required to carry full coverage until you pay off your car. If you don’t require collision coverage, you should calculate how much it would cost to fix your vehicle out of pocket with how much it costs to insure it. The value of a basic vehicle goes down over time, meaning it will cost less to repair or replace your vehicle as it gets older.
For example, if you purchase a new car, you could see a depreciation within the first five years by around $18,000. It may become more cost effective to save money by dropping your insurance coverage or simply lowering limits and paying for damages out of pocket.
For example, if your car insurance costs around $1,000 a year and your deductible is $1,000, and it would cost around that or less than that to replace most parts on your vehicle, you may want to drop coverage.
Be sure to speak with an insurance agent before making any drastic differences to your car insurance policy. An insurance agent can help you calculate how much car insurance you still need based on your vehicle’s value.
Also ask if there are other ways to save money on insurance.
Keep in mind that, even on an older vehicle, states require certain limits of liability in order for all vehicles to operate legally on the road. If you plan on driving, you still need to carry these minimum coverages.
In Georgia, for example, you must always carry at least:
- $25,000 in bodily injury liability per person
- $50,000 in bodily injury liability per accident
- $25,000 in property damage liability
Also Read: Why Do Insurance Companies Need to Know Who Borrows Your Car?
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