The other day, I was having a conversation with one of my customers from Clifton Park who asked me when he should remove the collision insurance coverage from his 2011 F-150. This is a common question I’m asked, and the answer varies.
CAN YOU AFFORD TO BUY A REPLACEMENT VEHICLE?
The answer to this is different for everyone. If you crashed your car and determined it wasn’t worth fixing, would you have trouble financially if you needed to go down to the car dealership and purchase another car? If the answer is yes, you should probably keep collision coverage so that you could collect some money from the insurance company to help pay for the cost of another car.
WEIGH THE COST OF THE COLLISION INSURANCE COVERAGE AGAINST THE POTENTIAL CLAIM PAYOUT
The cost of the collision portion of your auto insurance policy probably isn’t much different if your car is worth $10,000 or $2,000. If you’re paying $70 semiannually to have collision coverage and the potential payout is $9,000 ($10k minus your deductible) if your car is totaled, you may think that is a good value and I’d probably agree with you. If you’re paying the same $70 semiannually to have collision coverage but the potential payout is only $1,000 ($2k minus your deductible) if your car is totaled, you may think that it’s not as appealing to have the coverage. There’s nothing saying you can’t purchase the coverage, but you should probably weigh the cost in your head to see how you feel about it.
IS COLLISION INSURANCE COVERAGE REQUIRED?
If you lease your vehicle or have a loan, collision coverage will be required. If you own your car outright, collision coverage is optional. I have a customer who has a brand-new $70k Mercedes who declined collision and I have a customer who has a ‘91 Buick who still has collision. I think the person with the Mercedes is crazy but after we discussed the significant risk they’re taking, they still decided that collision coverage wasn’t for them.
WHAT DO MOST PEOPLE DO?
You are not necessarily “most people” but, if I had to put an average, it seems a lot of people drop the collision coverage when their vehicles are 8 or 9 years old. For more information on collision coverage or any other insurance topic, please reach out to me at www.lofrumentoagency.com/contact-us/.
John Lofrumento, CFP®, FSCP®, RICP®
President, The Lofrumento Agency
Clifton Park, NY / Ballston Lake, NY