Is Collision Damage Waiver Worth It?

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You will have to make many decisions when purchasing auto insurance, one of which is whether you want to purchase collision coverage. It’s usually required if you’re renting your car or paying it off, but once that’s done you’ll have to decide if you want to keep it or drop the cover.

Collision insurance usually helps repair damage to your vehicle if you’re involved in a car accident, but it’s not always worth it. If your car isn’t worth much compared to the amount you’re paying for coverage, it may be cheaper to ditch it altogether.

Learn more about how collision damage waiver works and if it’s worth it for you.

See how much you could save on car insurance

What is Collision Damage Waiver?

Collision insurance is a type of car insurance that helps cover the cost of repairing your car after an accident, whether or not you are at fault. It covers damage caused by the collision of another vehicle or even a stationary object, such as hitting a tree or a lamppost.

It is usually purchased in addition to liability insurance, which covers property damage and medical expenses for other parties if you are found guilty of an accident.

Oddly enough, collision insurance does not cover damage caused by hitting a deer or other wild animal. It’s covered by Back to back insuranceanother type of coverage covering events such as theft, vandalism, fire, bad weather and accidents involving animals.

If you’re leasing your car or paying off an auto loan, you probably won’t have much choice about whether to pay for collision coverage. Most lenders will require you to purchase collision and comprehensive coverage in addition to liability coverage, as they still own an equity interest in your car.

Once you’ve paid it off and own the car, you can choose whether or not to keep collision damage waiver.

Point

Depending on your state, you may also need to purchase uninsured motorist insurance.

How Collision Insurance Works

As with most types of Insurance, collision coverage usually has its own deductible. This is the amount you must pay before your coverage begins. After that, your insurer will cover any further damage up to the actual value of your car and the limits of your policy.

For example, if you have a deductible of $500 and you spend $2,000 to have your car repaired after someone hit you on an icy road, your insurer will reimburse you $1,500. If you are not at fault, your insurer can cover the damage without you having to pay the deductible. Or if you paid the deductible, he can send you a check.

Warning

A higher deductible means lower insurance costs, but higher payouts.

How much does collision insurance cost?

Collision insurance costs one average of $290 per year, according to the Insurance Information Institute. It’s usually available as an a la carte option with the auto insurance you need to purchase in each state.

The actual cost of collision coverage depends on many factors:

  • Where you live

  • How old are you

  • Your credit score

  • Your driving record

  • The age, make and model of your car

  • What deductible amount you choose

For example, collision insurance may cost less for an older car than for a new car. In addition, insurance policy premiums vary greatly from one insurer to another. That’s why it’s always a good idea to shop for best car insurance every time your current policy is renewed, because you could save a lot of money if another insurer offers better rates.

Is Collision Insurance Worth It?

The truth is that collision insurance isn’t always worth the cost. You may have heard that it’s not worth carrying around for older vehicles, and that may be true, but not always. Instead, it comes down to the math, the value of your vehicle, and your personal comfort level. Here’s how to check for yourself if it’s time to ditch collision insurance.

Step 1: How much will collision insurance cost you?

We will start with a cost-benefit analysis. To find out how much it will cost you, you will need to add up two figures: your annual premium and your deductible.

For example, if your annual premium for collision coverage is $290 per year and your collision deductible is $1,000, your insurance costs, should you ever file a claim, would be $1,290.

Step 2: How much will you get for filing a collision insurance claim?

Then we will calculate your potential benefits. To do this, you will need to subtract the amount of your deductible from the actual current value of your car.

It’s not necessarily what you paid for your car; this is how much your car is currently worth today if you were to sell it. It’s a good idea to check the value of your car from a few resources to get a good idea of ​​its value, such as Kelley’s Blue Book and Edmunds.

For example, if the actual cash value of your car is $5,000 and your collision deductible is $1,000, the maximum payment you will receive in the worst case of an accident, such as a total loss, would be around $4,000. This is the “benefit” part of the cost-benefit analysis.

Step 3: Compare the cost of insurance to the potential benefit

To see if the calculation works, compare the cost of insurance you calculated in step one with the insurance benefit you calculated in step two:

  • If the cost is greater than the benefit: Collision insurance is not worth it. You will pay more for the insurance than if you were to file a claim.

  • If the cost is less than the benefit: Collision insurance can be worth it. In the worst case, you will receive a larger cash payout than what you put into the system.

Continuing our example, you would pay $1,290 for collision insurance and if you were to file the maximum claim allowed for auto repairs, you would recover $4,000. In this case, it’s probably worth getting insurance, as you’ll potentially get more than you pay for.

Step 4: Consider your comfort level and savings account

It’s good to know the numbers behind big financial decisions, but it’s also important to consider how much savings you have and even how you feel.

For example, if your collision insurance costs are $2,000 and your maximum benefit is $2,100, then you can only save $100. And even then, that’s only if you were to file as many claims as possible.

In that case, is it really worth paying $2,000 for collision damage waiver just in case you could save $100? What about $500? $1,000? $5,000? The answer depends on your personal comfort level and what you have in your emergency fund to pay for auto repairs not covered by insurance.

How to save on collision insurance

There are several things you can do to reduce your collision insurance premiums. Here are some ideas:

  • Drive carefully. The more bumps you have on your driving record, the more your insurance will cost you. Drive carefully and you will be rewarded in many ways.

  • Compare the prices. Different auto insurance companies charge different rates for each type of auto insurance. Get quotes from as many companies as possible or find an insurance broker to do the shopping for you.

  • Look for discounts. Most car insurance companies offer many discounts that could save you money. Be sure to ask about these discounts when getting a car insurance quote.

  • Boost your franchise. The higher your deductible, the lower your premium, but remember that this still affects your total insurance costs if you need to file a claim. Most financial experts recommend choosing the highest deductible you can afford to pay out of pocket.

  • Work on your credit score. Car insurance rates are often tied to your credit score. If you work for increase your credit scoreyou’ll also save money on insurance costs and other financing costs.

  • Reassess your insurance needs at each renewal. You may be paying for collision damage waiver today, but when you go to pay your bill next time, the math may have changed. As with researching new insurers with each renewal, check that your current coverage still makes sense.

FAQs

Is it better to have comprehensive or collision insurance?

One is not necessarily better than the other. They are both useful in different cases. Collision insurance helps protect your car from damage caused by an accident, except for collision with deer and other animals. Comprehensive insurance helps protect your car against non-accidental damage, such as falling trees, weather events, and wildlife.

What is a franchise?

A deductible is the amount you must pay before your insurance takes effect. For example, if you have a $500 deductible and you end up with a bumper that costs $1,500 to repair, you will pay the first $500 and your insurance will pay the remaining $1,000.

Is it bad not to have collision insurance?

Not necessarily. If you have a paid-for car and the amount of money you would get from a claim is less than what you would pay to have collision coverage in the first place, it’s not worth it.

At the end of the line

Collision insurance is not always required, but about 80% of drivers purchase it along with comprehensive insurance. If you’re concerned about the cost of repairing your vehicle if you’re involved in an at-fault accident, it might be worth transporting it. And if your car is financed, you are required to do so. It all depends on the market value of your vehicle and your personal preferences.

No matter what type of coverage you’re looking for, be sure to get multiple auto insurance policy quotes so you can find the best coverage. Our list of best car insurance companies is a good starting point.

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