Should I buy collision insurance on an older car?

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Here's what you need to know...

  • If your car is involved in a collision with another car or object, collision insurance will protect you
  • It is always wise to go with the highest deductible you can afford to pay if your car is damaged
  • Drop collision insurance if your yearly insurance payment is less than 10 percent of the amount you’d receive if your car is totaled/stolen

Finding ways to save money in the hustle and bustle of modern life can be a daunting task. Knowing where to look is one problem; the next is figuring out how to make the most of a potential money-saving situation.

A common way to save a buck — or twenty — every month revolves around the careful evaluation of your expenditures for car insurance.

A frequently asked question that you’d be wise to consider is this: “Should I buy collision insurance on an older car?”

Compare car insurance quotes today before the collision happens!

Defining Collision Insurance

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Collision car insurance is part of physical damage coverage. If your car is involved in a collision with another car or object, this policy is the one that will protect you.

You choose your deductible (the damage amount you can pay out of pocket), and your collision insurance policy is responsible for kicking in the rest of the cost to repair or replace your vehicle.

Higher deductibles mean less of a yearly payment for your collision insurance policy.

For example, say you choose a $1,000 deductible and then get in a fender bender that ends up costing $1,200 to repair. In this scenario, you will pay $1,000 while the car insurance provider will cover $200.

On the other hand, if your car is totaled, you still pay $1,000, while the insurance company coughs up the rest of the cost for a replacement car.

Whether collision insurance is a good idea or not is a complex question that must take into account the value, age, condition, mileage, and special features of the car. The factors below will help you determine if your older car — and your wallet — will benefit from this type of coverage.

What Do You Owe?

If you still owe money on your car, regardless of its age, the reason for having collision insurance is two-fold:

  • Lien holders often require insurance on all vehicles they finance.
  • If you owe more than you would receive in the event that your car was totaled, it is cost-effective to pay for insurance covering that possibility.

The answer is also yes if you owe a lot of money, period.

If your current clunker goes suddenly and permanently immobile, collision insurance could be the difference between taking the bus and being able to buy a replacement car (either in full or with a loan for which your insurance payout can serve as the down payment).

If you have no savings in the bank and a slew of maxed out credit cards and other forms of debt, you may be presented with a catastrophic situation if a car that is not covered by collision insurance falls victim to an accident or theft.

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What Can You Afford to Pay?

It is always wise to go with the highest deductible you can afford to pay if your car is damaged. Raising your deductible from $500 to $1000 can save you a good chunk of change each year. It’s important to be realistic about the amount of money you can come up with in an emergency, though.

One wise way to ensure that you have enough cash reserves is to put the money saved by increasing your deductible into an interest-bearing savings account. Be disciplined about not withdrawing money for unnecessary expenses.

It will sit there, making money on itself, so that you have the funds you need to put toward your larger deductible if something goes wrong with your car.

When Not to Buy Collision Coverage

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You would be wise to drop collision insurance if your yearly insurance payment is less than 10 percent of the amount you’d receive if your car is totaled or stolen. In this equation, a car worth $3,000 for which you must pay a $500 deductible leaves you with $2,500 to put toward a replacement car.

If your annual payment is $250, then putting that amount of money in an interest-bearing account instead of sending it to your car insurance company might be the more fiscally responsible thing to do.

To make this determination, you need to have a good idea of what your car is worth. The approximate value of a vehicle can be determined by looking at the Kelley Blue Book Auto Market Report, which lists the average price being asked by dealers for cars of the same make and model as yours.

You can also look at the classified section of area newspapers to see what price private sellers are putting their cars on the market for.

Quotes on Collision Insurance

Shopping around for the best price on car insurance is a good idea no matter what. Experts recommend pricing out new policies every six months.

To best determine if buying collision insurance is the financially prudent thing to do, you should compare quotes online.

Finding the least expensive policy that covers your needs can help you figure out if collision insurance is worth spending money on or if it is something you can do without.

Compare car insurance quotes today!

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