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Do I Need Collision Insurance?

Do I Need Auto Insurance Collision Coverage?

Deciding what type of insurance coverage you're going to carry is a very important component of buying auto insurance policy, and you should give careful consideration to buying collision coverage. It protects your vehicle from physical damage that involves stationary objects like poles, mailboxes or buildings, and also other vehicles.

Am I Required By Law to Have Collision Coverage?

No. State laws vary considerably when it comes to auto insurance, but there are no states that require drivers to have collision coverage - it's entirely optional.

It has to be stated, though, that even though the law does not require you to have collision insurance, if you have a loan on your vehicle, then your lender is most definitely going to expect you to have collision coverage so that their interest in the vehicle is protected. If you don't buy collision insurance on your own, then your lender will buy the collision coverage on your behalf, and add it to the balance of your loan. You can usually expect that this will be considerably more expensive than if you actually buy the collision insurance on your own.

Don't try to fool your lender - you won't get away with it. If a lender is listed as a loss payee on any vehicle on a particular auto insurance policy, then they'll receive correspondence from the insurance company. So if you don't have insurance on that vehicle, or if you cancel the auto insurance, then your insurance company will let your lender know. There's no way around it.

No Loan?

If you don't have a loan on your vehicle, then whether or not to carry collision insurance is a decision that's entirely yours. When deciding whether to carry collision insurance, you'll have to think about whether you'd be able to replace your vehicle on your own if it should happen to be in an accident. You should consider both the cost of your vehicle, and the cost of collision coverage.

What Is Your Vehicle Worth?

Obviously, if your car is soon to go to that big junkyard in the sky, you won't want to buy collision insurance - why spend a thousand dollars a year in auto insurance premiums for a rig that's worth $500 tops?

If you're in doubt as to the actual value of your vehicle, check out the Kelly Blue Book. A lot of the times, people form emotional attachments to their cars, and they believe that they're actually worth a good deal more than they really are. The Blue Book value will remove any doubt as to the worth of your vehicle, and will help you decide if it's really worth having collision insurance.

Next, talk with your insurance agent to find out how much your collision insurance is going to cost. Sometimes, if you pay for a year in advance, you'll get a discount over what you'd pay if you broke it down into monthly payments. Of course, some people are more comfortable spreading out payments, and if that's what works for you, that's fine, just so long as you know that you could end up paying more over the long run.

Consider Your Risk

How likely are you to be in an accident? Do you drive only infrequently? Have you had accidents in the past? Insurance companies consider past history as being a reliable indicator of future behavior. If you're low risk, and your car isn't worth a whole lot of money, eliminating collision insurance from your policy could save you some serious cash. And remember, you only need collision insurance if the accident is your fault.

Make the Decision

Don't let an insurance agent or anyone else make the decision to buy or not to buy collision insurance for you. Do your research, and decide what's best for your particular situation.