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I just paid off my 2005 Chevy. The body is in good shape, and the car runs well. Should I drop my collision coverage?


Don't rush to drop collision and comprehensive coverage to save on car insurance rates until you've calculated whether this is the right move for you. Unlike liability car insurance, which is required by most states, collision and comprehensive are optional. Collision pays for repairs or replacement if the car is damaged or totaled in a traffic accident, and comprehensive pays for repairs or replacement if the car is stolen or damaged by something other than a traffic wreck, such as vandalism, fire, natural disaster or collision with an animal.

Although collision and comprehensive are optional according to state laws, a lender may require a borrower to carry both. Now that you've paid off the car, you're free of that obligation. However, that doesn't automatically mean dropping the coverage is a good idea.

First consider how much the car is worth now. It typically doesn't make sense to buy collision and comprehensive for a car worth less than $1,000, according to the Insurance Information Institute, although some other experts peg the break-off point at $2,000 to $4,000.

Also consider whether you'd be able to afford repairs or the purchase of a replacement vehicle without insurance. Even if the car is worth only $3,000, collision insurance would save the day if the car was totaled and you had no financial resources to replace the vehicle.

If you decide to maintain collision and comprehensive insurance coverage, consider other cost-saving strategies, such as raising the deductible or taking advantage of low-mileage discounts, if you qualify.

If you drop collision and comprehensive, set aside the money you save on auto insurance to pay for repairs or eventual replacement of the vehicle.

For more, see our Guide to Insurance for Collisions.


Last updated: Sep. 27, 2011
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Penny Gusner Consumer Analyst
Penny Gusner has been working in the insurance business for more than 10 years. She researches your questions, from the routine to the bizarre, with equal enthusiasm. Read More

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