Do you need collision coverage on an older car?

Tyler Wade
by Tyler Wade December 27, 2019 / No Comments

There are some quick and easy ways to reduce your car insurance costs. You can increase your deductible; the amount you pay before your insurer pays the rest of the claim. You can also ask about discounts like union, alumni, or loyalty rates.

There are options to go to bare minimum car insurance, or even drop some coverages.  You can lower your third-party liability to $200,000 in most provinces, but that’s a little risky if ever you injure someone else. But, what about collision and comprehensive? You may have been sold this when you bought your car, especially if it was new. But, now that it’s 5 or 10 years old is it worth having collision insurance on an old car?

What is the difference between collision and comprehensive?

Both collision and comprehensive coverage are add-ons and aren’t required on most car insurance policies. They both come with a deductible, usually in the range of $100-$1,000. But, they cover different risks.

Collision insurance protects your car when it’s in a collision, be it with another vehicle or a stationary object like a tree.

Comprehensive insurance protects your car while it’s parked, so think damage from fire, flood, or vandalism and burglary.

Do you need collision coverage on an older car?

There are no more payments on the car, but you’re wondering if it’s worth the risk. Well, there’s a simple rule of thumb to make your decision an easy one.

If the cost of your collision coverage is 10% or more of the value of your car, it’s probably time to drop it. For example, if your collision insurance costs you $400 per year and your vehicle is only worth $4,000, cancelling collision will save you money. 

The steps are easy – figure out your car’s value using online tools like Autotrader.ca or the Canadian Kelly Blue Book. Then, call your insurance provider to determine how much of your monthly premium consists of collision insurance. Your collision insurance portion of your auto insurance policy is determined by many things, including your deductible and the actual cash value of your car.

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When to not drop collision insurance

  •     If you have a history of accidents and claims, dropping collision coverage is a higher risk. History doesn’t always repeat itself, but it’s a good barometer. Getting into an accident with collision insurance helps the claim process go smoothly and will save you much more money than your premium.
  •      You can’t afford a new car. If you can’t afford to replace your vehicle after an accident, it’s cheaper to keep collision at $30-$40 per month, rather than new car payments of $300-$400 per month. However, start saving now if your car is getting on in years.
  •     If you have a low-risk tolerance. If you don’t want to take the risk and would rather pay a low monthly fee to make the claims process easy, having the collision coverage will give you peace of mind.
  •      You are on a lease or financing. Generally, the loan company is protecting their asset and won’t allow you to drop collision or comprehensive.

Is collision insurance necessary for a rental car?

When it comes to rental car insurance, there are a lot of options you can forego, if you have auto and home insurance. Home insurance covers the personal effects (if your laptop is stolen from the car). Your car insurance will typically cover third party liability and personal accident (accident benefits). Collision coverage will also port over to the rental (if you have OPCF27 endorsement). 

But, even if you drop collision insurance, you may still have coverage if you have a high-end rewards credit card.

The Bottom Line

If you have enough money to buy a new car, or can at least afford to finance one, you can drop collision and comprehensive insurance from your policy. If you really want to save even more, consider shopping for car insurance quotes to compare your current rate against what’s available in the market. 

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categories: Auto Insurance Insurance
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