Is accident insurance worth it? – Yahoo Finance | CarTailz

You have many decisions to make when purchasing auto insurance, one of which is whether you want collision insurance. It’s generally required when you lease or pay off your car, but once that’s done you’ll need to decide whether to keep it or drop the coverage.

Collision insurance will usually help repair the 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 very much relative to the amount you’re paying for coverage, it may be cheaper to just drop it altogether.

Find out more about how comprehensive insurance works and whether it is worth it for you.

See how much you can save on car insurance

What is collision insurance?

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

It’s usually taken out on top of third party liability insurance, which covers property damage and medical bills for third parties if you’re at fault in an accident.

Strangely, collision insurance does not cover damage caused by a deer or other wildlife being hit. This is covered by Collision Damage Waiver, a different type of coverage that covers events such as theft, vandalism, fire, weather and accidents involving animals.

When you lease your car or pay off an auto loan for it, you probably don’t have much of a choice about paying for collision insurance. Most lenders will require you to have collision and collision damage waiver in addition to liability insurance since they still have an ownership interest in your car.

Once you’ve paid it off and own the car clear and clear, you can choose to keep the collision insurance.

Tip

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

This is how accident insurance works

As with most insurance policies, comprehensive insurance usually has its own deductible. This is the amount you must pay before your coverage begins. After that, your insurer will cover any additional damages up to the actual cash value of your car and the limits of your policy.

For example, if you have a $500 deductible and spend $2,000 to get your car fixed 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 paying the deductible. Or if you’ve paid the deductible, it can mail you a check.

warning

A higher deductible results in lower insurance costs but higher expenses.

How much is the collision insurance?

According to the Insurance Information Institute, collision insurance costs an average of $290 per year. It is usually available as an a la carte option with the auto insurance that you are required to purchase in each state.

The actual cost of accident insurance depends on many factors:

  • Where you live

  • How old are you?

  • your creditworthiness

  • your logbook

  • Age, make and model of your car

  • How much deductible you choose

For example, comprehensive insurance for an older car can cost less than for a new car. In addition, insurance premiums vary widely between insurers. For this reason, it’s always a good idea to research the best auto insurance rates any time your current policy is up for renewal, as you could save a lot of money if another insurer offers better rates.

Is comprehensive insurance worth it?

The truth is, collision insurance isn’t always worth the cost. You may have heard that older vehicles aren’t worth carrying, and that may be true, but not always. Instead, it boils down to the math, the value of your vehicle, and your personal comfort level. So you can check for yourself whether it is time to cancel the comprehensive insurance.

Step 1: How Much Does Collision Insurance Cost You?

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

For example, if your annual collision insurance premium is $290 per year and your collision deductible is $1,000, if you ever need to make a claim your insurance cost will be $1,290.

Step 2: How much do you get when you file an insurance claim with a comprehensive insurance company?

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

This is not necessarily what you paid for your car. This is how much your car is worth today if you were to sell it. It’s a good idea to check the value of your car against a few sources to get a good idea of ​​its value, such as: B. Kelley 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 payout you could get in a worst-case scenario, such as a crash, is $1,000. B. a total loss, would receive about 4,000 US dollars. This is the “benefits” part of the cost-benefit analysis.

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

To see if it adds up, compare the insurance cost you calculated in step one with the insurance benefit you calculated in step two:

  • When the costs outweigh the benefits: Comprehensive insurance is not worthwhile. You pay more for insurance than you would get if you had to make a claim.

  • When the costs are less than the benefits: Comprehensive insurance can be worthwhile. In the worst case, you will receive a higher cash payment than you deposited into the system.

Continuing our example, you would pay $1,290 for collision insurance, and if you had to make the maximum allowable claim for auto repairs, you would get $4,000 back. In that case, it’s probably worth getting insurance as you might get back more than what you put in.

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 how you’re feeling.

For example, if your collision insurance costs $2,000 and your maximum benefit is $2,100, you may only save yourself $100. And even then only if you would assert the highest possible claim.

In this case, if you save $100, is it really worth paying $2,000 for collision insurance? What about $500? $1,000? $5,000? The answer depends on your personal comfort level and how much you have in your emergency fund to pay for auto repairs that aren’t covered by insurance.

This is how you save on comprehensive insurance

There are a few things you can do to lower your comprehensive insurance premiums. Here are a few ideas:

  • Drive safely. The more dents you have in your ticket, the more your insurance costs. Drive safely and you will be rewarded in more ways than one.

  • Shopping spree. Different car insurance companies charge different rates for each type of car insurance. Get quotes from as many companies as you can, or find an insurance broker to do the shopping for you.

  • Look for discounts. Most auto insurance providers offer many discounts that can save you money. Be sure to ask about these discounts when you get a quote for auto insurance.

  • Increase your deductible. The higher your deductible, the lower your premium – but remember this will still affect your overall cost of insurance if you do need to make a claim. Most financial experts recommend choosing the highest deductible that you can afford out of pocket.

  • Work on your credit score. Auto insurance rates are often tied to your credit score. Working to improve your credit score also saves you money on insurance and other financing costs.

  • Reassess your insurance needs each time you renew. You may be paying for collision insurance today, but the next time you pay your bill, the calculation may have changed. As with purchasing new insurers, every time you renew you should check that your current coverage is still worthwhile.

frequently asked Questions

Is fully comprehensive or comprehensive insurance better?

One is not necessarily better than the other. They are both helpful in different cases. Collision insurance helps protect your car from damage in an accident, excluding accidents involving deer and other animals. Comprehensive insurance will help protect your car from non-accident damage such as:

What is a deductible?

A deductible is how much you have to pay out of pocket before your insurance kicks in. For example, if you have a $500 deductible and you get into a fender bender that costs $1,500 to repair, you pay the first $500 and your insurance pays the remaining $1,000.

Is it bad not to have comprehensive insurance?

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

bottom line

Comprehensive insurance is not always required, but around 80% of drivers take it out along with comprehensive insurance. If you’re worried about the cost of repairing your vehicle if you’re involved in a self-inflicted accident, it might be worth taking it with you. And if your car is financed, you are obliged to do so. It all depends on the market value of your vehicle and your personal preferences.

Regardless of the type of coverage you are looking for, make sure you get multiple car insurance quotes so you can find the best coverage. Our list of the best auto insurance companies is a good place to start.

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