Collision insurance can help if you’re at fault in an accident by paying some of the cost to repair or replace the car, but you pay extra premiums and a deductible to have it. As your car gets older, it loses value. At some point, it may not make financial sense to carry collision coverage.
To prepare this article, our team reviewed FSRA’s optional and extra auto-coverage guidance, the Ontario Automobile Policy and FSRA’s rating-factor guidance.
Continue reading to learn when it may make sense to drop collision coverage and what to consider first.
Do You Need Collision Coverage on an Older Car?
You may not need collision coverage on an older car if no lender or lessor requires it and you can afford repairs or replacement yourself. Age alone is not a reason to cancel it. Keep the coverage if the potential claim payment, after the deductible, is worthwhile given your need for a replacement vehicle.
Compare the amount you could comfortably use to replace your vehicle right now with the cost of your collision insurance. Say your car has an actual cash value of $4,000. If you have a $1,000 deductible, your payout may be about $3,000, not counting any additional reductions or adjustments under your policy. Compare the amount you could receive from collision coverage with the premium you pay for it.
Wondering if collision insurance is the right choice for your older vehicle? Consider the following factors.
Your Car’s Value
Find your car’s actual cash value and subtract the collision deductible. Compare that amount with the annual cost of collision coverage—not the cost of your entire policy.
Your Finances
Collision coverage may not be necessary if you have enough money to pay for repairs or replace your vehicle.
Provincial Rules and Financing Terms
Collision coverage is optional under Ontario auto policies. However, if you are financing or leasing your car, the lender or lessor may require it.
When to Stop Collision Coverage
Although collision coverage can provide peace of mind, there are times when it may make more sense to cancel it than continue paying for it. The biggest factor is your car’s value.
Your Vehicle Is Hardly Being Used
If you use the vehicle less often, ask how its storage location and reduced use affect your coverage and rates. Consider Comprehensive and Collision coverage separately.
Read More: When Should I Get Full Coverage Car Insurance?
How to Calculate Your Car’s Value
Keep or cancel collision insurance? Figuring out whether cancellation is an option starts with knowing what your vehicle is worth.
One option is to get an estimate from an online valuation resource based on your car’s make and model. However, it may not provide the exact amount your insurer would use after a loss.
A local dealership can also estimate your vehicle’s value. Bring any helpful documents, such as maintenance or repair records.
The following information can help when seeking a valuation:
- The car’s make and model
- The car’s mileage
- The overall condition of the vehicle
- Optional features such as leather seats, a sunroof, a navigation system or an upgraded sound system
What to Consider Before Dropping Collision Coverage
Keep Your Mandatory Protection
Dropping collision coverage does not cancel the other coverages shown on your insurance policy. Check your certificate to see what protection remains.
Consider Comprehensive Coverage
Comprehensive insurance covers certain losses that do not involve a collision, such as damage from natural disasters, vandalism and theft. However, comprehensive coverage may not be necessary if you have a low-value car.
Self-Insure If You Can Afford the Risk
Setting aside money to repair or replace your car may help you cover physical damage. Those funds do not replace auto insurance where it is required by law or physical-damage coverage required by a lender.
Review Your Deductible
Compare the annual cost of collision coverage with your potential out-of-pocket costs, and request written quotes for the available deductibles.
Generally speaking, a higher deductible may result in a lower premium. Make sure the amount you choose is manageable if you have a loss.
Read More: How Car Insurance Deductibles Work