How to decide if you need collision insurance

In the last few months, I was thinking about saving some money on my car insurance by dropping collision insurance.

Collision insurance will cover you if you incur damages in a collision up to the fair market value of your car minus the deductible.

Since the fair market value of my car is only about $1,600, the most the insurance company would pay me is $1,100 because of my $500 deductible.

I've driven for more than 3 years without an accident and the amount of premiums that I've paid the insurance company has exceeded the fair market value of my car.
This fact is completely irrelevant.


Accidents are accidents. You never expect them.

To see if the risk is worth taking (dropping the coverage), I decided to check my policy to see how much collision insurance cost me.

Currently, collision insurance costs me $41 a month.

I decided to do a calculation and made the assumption that the fair market value and cost of insurance will stay constant (for simplicity). These values should consistently decrease over time.

The most my car insurance company would pay me is $1,100.
The cost of collision insurance is $41 a month.

I would have to go more than 26.83 months (1100/41) without crashing my car into something to save money by dropping collision insurance.

By dropping collision insurance, I would be in a really bad situation (suffer great losses) if I crashed my car in 2 or 3 months. The risk goes down the longer you go without having a collision.

If I had an accident at 20 months, I would still have lost money by dropping the coverage, but the loss would not have been as great.

However, if I make it 30 months without having an accident, I will have saved money by dropping the coverage.


Where I am right now, I think that $41 a month is a pretty good deal to keep the coverage. I've always been a very risk adverse person.

As the fair market value of my car decreases and gets closer to the $500 minimum deductible, dropping the coverage will be much more reasonable. Though at that point, I can imagine that the cost of collision insurance will also decrease considerably.

If you have a new car with a high fair market value, make sure that you have it fully insured. Its way too risky not to.