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How long should I carry collision insurance?


When it comes to collision coverage on the auto policy, the guideline many people follow is to remove the coverage after the vehicle is ten years old. Many believe that after the ten-year mark, most vehicles are not worth enough to warrant keeping the expensive collision coverage on the policy. Nowadays, things are not that simple. Here are a couple of reasons why I think the “ten year” rule no longer applies.

Vehicles tend to hold their value for much longer now than in the past. There seem to be a couple of reasons for this. First, vehicles can run much longer than ever before. It used to be that once a vehicle hit 100,000 miles, it had pretty much come to the end of the road in terms of reliability. Today’s vehicles are more reliable, with many vehicles running until 200,000 miles or more. The second reason is that new vehicles are priced very high, leading to a surge in the used car market. To give you an example of how vehicle prices have increased, a 1994 Ford Explorer cost around $20,000 when it was new. In contrast, a 2014 Ford Explorer is over $40,000. Many entry-level vehicles are now priced in the $20,000 range.  Those who can’t afford a vehicle with such a large price tag turn to the used car market for a reliable car priced within their means. The more affordable price tag when coupled with the extended reliability of used vehicles makes this an ideal option for many car buyers.

Another reason for keeping collision coverage on your policy is the cost of repairs. It’s easy to say that if you total your car you will just go buy another one, but what if you are involved in an accident and you just damage the bumper? Do you have $2,000 saved to repair it? In most cases, the cost of repairs is to be paid in full before you can get your vehicle back. Financing is an easy way to get a new (or used) car, but it’s not typically available for repair work so you must be sure you have some money in the bank to cover minor damage to your vehicle. Labor rates for body shops do vary, but most repairs are expensive.  Add those hourly figures to the cost of replacement parts and, if necessary, a rental car and the cost of that “fender bender” can skyrocket pretty quickly.

When I discuss the possibility of removing collision with clients, I tell them to look at two things. The first is the vehicle’s value. Although most policies do not offer replacement cost for collision coverage, they do factor in value along with vehicle condition, vehicle options, etc. when determining total loss figures. The other thing I tell people to consider is whether or not they have the funds in the bank to cover vehicle damage if it were to occur tomorrow. In many cases, people reconsider removing collision coverage just because their vehicle is ten years old.

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