Is collision coverage for your vehicle worth its cost? The answer often depends on the value of the vehicle, says Bottom Line’s insurance expert Doug Heller.

Car owners can’t avoid the rapidly rising cost of auto insurance entirely—and with very few exceptions, uninsured cars cannot be legally driven on US roads. But while the liability component of auto insurance is usually required, many car owners have the option of doing without the collision and comprehensive components. Dropping these components can significantly reduce your auto insurance bills—but is it wise to drop them? Here’s what you need to know…

Three Big Auto Insurance Components

In broad terms…

  • Liability insurance covers damage done to other people’s vehicles and property if you’re responsible for an accident, as well as the costs associated with injuries those other people sustain.
  • Collision insurance covers the damage to your own vehicle.
  • Comprehensive insurance covers damage to your vehicle incurred while you’re not driving, such as when a tree falls on the car, it is submerged in floodwater or is vandalized or stolen. Comprehensive insurance also covers damage your vehicle sustains if the vehicle hits an animal or its windshield is cracked by a rock kicked up by another vehicle.

Collision insurance and comprehensive insurance are not required by law—but they may be required under the terms of your loan or if your vehicle is leased. And while most people who buy one also buy the other insurance, it is not required. In the fairly uncommon event that they are not both purchased, it usually is because someone buys comprehensive insurance for a car they don’t drive very often—perhaps an antique or collector’s vehicle for which they want protection from theft or damage while the car is parked at home.

When They Aren’t Worth the Cost

Rule of thumb: Collision insurance and comprehensive insurance don’t make financial sense when the combined annual cost of these insurance components exceeds one-tenth the current value of the vehicle. That’s much more likely to be the case with older cars than newer ones. If the combined cost is more than this, the coverage doesn’t justify the premiums.

But that doesn’t necessarily mean it’s a bad idea to pay more for comprehensive and collision insurance. Perhaps having full coverage helps you sleep better at night. But if you’re looking to trim your auto insurance bills, these can reasonably be skipped.

How to make this 10% calculation: Use the Kelley Blue Book website to estimate your vehicle’s value (on KBB.com, click “My Car’s Value”). Then determine the combined annual cost of collision insurance and comprehensive insurance based on your most recent insurance statement or quote. Reminder: Most policies are priced for six months of coverage, so you likely will need to double the amounts you find there to determine your annual cost—and remember to exclude the cost of liability coverage when you do this.

Warning: Increasing the size of your deductible also is a common way to lower the cost of auto insurance. While that’s often fine, it is unwise when it comes to comprehensive and collision coverage for a low-value vehicle. Example: If an older car is worth $5,000 and the deductible for comprehensive and collision coverage is $2,000, then the maximum this insurance will pay out is around $3,000—it just isn’t worth paying substantial premiums for such limited coverage.

How Collision Insurance Coverage Works

If you cause an accident, your collision insurance typically will pay you the cost of repairing your vehicle minus the amount of your policy’s deductible. But if the estimated repair cost is close to or above your vehicle’s current value, then the insurance adjuster assigned to your claim instead will declare your vehicle totaled and the insurer will pay the current value of your vehicle minus your deductible. The current value of your vehicle will be calculated based on how much it would cost to buy a substantially equivalent vehicle. If the insurer declares your car totaled, it also takes ownership of it. Your collision insurance probably also will cover other costs that you would incur if you purchased an equivalent vehicle, such as state taxes and title fees, though these details can vary. Exception: A small percentage of policies pay a fixed value when an insured vehicle is totaled rather than current value based on the used-car market. This is most common with rare and collectible cars.

Problem: Insurance companies are not always fair with policyholders who make collision and comprehensive claims…

If your vehicle is totaled, your insurer might base its offer on an unfairly low estimate of the vehicle’s value.

How to fight back: When you file a collision or comprehensive claim, search online for used cars currently for sale in your area that are as similar as possible to yours—same make and model…and similar model year, mileage, options and overall condition (the condition your vehicle was in before it was damaged). Save a list of links to these for-sale used vehicles. If the insurance company’s adjuster declares your vehicle totaled but offers you a payment much lower than the asking prices of these similar vehicles, even after accounting for your policy’s deductible, send the adjuster your list of links along with a counteroffer based on the prices you found.

If you can’t find comparable vehicles for sale in your area, use Kelly Blue Book’s online valuation tools to create your counteroffer.

If you still are not offered what you consider a fair offer, submit a formal appeal to the insurance company. If that doesn’t provide satisfaction, contact your state insurance department and ask if it can suggest additional options for contesting the insurer’s offer…and/or hire an independent adjuster or an attorney who specializes in insurance claims.

Helpful: If your car is in better condition than most cars of its age and mileage, take detailed digital photos of it, inside and out, every six months or so. If this vehicle later is totaled, these photos could help prove to the insurer that the car was in better-than-normal condition and should merit a somewhat higher valuation.

If your vehicle is not totaled, your insurer might try to skimp on repairs following a covered accident.

It might push you to have repairs done at the body shop of its choosing rather than a more expensive shop that will do a better job…or it might pay for low-quality aftermarket replacement parts rather than better “original equipment manufacturer” (OEM) parts installed when the car was built.

Whether the insurer has a right to require cost-cutting moves such as these depends on your policy’s terms and, in some cases, your state’s laws. Helpful: If there’s a local body shop that you trust, either because you’ve had work done there before or it has a strong reputation in the community, call and ask for its opinion about whether your insurer is playing fair with you. Body shops are experts at dealing with auto insurers and know when they’re being unreasonable.

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