The collision coverage portion of your auto insurance policy pays for physical damages your car sustains when it hits, or is hit by, another vehicle, or another object. Collision also covers rolling or flipping your vehicle.

However, at some point it may not be worthwhile to buy collision, because the insurer typically only pays out the book value of the car, minus your deductible if you total the vehicle.

Book Value vs. Premiums

Consumer Reports suggests when your annual premiums for collision and comprehensive (for damage not caused by an accident, such as theft or hail) reach more than 10 percent of the book value it might be time to drop these coverages.

For instance, if your vehicle is worth $5,000 and you’re paying premiums of over $500 ($6,000 annually), you’ll only receive a maximum of $5,000 if the insurance company writes off the vehicle.

However, when you own a vehicle that’s still worth a significant amount of money, you absolutely want coverage. Wait until your vehicle depreciates significantly and establish a savings fund so have plenty of money to buy a new vehicle if the insurer writes yours off.

Your Lender Might Require It

Collision insurance isn’t mandatory in New Jersey, but if you lease the vehicle or have a loan against it your lender might require it.

Additionally, the lender usually has specific deductible requirements, so check with them first if you want to increase your deductible, maintain coverage, and lower premiums.

Increase Deductible

Despite the difference in premiums and pay out, many people don’t have $5,000 to run out and buy a new car if their vehicle’s totaled in an accident.

Instead of cancelling collision and comprehensive, you can increase your deductible for lower premiums. If something unfortunate happens, you will need to pay the deductible out-of-pocket, but at least you’ll receive some compensation. If you don’t have coverage, you won’t receive a dime.

Your insurance agent can help you balance your deductible against your finances. Considering the average annual collision rate in New Jersey is about $450, keeping this coverage is often the better option. Otherwise, you’ll pay for everything yourself.

Maintain Liability Coverage

Should you decide to cancel your collision coverage, you’ll still need to maintain liability coverage for property damage and bodily injury. These coverages safeguards your assets if you’re found legally responsible for a covered accident.

The minimum amount of auto insurance coverage in New Jersey is $15,000/$30,000/$5,000. You may also want to buy uninsured/underinsured motorist protection should another party without insurance or without sufficient insurance causes damage to your vehicle.

Additionally, you may want to carry personal injury protection (PIP) as it reimburses you for a portion of lost wages, medical expenses, and more for your passengers and pedestrians.

Before making a rash decision, give us a call. Our agents will look at your policy and vehicle and recommend what’s best for you.