Collision insurance stops making financial sense once your car's value falls below what you'd pay in premiums over time
Collision insurance covers damage to your own car when you hit something — another vehicle, a tree, a guardrail — or when something hits you. It does not cover liability (damage you cause to someone else) or comprehensive damage (theft, weather, vandalism). Once your car is old enough or inexpensive enough, the cost of this coverage often exceeds what the insurance company would actually pay out if you wrecked it.
The decision to drop it comes down to one number: your car's current market value. If that value is low enough that you could replace the car without the insurance payout, you no longer need the coverage. Most people find this point somewhere between 8 and 12 years of ownership, though it depends entirely on what you paid for the car and what it is worth now.
Key Takeaways
- Dropping collision makes sense when your car's market value is less than 10 times your annual collision premium — meaning you could replace it without insurance money.
- You can find your car's current value free through Kelley Blue Book or NADA Guides by entering the year, make, model, and mileage.
- If you have a loan or lease on the car, your lender will require collision coverage, so you cannot drop it until the loan is paid off.
- Dropping collision saves money when ready but means you pay out of pocket for any accident damage, so only drop it if you have emergency savings set aside.
- You can drop collision at any time by calling your insurance company, and the change takes effect on your next billing cycle.
How to calculate whether collision is worth keeping
Start by finding your car's current market value. Go to Kelley Blue Book (kbb.com) or NADA Guides (nadaguides.com), enter your car's year, make, model, and current mileage, and note the "fair market value" or "average retail value" they show. This is what a private buyer would pay for your car today.
Next, look at your insurance declaration page or log into your insurer's website and find your collision premium — the dollar amount you pay per month or per six months just for collision coverage. Multiply that by 12 to get your annual collision cost.
Now divide your car's market value by your annual collision premium. If the result is 10 or lower, collision is costing you more than 10 percent of your car's value every year. At that rate, you are paying the insurance company more than the car is worth over a decade. Most people drop collision when this ratio falls below 10, though some wait until it is below 5 if they want extra caution.
Example: Your 2012 Honda Civic is worth $8,000 according to Kelley Blue Book. Your collision premium is $120 per month, or $1,440 per year. Divide $8,000 by $1,440 and you get 5.5. That means collision is costing you more than 18 percent of your car's value annually — a strong signal to drop it.
Check whether your lender allows you to drop collision
If you still owe money on a car loan, your lender will not let you drop collision. The lender has a financial interest in the car — if you wreck it, they want to know the damage will be paid for. Your loan agreement almost certainly requires you to carry collision coverage until the loan is paid off.
The same rule applies to leases. A leased car belongs to the leasing company, and they require collision coverage for the entire lease term. You cannot drop it early.
If you own the car outright — meaning you have no loan and are not leasing — you are free to drop collision whenever you choose. Call your insurance company and ask them to remove collision from your policy. The change usually takes effect on your next billing cycle, and you will see the savings on your next bill.
What happens to your out-of-pocket costs when you drop collision
Without collision coverage, any damage to your car from an accident becomes your responsibility. If you cause a minor fender-bender that costs $2,000 to repair, you pay that $2,000 yourself. If you total the car in a major accident, you get nothing from insurance and must pay to replace it.
This is why dropping collision only makes sense if you have emergency savings. Financial advisors generally recommend keeping three to six months of living expenses in savings before you drop collision. If you have $5,000 in savings and your car is worth $8,000, you could cover a moderate accident but not a total loss. That may still be acceptable to you — it depends on your comfort level with risk.
Your liability coverage (which is separate from collision) still protects you if you cause damage to someone else's car or property. Dropping collision does not affect that protection.
When collision becomes too expensive relative to your car's value
Collision premiums rise as your car ages, even though the car itself becomes worth less. This happens because older cars cost more to repair (parts are harder to find, labor is more complex) and because insurers assume older cars are driven more often or by less experienced drivers.
At some point, your premium will jump noticeably — often when your car turns 10 years old or reaches 150,000 miles. When that happens, recalculate your ratio. If your car is worth $6,000 and your new collision premium is $200 per month ($2,400 per year), you are now paying 40 percent of your car's value annually. That is the moment many people decide to drop it.
Some insurers offer higher deductibles (like $1,000 instead of $500) to lower your collision premium. If your ratio is borderline, raising your deductible might keep collision affordable. But if the premium is already very high, a higher deductible will not help enough.
How to drop collision and what to expect
Call your insurance company's customer service line or log into your online account and request that collision coverage be removed from your policy. You do not need to provide a reason. The representative will confirm your current coverage, remove collision, show you the new premium, and tell you when the change takes effect.
The change usually takes effect on your next billing cycle — either when ready if you call mid-cycle, or on your next renewal date. You will see the savings reflected in your next bill. Keep your updated declaration page for your records.
If you change your mind later — for example, if you buy a newer car or your financial situation improves — you can add collision back at any time. There is no penalty for dropping it and re-adding it later. Just call your insurer and ask to add it back.
Frequently Asked Questions
What if I get in an accident the day after I drop collision?
You are responsible for all repair costs out of pocket. This is why dropping collision only makes sense if you have savings set aside. Your liability coverage still pays for damage you cause to someone else's car, but your own damage is your expense.
Does dropping collision affect my insurance rates later?
No. Dropping collision does not change your rate or your driving record. Your rates are based on your claims history and driving record, not on what coverage you carry. Adding it back later also does not affect your rates.
Can I drop collision on just one car if I have multiple cars?
Yes. You can drop collision on your older car while keeping it on a newer one. Each car on your policy is insured separately, so you can customize coverage for each vehicle.
What if my car is worth almost nothing — like $1,000 or less?
Collision premiums for very old or very cheap cars are usually quite low, sometimes $20 to $40 per month. Even so, if your car is worth $1,000 and your collision premium is $30 per month, you are paying 36 percent of its value annually. Most people drop collision at this point unless they cannot afford to replace the car if it is totaled.
Does comprehensive coverage cost less than collision?
Usually yes. Comprehensive (theft, weather, vandalism) is typically cheaper than collision because accidents are more common than theft or weather damage. You can keep comprehensive and drop collision if you want protection against theft or storms but not accidents. Check your declaration page to see both premiums.