What happens if I have no collision coverage?

You should drop your collision insurance when your annual premium equals 10% of your car's value. If your collision insurance costs $100 total per year, for example, drop the coverage when your car is worth $1,000. At that point, your insurance payments are too close to your car's value to be worthwhile. Drivers can easily find a car’s value with the online vehicle appraisal calculators from Edmunds or Kelly Blue Book.… read full answer

The 10% rule for dropping collision insurance is not set in stone. But it’s a good milestone to keep in mind because as the value of a vehicle falls over time, the value of its insurance coverage does too. And when you start paying a significant portion of your car’s value in premiums each year, you’re simply overpaying to offset the actual level of risk that remains – at least as far as collision damage to your own vehicle is concerned.

Collision insurance repairs or replaces your insured car if it's damaged, whether by another vehicle or an object like a tree or mailbox. This insurance covers up to the cash value of your car - which is where the 10% rule comes in. This rule most frequently applies to older cars or vehicles with a lot of mileage, as they are worth relatively low amounts. There are a few other situations where it might be a smart move to drop collision insurance, too.

When to drop collision insurance

When you rarely use your car

The more you drive, the higher your risk of being in an accident – so if you don’t drive often, your risk is lower than average. That means you could be paying for collision insurance that you’re unlikely to need.

When repairing a car would not have a big impact on your finances

Maybe you have an emergency fund that you could use to fix your vehicle. If you're willing to spend your savings on car repairs, then it's safe to drop collision insurance. However, people often prefer their emergency fund to be a safety net for when they leave their job, face health issues, or need home repairs. It all depends on what you're comfortable with personally and how much you have saved.

When you’re paying 10% of your car’s value in premiums annually

The cost of repairs goes down as your car gets older, so you don’t want to overpay as your car loses value.

When NOT to drop collision insurance

Every state requires car insurance except for New Hampshire and Virginia. However, the law doesn't mandate collision insurance. The only legally-mandated car insurance is liability coverage, for damages to someone or something that you accidentally hit with your car. Although collision insurance is optional, it's well worth purchasing for many people.

If you're financing your car, collision insurance is usually required. Otherwise, you might be stuck with a repair bill equivalent to the value of your new vehicle! If you're leasing your car, the same logic applies – most lessors require drivers to carry collision insurance, too.

In summary, it's a smart money move to drop collision insurance when your car is old or has high mileage, but you should definitely think twice about doing so.

You need collision insurance on an old car if the car is financed or leased. You should also keep collision insurance on an old car if you cannot afford to pay out of pocket to repair or replace the car after an accident.

A general rule of thumb is that you can think about dropping collision insurance if the premium exceeds 10% of your car’s value, so it’s possible that collision coverage might not be worth it on an old car that isn’t worth much. But you should only consider this rule in the context of your own circumstances. If you depend on your car for everyday use and can’t afford to pay for repairs, collision insurance could keep you out of a difficult situation if your vehicle is damaged in an accident.… read full answer

To learn more about customizing your coverage, check out WalletHub’s guide to deciding how much car insurance you need.