Eliminate Collision Auto Insurance – Boost the Budget!

Eliminate collision auto insurance - boost the budget!

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So I did something crazy last week… I was having a conversation with our insurance agent and just went off on a tangent about collision auto insurance. “What do we save to eliminate it?” I asked him.

 

“Well, Mike. If you don’t have collision coverage, and you get into an accident, you’ll have to pay 100% of the repair costs…”

 

Continue reading below to see why that above statement, although true, didn’t phase me in the least. Because I went ahead and eliminated collision auto insurance for both of our vehicles… Then I had to think of a bullet-proof pitch to sell Monica on the idea. Here’s that pitch:

 


 

Let’s start with discussing the benefits of collision auto insurance. This should be pretty straightforward:

If you wreck your car and you are at fault, collision coverage will pay for the cost of your vehicle repairs after you’ve paid your deductible. For example, if you incur $1,000 worth of damage in a collision and your deductible is $200, your insurer will pay the remaining $800 (after an arm wrestling bout, a show of manli/womanli-ness, and irrefutable proof of the need for these repairs, that is).

 

If you total your car or do any damage above that deductible – up to the cost of total replacement – then the insurance company’s burden increases and your total out of pocket stays the same.

 

So why in the world would I want to cancel this golden security blanket for both of our cars?

 

Well, this coverage (like any other) isn’t just gifted to you from the insurance company. You’ll pay regular premiums based on you, your driving history, the cost of repairs/replacement for your vehicle, and other factors. Generally, if your car is more expensive or if you have a questionable/lack of driving history, your premiums are higher.

 

At this point, it’s a simple math problem.

 

What is the regular cost of your premium, what is your car worth, and what level of risk are you willing to live with?

 

Our real-life example and why I canceled our collision auto insurance

 

As I was talking to the insurance agent, I was driving in my 2010 Toyota Camry (while adhering to all relevant safety laws and suggestions, mom…). My ride is closing in on 9 years of age and 168,000 miles (and counting). Knock on wood, but so far the thing has been indestructible… I mean – I once hit a deer head on while I was traveling at a cool 7567 MPH. That was 3 years ago and she’s still running (the car – not the deer).

 

And to put the final cherry on top, Kelly Blue Book values my Camry right around $2,200. Considering I leased the car, then bought out the lease (e.g. Spent a $-ton more than $2,200 on the car), that figure was a bit disheartening to see.

 

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But then it got me thinking about current out-of-pocket costs

 

“If I wreck this car, I’m either repairing it for less than the deductible ($500) or it’ll be a total loss. Either way, collision insurance most likely won’t be involved. So… Why in the world am I paying the premium?”

 

Next, I took a look at the value for Monica’s car; a 2007 Buick Lucerne: $3,100. Same question with this one? Which led me to the same answer – “I have no idea.”

 

So back to the insurance agent and my original question

 

“What do I save to cancel these premiums?”

 

Agent – “Well, you’re looking at about $450, annually, for both vehicles.”

 

For the math-challenged out there, that’s $37.5/month in savings. Which is a significant saving for the budget and in general.

 

So – I’ll work on my back-of-the-napkin-calculations for your amusement (and I welcome any input in the comments section below!!).

 

 If we are able to drive both of these cars for 3 more years without catastrophic damage, our savings in premiums would be $1,350! That figure comes with the understanding that we neither care for nor will repair minor damage to these cars. Also – if we can drive them for longer than 3 years – we’ll do that.

 

4 years = $1,800
5 years = $2,250

 

Let’s not get too crazy here. I’ll also factor in that we haven’t made a single car payment for about 2-whole years now (this is like savings on top of savings!).

 

Then I got to thinking (again): what are the chances that one of these cars dies and it is because of a collision? Well, glad I asked. 

This Forbes article tells me that if I’m an average driver (a different argument for a different day), I should expect to file a collision claim once in every 17.9 years! Referencing the deer incident above… I should be good for a while (knocking on wood, crossing fingers, and praying).

 

Don’t fact check this math, but based on the Forbes article, I am calculating that I have a 16.7% chance to crash my car at a claim-worthy-level within the next 3 years. Not too bad…

 

Given the above and treating the cars independently, I’ll take the guaranteed savings of $1,350 vs the 16.7% chance of totaling each car within the next 3-years (expected cost of $367.4 for the Camry and $517.7 for the Buick, or $885.1 total).

 

This is all assuming that insurance would pay the total value of the vehicle. When we discount that number to reality, maybe I’d expect to get $1,500 back from the insurance company for my car… I’m thinking that’s an optimistic number.

 

Conclusion – why I canceled collision auto insurance for both our vehicles

It’s simple really. I have a guaranteed savings of $1,350 over 3 years by not paying these premiums and I would expect to pay roughly $885.1 to replace both cars (factoring in the cost of vehicles and chance to total them) over the same time period. I’ll not pay the premiums, save those funds, then put the cash toward replacement should the worst happen.

 

What happens if we total 1 car?

 

No big deal. Hopefully this would be later into my 3-year time period, but either way, I could buy an inexpensive used car (beater) to get me from A-B until we’re able to save up enough cash to level up to a gently-used car. I would keep collision insurance off of these vehicles to help boost the budget, my savings, and lower the time until the level-up car purchase.

 

What happens if we total both cars?

 

Delete this post, the email that went out to my lovely and amazing MikedUp Blog subscribers, and write some article about how terrible our luck was that we totaled both cars at the same time (bonus points if we crashed them into each other). Then, I would chronicle our story to saving cash while buying 2 beaters, leveling up, and eventually achieving frugal-dominance.

 

The ads I could sell on that series of posts would hopefully ease the karmic pain that I would have caused myself…

 

How did Monica take my bulletproof pitch?

 

“That seems like a good idea. AND you seem very fired up about this so there’s about 0% chance I’ll change your mind. So – sounds good.” And with a passing kiss on the cheek, we were back about our normal Sunday routine.

 

Thanks, Love!

 


 

Readers Input

 

Do you have collision auto coverage and if so, does this post make you think twice? Is there something I’m not thinking of that you have in mind?

 

Or – did you actually fact check my math and have an issue with my results? Either way, let us know in the comments section and we’ll keep this conversation going together!

 


 

Thanks for reading!

 

If you’re interested in discovering a better version of yourself – whether with fitness, finance, or family – then subscribe below to MikedUp Blog’s FREE newsletter and let’s improve together!

 

I’m glad you’re here. Thanks again and talk soon!

 

– Mike
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11 Comments

  1. I like it. Well done canceling collision based on the critical thinking. . . and I’m not saying that just because I hate insurance . . . well, maybe. Anyway, saving money is always a win in my book. Great article. ?

  2. Considered doing the same, but our collision is just $200/year for the both of us, so our break even on what insurance would pay is too far out to cancel and not kick myself if we hit something.

  3. Did you get liability insurance? Once we got our car loans paid off, this is all we have and it has worked out well. We pay about $38/mo for liability insurance on two older vehicles. I’m not concerned about replacing our cars, but I am concerned if we get into an accident that is our fault and have to pay for damage done to other cars or people. That could easily wipe us out financially.

    I think this is a great article about why getting rid of collision insurance makes sense, especially if you are willing to drive your car until it doesn’t run anymore (or doesn’t make sense in repairing).

    I do long for the day when we can have a “newer” car that has built in bluetooth to play music or answer calls, lol.

    1. Chris – Thanks so much for stopping by and yes sir – still have liability insurance. That’s one roll of the dice I’m not willing to take. Stay tuned, though to see if this collision insurance thing paid off or not 😉

      Good luck for the newer car with the bluetooth – that feature no longer works in my 10yo Camry… So I’m with you

  4. Great decision Mike. I have a couple of older cars that if something were to happen the replacement cost of the entire vehicle would be not much more than the deductible so it makes no sense to keep collision on those policies. The Tesla on the other hand….. lol

    1. When I really broke it down, the 2 weeks of actuarial training I took told me that I was wasting my money… But until I reached out – our insurance agent had never really discussed the option with me. Life’s about calculated risks, right??? (Just not with Teslas…)

  5. We’ve got a 9 year old Mazda 3 that is worth just a few thousand at this point. I should really cancel collision on that. Thanks for this article.

    Question — if it costs more than the Blue book worth to repair a vehicle, the insurance company will call it a total loss and issue a check. If I said, “No, please just fix it,” would they allow that?

    If the answer is they will not allow that, I should really cancel collision.

    — TDD

    1. I don’t want to speak for all insurance companies, but… when we totaled one of our cars (just a few weeks after removing this very insurance), we didn’t have the option to fix it. They either totaled it or they didn’t.

      For us – I wouldn’t change what we did. It made sense to remove the collision insurance. Good luck with the Mazda!

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