Should I Buy Collision Insurance?

Barbara wants to know how to decide when to carry full coverage insurance on a vehicle. Dave says there are a couple of ways.

QUESTION: Barbara from My Total Money Makeover wants to know how to decide when to carry full coverage insurance on a vehicle. Dave says there are a couple of ways.

ANSWER: There a couple of times. Number one, if you don’t have any money, you immediately carry full coverage or collision because if the car gets totaled, you’re walking. You are riding the freaking bus because you didn’t carry insurance. Even if it’s a $2,000 car, you carry collision and full coverage on it. You keep the deductible a little bit higher to try to save the premiums, but you can cover that out of your emergency fund.

Let’s pretend you had $50,000 cash in the bank and you were driving a $5,000 car and you wanted to drop the collision. You said, “Well, if we total the car out, we can afford to write a check and buy another car. We’ll save that money.” You can, but then you’ve got to look and ask what is the risk you’re taking, meaning what does this collision cost me per year versus the $5,000 risk you’re taking, and does it work out? I’ve run those numbers several times, and I generally find collision insurance to be a pretty good buy. That’s simple, but you can look at it and decide for yourself.

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