Your car gets you everywhere you need to be. It may be getting older, but it runs well. It’s reliable and has become to reflect a bit of your personality and style. You may have enjoyed years without making a claim on your car insurance policy, too.
But as the vehicle ages, you might not want to spend as much money insuring it compared to when you drove it home from the dealership. That’s when you start wondering if you still need collision insurance coverage on an old car. You’re not the only one to ask if you need collision insurance on an old car, so here’s what you need to know.
What insurance am I required to have?
Under Ontario law, every vehicle needs to maintain at least the following insurance:
- $200,000 in third-party liability coverage: this pays for any damage for which you are responsible to people or property. $1 million or more is strongly recommended.
- Statutory Accident Benefits coverage: this pays for your or a passenger’s medical bills plus a bit of lost income while you recuperate from the accident.
- Uninsured/underinsured coverage: it covers you in the event you are struck by a vehicle without insurance or a hit-and-run.
- Direct compensation property damage insurance: this pays to repair your car if you are hit by another vehicle inside the province and if the other driver is both at fault and insured in Ontario.
All other insurance coverage types are optional, including collision coverage, which pays out when when your vehicle is involved in a collision with another vehicle. Comprehensive coverage is also optional, which includes damage caused by perils other than collision, such as theft, falling objects, and vandalism. You can probably pass on comprehensive coverage for old vehicles, too.
Leasing and loan agreements may require it
We’ve assumed that you’re asking about collision and comprehensive coverage for a car that you own up to this point, but not everyone owns their vehicles. If you’ve leased your car, then it’s worth noting that your lease agreement may stipulate mandatory comprehensive and collision coverage to protect the vehicle. Similarly, loan agreements on new or high-end vehicles may require that you buy extended coverage.
Read those agreements carefully before taking your car on the road! You can read about the 5 parts of your insurance policy here if you’re unsure what yours includes.
Does collision coverage make sense for an older car?
There are two main factors that will help you decide if you need collision coverage for your old car:
- The value of the car.
- The cost of your insurance coverage.
What is the value of the car minus insurance costs?
The insurance company will place a value on your vehicle when you get a quote, which is called the actual cash value. Take this value and subtract any deductible you would have to pay in the event of a claim. Then reduce this amount by your insurance premium.
This total should prepare you for the second part of this decision, but it will probably become clear when you add up the costs of collision insurance against your vehicle.
Most people drive older cars to save money. It might not make sense to over-insure a vehicle if you aren’t going to put money into another major repair. That’s just part of how car insurance works!
Always balance costs against the payout
Depending on the value you calculated above, you should imagine what would happen if you were in an accident and your car was irreparable. If your financial situation is such that you could afford to go out and buy another vehicle, you may want to consider reducing your policy premium by eliminating one or more of the optional coverage types, such as collision or comprehensive.
On the other hand, If replacing your car entirely out of pocket isn’t feasible, then you may find that the security of collision or comprehensive coverage to be appealing, especially if you can spread those payments over the course of the year. It could insulate you from expensive repairs.
If you’re just looking to avoid rising auto insurance rates, then you might be able to get by with accident forgiveness coverage instead.
This is how to decide if you need collision insurance on an old car. It comes down to understanding the value of your vehicle and your ability to replace it.
Stay safe and stay insured out there!