There are several ways to lower your car insurance costs. One option is to consider bundling your insurance policies with the same provider, which often leads to discounts. You could also increase your deductible—the amount you’d pay out of pocket before your insurance kicks in for a claim.
Another way to save is by reviewing your optional auto insurance coverages, like collision or comprehensive coverage. If your car was new when you bought it, you might’ve added these options to your car insurance policy at the time. But now that it’s several years old and paid off, it’s worth asking if collision coverage on an older car is still necessary.
Is collision coverage necessary for an older car?
Technically, you don't need collision coverage at all. Like comprehensive coverage, collision coverage is optional coverage in Canada, meaning you can choose to have it or not. The only time it's likely required is if you're leasing or financing your car.
But let's say your car is paid off. Now, you're weighing whether to keep collision coverage as part of your car insurance.
For older cars that have lost a lot of value due to depreciation, it often makes sense to drop collision and comprehensive coverage. That’s because the maximum payout—essentially the car’s value minus your deductible—might be so low that it doesn’t justify the ongoing cost of these coverages.
Classic and vintage cars are a different story. These cars are usually insured under classic car insurance policies, which are based on an “agreed value” instead of standard depreciation or actual cash value. This agreed value might reflect the car’s condition or the price of the unique parts needed for repairs.
Should you invest in collision coverage for an older car?
It absolutely can be worth it, depending on the type of vehicle you drive and your financial situation. If buying a new car isn’t an option for you, having collision coverage can be essential if you're involved in a total-loss accident. And if you have a history of accidents, collision coverage can make the claims process smoother and save you more than the cost of your premium. Plus, if you own an expensive vehicle, collision insurance can help in replacing expensive car parts after an accident. However, you have to keep in mind your car's current value and your deductible amount. If your car is only worth $5,000 and your deductible is $2,000, you'll only receive $3,000 back after a total loss claim.
When should I drop collision insurance?
The old rule of thumb used to be that you’d drop collision insurance once your car was five or six years old or had hit 160,000 kilometres.
Nowadays, though, it really depends on the car’s value and the cost of replacement parts. For instance, an expensive older car might still be worth keeping collision coverage on for a few more years, while a less costly one might not. Plus, some replacement parts can be pricey enough that they quickly exceed the deductible. Here’s a simple rule of thumb that can make the decision easier:
If the cost of your collision coverage is 10% or more of your car’s value, it’s likely worth dropping. For instance, if your collision coverage costs you $500 a year and your car is valued at $5,000, cancelling it could be a way to save on insurance. Additionally, it's important to be aware of the following:
Don't forget the deductible
It’s also worth considering how much you’d actually get from an insurance payout if you filed a collision claim. Remember, collision coverage comes with a deductible —the amount you agree to pay out of pocket if you need to make a claim.
Deductibles usually range from $250 to $2,000, with $500 or $1,000 being the most common choices. So, if you have a $2,000 deductible on a car valued at $5,000, you’d only get $3,000 in a total-loss situation.
While you can go with a lower deductible, like $250, keep in mind that it’ll increase your premium, a higher deductible amount generally leads to lower insurance premiums as that's less money the insurance company will have to pay out in the event of a claim.
Basically, if you own your car outright and have the financial cushion to replace it if needed, you might decide to drop collision coverage during your next renewal period. This could save you a few hundred dollars each year on your total insurance costs. In fact, according to Rates.ca, adding collision insurance to your policy could add an additional $500-$700 to your annual premiums.
When should I not drop collision insurance?
Now that you understand when it's time to consider dropping collision insurance, let's talk about situations when, even if your car is older, you should not drop your collision coverage for the following reasons:
You have a history of accidents/claims
If you’ve had a history of accidents or claims, dropping collision coverage could be a bigger risk. While history doesn’t always repeat itself, it can be a useful indicator. If you do get into an accident, having collision coverage can make the claims process smoother and save you more than the cost of your premium.
You cannot afford to buy a new car
If buying a new car isn’t an option for you, keeping collision coverage might make sense. Paying a few dollars every month for collision insurance is likely more manageable than potential new car payments of several hundred a month.
If you're still leasing/financing
If you’re leasing or financing your car, chances are your lender may require you to have collision and comprehensive insurance. This helps protect their investment in case your car is damaged or totalled, so dropping it may not be an option.
You value peace of mind
If you prefer peace of mind, collision coverage can be reassuring. Driving can be unpredictable, and even the best drivers can end up in accidents. You never know what situations you might face on the road or how another driver might behave.
Remember, collision insurance covers more than just accidents with other vehicles while you’re driving. It also covers damage from hitting stationary objects, like street signs or potholes, and even protects your car if it’s damaged by another driver while parked. Basically, if your car gets damaged in almost any kind of collision, collision insurance has you covered.
Paying a small monthly fee to cover potential repairs can make the claims process easier and help you avoid higher out-of-pocket costs. Plus, sometimes collision insurance includes coverage for a rental car until you can repair or replace your damaged car. With collision insurance, you don’t have to stress about the financial hit on top of an already challenging situation if an accident happens.
What type of coverage do you need on older cars?
While collision and comprehensive coverage may be optional on older cars, there are certain types of auto insurance that are mandatory in Canada, depending on what province or territory you live in, no matter what age your car is. These are the types of coverage options available for an older car:
Third-party liability coverage
Third-party liability coverage is required for all drivers in Canada. In a nutshell, it protects you if you’re found at fault in an accident that damages someone else’s property or causes injuries to others. This coverage can help with third-party medical bills, repair or replacement costs, and even your legal fees if they come up.
Accident benefits coverage
Accident benefits coverage is another must-have in Canada. It covers you and your passengers if you’re injured in a car accident, no matter who was at fault. This includes extra support like medical and rehab costs, attendant care, and benefits for caregivers, non-earners, and income replacement.
Uninsured motorist coverage
Uninsured motorist coverage is mandatory in some parts of Canada. This coverage steps in if you’re in an accident with a driver who doesn’t have enough insurance or has no insurance at all. It also covers hit-and-run situations where the other driver can’t be identified. It can cover injuries for you and any passengers, as well as damage to your vehicle.
Direct compensation-property damage coverage
Direct compensation-property damage coverage, also known as no-fault insurance, is available—or even required—in no-fault provinces. It helps cover your costs if you’re in an accident that wasn’t your fault, including injuries and damage to your car. Just keep in mind, though, that if you’re in an at-fault accident, you’ll only get coverage for your own damages if you have collision insurance. Be sure to check your provincial rules and regulations to see if this coverage is mandatory for your vehicle.
Can I add or remove collision insurance before my renewal date?
You can usually make changes to your auto insurance policy before it renews, as most insurers let you adjust your coverage during the term. Just keep in mind there might be penalties or fees for making early changes, so sometimes it’s easier to wait until your policy renews. It’s a good idea to check with your insurance provider or broker to see if it makes more sense to update now or wait until the renewal.
Contact BrokerLink for more information on insurance coverage
While it isn't mandatory, collision can be an essential type of insurance coverage depending on the type of vehicle you have and your financial situation. In fact, there are several optional coverages that can be essential for drivers to carry. A BrokerLink car insurance broker would be happy to go over optional coverages with you, like collision, comprehensive, and accident forgiveness. They can help explain how each one works, the differences between them, and what they would cost to add to your policy.
If you have any car insurance questions, feel free to reach out to BrokerLink! We’re here to help you find the right policy for your needs and budget, give you a free quote, or even assist with renewing your policy. Whatever your auto insurance needs, we’re here to help.
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