Most people with collision insurance on their car have it because their auto loan or car lease requires it. Texas requires car owners to maintain liability insurance, but collision insurance is optional if your car is paid off.
Collision coverage pays to repair or replace the vehicle after a collision with another vehicle, an object in the roadway, or a pothole. Because collision coverage is for up to the car’s actual cash value (minus a deductible), it will pay off the loan on a totaled car, which protects the loan provider.
If you don’t have a car loan — regardless of the car’s age — you might decide to save a few hundred dollars a year by declining collision insurance. But is this a good idea? It depends. Car accidents happen every day in San Antonio and across Texas. You could face the loss of your vehicle because you sought to save some money.
Factors to Consider When Reviewing Collision Insurance
The key to whether you should have collision coverage is the value of your automobile. The average cost of collision coverage is almost $300 a year, according to the Insurance Information Institute. Your cost can vary based on multiple factors, such as the value and type of vehicle, your age and gender, and your credit score.
If you’re driving a new car worth $40,000 or $50,000, having collision insurance to cover vehicle repairs or replacement after an accident protects your investment. But vehicles lose value over time. Many cars lose up to 20% of their value in the first year. After that, they may lose about 15% more annually for several years.
So, once you’ve paid off a six-year loan on a $50,000 vehicle, it could be worth about $17,500. At $17,500, your cost would be one year’s insurance premium plus a $1,000 deductible.
That’s probably worthwhile. But as you pay $300 a year for collision insurance, your vehicle continues to depreciate.
Collision insurance may be a reasonable expense for a few years after you’ve paid off your loan. But you need to consider what you can afford — how hard a financial hit would it be to pay a big car repair bill or make a downpayment on a new car out of pocket. If you have an emergency savings fund — most financial advisors suggest having three- to six months of income set aside — you may be able to cover the cost of an accident.
Another question to consider is how often you buy a new car. Some people are never without a car loan and collision insurance.
At some point, your vehicle’s value will have depreciated enough that paying for collision insurance is not worthwhile. Until then, driving in San Antonio without collision insurance is a risk.
Texas Auto Insurance Requirements
Texas law requires drivers to show proof they can pay for any accidents they cause. Most car owners do this by maintaining auto liability insurance.
- Auto liability insurance pays other people’s medical expenses. It pays to repair or replace the other driver’s car when the policyholder or someone allowed to drive their car is at fault for an accident. Car owners in Texas must have liability insurance with at least $30,000 worth of coverage for injuries per person, up to a total of $60,000 per accident, and $25,000 of coverage for property damage. This is known as “30/60/25” coverage.
- Personal injury protection (PIP) covers all auto insurance policies sold in Texas. It pays medical bills for the policyholder or other drivers and passengers in the policyholder’s car, regardless of who was at fault for the accident. It can also pay for lost wages and other nonmedical costs. Minimum PIP coverage worth $2,500 is automatically provided with liability and other auto insurance. If you don’t want PIP, you must decline the coverage in writing.
- Uninsured/underinsured motorist (UM/UIM) coverage pays if the policyholder’s vehicle is hit by someone who doesn’t have liability insurance or doesn’t have enough insurance to pay car repair bills and medical bills of people in the policyholder’s car. It is used in hit-and-run accidents. Insurance companies in Texas must offer you $30,000 worth of UM/UIM coverage. If you don’t want it, you must tell the company in writing.
Collision insurance pays to repair or replace your automobile if it’s damaged in a collision with another motor vehicle or object. Lenders typically require collision coverage if you are leasing or financing your car. Collision is optional insurance if your car is paid off.
Texas Auto Insurance Buyers’ ‘Bill of Rights’
When you buy auto insurance in Texas, the insurance company must provide a summary of your rights under Texas insurance law. Highlights from the Consumer Bill of Rights include your right to:
- Choose the repair shop and parts for your vehicle. An insurance company may not specify the brand, type, kind, age, vendor, supplier, or condition of parts or products used to repair your automobile. However, the insurer is not required to pay more than a reasonable amount for them.
- Reasonable investigation of your claim. Your insurance company cannot refuse to pay you without a reasonable investigation of your claim. You should keep copies of all claim documents (including damage estimates and receipts) and records of all communications with the insurer and others involved in the claim.
- Written explanation of claim denial. Your insurance company must tell you in writing why your claim or any part of your claim was denied.
- Notice of cancellation. If your insurance company plans to cancel your policy, the insurer must inform you by mail at least ten days before the effective date of the cancellation. Your policy may require more than ten days’ notice.
Do You Have Specific Questions? Contact Our Law Firm Today
If you are in a car accident, your costs and losses will be paid by the auto insurance you and/or the at-fault driver hold. If another driver caused the collision and you suffered serious injuries, you may have a personal injury case. However, dealing with another driver’s insurer on your own can be frustrating. You may benefit from having a personal injury attorney provide legal representation.
You should take advantage of a free consultation to discuss whether you have a right to recover compensation. A San Antonio car accident lawyer at Law Offices of Troy A. Brookover can help you file a personal injury claim and seek maximum financial compensation. Contact us today for a free initial consultation to discuss how we can help you.
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