Is Collision Coverage Important? Dave Ramsey says it’s essential with a few exceptions.
- Collision insurance is a type of optional auto insurance coverage.
- Dave Ramsey says most people should have collision insurance, but some drivers may not need it if two things are true.
- If the vehicle in question is reimbursed (or could be replaced in cash), collision damage waiver is not strictly necessary (but most drivers will probably want it anyway).
Certain types of car insurance are mandatory in most states. This includes liability insurance. But other car insurance coverage is optional, including collision damage waiver.
Although no law requires collision insurance, most people should still buy it according to financial expert Dave Ramsey. In fact, unless two very specific things are true, Ramsey thinks getting that coverage is key.
Why does Dave Ramsey think drivers need collision coverage?
To understand why Ramsey thinks buying collision insurance is important, it helps to know what this type of insurance does.
“Collision insurance covers the cost of repairing or replacing your car if you are involved in an accident with another vehicle or object,” Ramsey explained. “No matter who is at fault, collision covers your vehicle as opposed to liability, which covers other people’s vehicles or medical expenses.”
Basically, as Ramsey explains, the required liability protection only pays for others damage caused to persons by an insured. Collision coverage pays for damages to policyholders own vehicle. And Ramsey says it’s very important to make sure you have insurance coverage that will. “Without it, you will be required to replace your car if it runs out.”
What are the exceptions?
Although Ramsey made it clear that most drivers need collision damage waiver because they could face huge costs without it, he explains that there are two possible exceptions to this general rule.
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“The only time you might not need a collision is if your car is reimbursed and, again, you can replace it from your savings,” he said.
The first point regarding car reimbursement is really important. In the vast majority of cases, when drivers have a car loan or lease a vehicle, they will be required by their lender or rental provider to have collision coverage in place. The lender wants to protect the vehicle that serves as collateral and so lenders require insurance coverage so that the insurer sends a check if the car is destroyed. Without insurance, a driver could be forced to pay off an auto loan on an irreparably damaged vehicle.
But even for drivers without a car loan, Ramsey thinks collision coverage is still necessary unless they can pay to replace their car with their savings. That’s because most people simply can’t and won’t pay cash to replace their entire car when something happens to it in an accident. That could be a huge financial burden, but that would be the reality motorists without collision insurance would face.
Ultimately, Ramsey’s advice on this issue is really good. Drivers with auto loans absolutely need collision coverage, and those without loans should consider both whether they can afford to replace their vehicle out of pocket and whether they would like.
Considering this possibility, most people (except those with very low value vehicles) will probably decide that their best course of action is to pay for collision coverage. The premiums for this supplemental coverage are usually quite affordable and are well worth the extra protection that this coverage provides.
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