When should you get rid of collision coverage?

Fresh out of college, I drove a 12-year old Ford Pinto I bought for $450. I loved that little car, even knowing potentially I was in a heap of trouble if someone rear-ended me. Drove it for about a year until I got a real job in journalism and needed a more dependable vehicle.

Because the car was worth so little and I wasn't making much money, I only covered liability insurance on it. After all, why carry collision coverage on a vehicle that probably couldn't survive a collision?

Fast forward 30 or so years, and once again I own a 12-year-old car. It's the third vehicle in our driveway and it has no collision coverage. It's not worth it because we don't need to replace the car if it gets totaled.

However, that's not going to be the case for everybody. So, when should you have collision coverage and when shouldn't you?

Of course, every situation is going to be different. The important thing is you need to follow any applicable laws about collision. For example, any vehicle you are financing is going to need collision coverage (unless you have an extremely lenient lender). This advice only applies to cars owned outright and is a guideline.

How high are your premiums?

Are you paying $500 a year for a car worth $2,500? That may not make sense, especially if you have a high deductible of say, $1,000. In effect, you're paying $1,500 a year, or 60 percent of the car's value. You're better off, if you have the fiscal discipline, putting the $500 away in a savings account.

After a couple years, you will have $1,000 put away that could either be your collision fund or the down payment on your next car.

What happens if you have no car?

Frankly, some people can't get to work without their cars. Public transportation's not an option for many.

If losing your car means losing your job, you're probably going to want to keep collision coverage so you can have rental coverage while yours is being fixed. Remember, though, you're still going to be responsible for the deductible. You'll need to have some way of paying for that, too.

Do you rent cars?

Unless you like paying high daily fees or have a credit card that supplies complimentary rental coverage, you're going to need a collision policy that covers rentals.

Ultimately, what your decision comes down to is the amount of risk you are willing to take as well as your ability to take it. Lee Trevino used to say the most pressure he ever felt on the golf course was when he had to sink a putt to avoid losing $20 when he only had $5 in his pocket. There are others who fear dropping a quarter even when they have $100 in their wallet.

Absolutely need a car and the security it provides? You don't want to gamble. Have some breathing room if your wheels suddenly depart? Then you might be able to drop your collision insurance.