Does it ever make sense to skip collision and comprehensive car insurance?

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I have always been surprised that collision and comprehensive insurance are optional. When would it make sense to skip them? – Ed, Toronto

While it’s a gamble to skip any insurance coverage, if you have an older car, you’ll likely have less to lose.

“There is a time when a conversation should take place about [the costs] of keeping collision and comprehensive on the vehicles,” said Traci Boland, a London, Ont.-based insurance broker and president of the Insurance Brokers Association of Canada. “Generally, that starts when the vehicle is 10 years old.”

Because cars are usually worth less as they get older, you need to weigh how much you’re paying for insurance versus how much money you could get back if you were to make a claim.

There are three main types of car insurance coverage: liability, collision and comprehensive. Liability coverage is mandatory everywhere in Canada. In most provinces, the other two are optional.

In the simplest terms, liability covers damage and injuries that a driver causes to other people, vehicles or property. Collision covers the cost to repair your own vehicle if you’re in a collision and you’re at fault. Comprehensive covers almost anything else that isn’t a collision, including theft and vandalism.

For instance, if you run into another car, damage to the other car or its occupants would be covered by liability, but repairs to your car would only be covered if you have collision insurance. Similarly, if a tree branch falls on your car, you would only be covered if you have comprehensive.

Without them, you would be entirely on your own to repair or replace your car.

But if your car is leased or financed – even if you bought it used – the bank or finance company will require both collision and comprehensive coverage, Boland said.

In most of Canada, if you have the minimum amount of insurance required, damage to your car is still covered if someone hits you and you’re not at fault – although Ontario will let drivers opt out of that coverage, known as direct compensation property damage (DCPD) coverage, or no-fault insurance, starting in January. If you have waived that coverage, and your car is struck by another vehicle, you’re on your own. You will not receive a penny toward repair costs, the value of the vehicle, or loss or damage to the vehicle’s contents.

Math required

So how much could you save by opting out of collision and comprehensive? Boland said it’s tough to give a ballpark range because insurance is different for every car and driver.

But typically, collision and comprehensive will add a few hundred dollars a year to a policy, she said.

When we looked at quotes on Rates.ca, an insurance rate comparison site, for a fictional 35-year-old Toronto male with a 2013 Honda Civic and a clean driving record, without collision and comprehensive, that driver would pay between $153 and $378 a month ($1,836 to $4,536 a year), depending on the company.

Collision added about $25 a month ($300 a year) and comprehensive added between $8 and $15 a month ($96 to $180 a year). That works out to about $400 to $500 a year for both.

Before you cancel optional coverage, “it’s a good idea to do a bit of math,” said Anne Marie Thomas, director of consumer and industry relations with the Insurance Bureau of Canada.

Estimate how much your car is worth (AutoTrader.ca, an online search of used car dealers and auto marketplaces will show how much similar cars are selling for in your area) and how much of a deductible you’ll have to pay out of pocket.

For example, if it will cost $4,000 to replace your car and your deductible is $1,000, the most you’ll get if your car is totalled is $3,000, Thomas said. “A person might feel that it is worth paying a few hundred dollars a year for collision and comprehensive to get $3,000.”

But if your car is worth $1,500 and you have a $1,000 deductible, you would only get $500. So, collision and comprehensive “might not be worth it,” Thomas said.

Typically, once a car is 10 years old, the cost of collision insurance tends to rise because parts often become more expensive and harder to find, Boland said. Comprehensive coverage, on the other hand, tends to become cheaper as your car ages and is worth less, she said.

Better safe than sorry?

When you’re considering skipping optional coverage, don’t bet on your abilities as a driver to keep you out of at-fault scrapes that could cost you thousands of dollars.

“What if there’s a snowstorm and you slide around the corner and hit a tree – that’s [deemed an at-fault] collision,” Boland said.

Anyone skipping coverage to save a few hundred dollars a year should understand the potential financial risks, said a British Columbia insurance broker.

“I’m in insurance, so it’s hard for me to say not to get insurance,” said Rosy Puri-Manhas, a Burnaby, B.C. insurance broker and vice-president of the Insurance Brokers Association of British Columbia. “If you’re paying more for insurance than what your car’s worth – if you’re paying $5,000 a year and the car is worth $1,000 – then that’s probably the only time I could see somebody deciding to just get the basic insurance [required] to drive it on the road.”

Have a driving question? Send it to globedrive@globeandmail.com and put ‘Driving Concerns’ in your subject line. Emails without the correct subject line may not be answered. Canada’s a big place, so let us know where you are so we can find the answer for your city and province.