What is collision insurance, and what is everything that you need to know about car collision insurance coverage? Collision insurance coverage pays to replace or repair your car when it is involved in an accident like a crash with another vehicle or object like a tree or a poll. It can also help cover your car repairs or replacement if the other driver doesn’t have enough insurance coverage to pay for the damage to your car.
Meanwhile, Collision insurance may be an option if your car is paid off. But if you want to lease your car, it is compulsory that you have collision coverage until the lease period is over. Fortunately, collision coverage works whether you are at fault or the other person is. Unlike some auto insurance coverage, you don’t need to select a limit for collision.
How Does Collision Insurance Work?
When you file a claim under your collision insurance, you are typically responsible for paying a deductible before your insurance provider covers the rest. A deductible is the amount of money you agree to pay out of pocket before your insurance company steps in to cover the rest of the expenses. The higher your deductible, the lower your premium (the amount you pay for insurance), but that also means more out-of-pocket expenses if an accident occurs.
For example, if you have a deductible of $500 and the repair costs after an accident amount to $3,000, you will pay $500, and your insurance company will cover the remaining $2,500.
It’s worth noting that collision insurance only covers the cost of repairs or the replacement value of your car. It does not cover medical expenses, damage to other vehicles, or damages to your property or another person’s property, which would typically be covered by liability or comprehensive insurance.
What Type of Accident Does Collision Cover?
Collision helps to cover your car damages if:
- It was hit by another Vehicle.
- Hits another car.
- Hits another object like a tree or fence.
You can file for a claim regardless of who is at fault or not at fault in the accidents.
What Does Collision Insurance Cover?
Collision insurance covers a wide range of scenarios involving damage to your car, including:
- Accidents where you hit another vehicle.
- Crashes involving stationary objects like trees, poles, or fences.
- Damage from rolling your car over in a single-vehicle accident.
However, it’s important to remember that collision insurance does not cover every possible situation. For instance, it doesn’t cover damage from theft, weather events like floods or hail, vandalism, or hitting an animal. These types of incidents are generally covered under comprehensive insurance, which is often bundled with collision coverage to provide more extensive protection.
Why is Collision Insurance Important?
Collision insurance is particularly important for drivers who have a newer vehicle or a car with high value. Car repairs after an accident can be extremely costly, especially for major collisions that result in significant damage. Without collision coverage, you would have to pay out of pocket for repairs or to replace your car, which could amount to thousands of dollars.
Additionally, if you lease your vehicle or have an auto loan, your lender or leasing company may require you to have collision insurance as part of your agreement. This ensures that their investment (your car) is protected in the event of an accident.
Read Also: How do I Choose the Best Car Insurance?
Who Needs Collision Coverage?
Car owners who drive cars that are worth more than their car insurance premiums should consider buying collision coverage. This includes:
- Owner of newer cars.
- People who lease or finance their vehicles.
- Owner of older vehicles that have maintained their value.
You may not need collision insurance if you own an older vehicle because you may end up paying more in premiums than the value of your car. However, not buying collision coverage leaves you financially responsible for repairing or replacing your car in the event of a collision.
How is Collision Insurance Different from Comprehensive Insurance?
One of the most common questions people ask is how collision insurance differs from comprehensive insurance. While both types of coverage protect your vehicle, they cover different types of risks.
Collision insurance specifically covers damages from accidents or collisions with other vehicles or objects. On the other hand, comprehensive insurance covers non-collision-related damage, such as theft, vandalism, natural disasters, falling objects, or animal-related accidents (like hitting a deer). Essentially, comprehensive insurance is broader, covering a wider range of potential incidents that could harm your car.
Many drivers opt to have both collision and comprehensive insurance to ensure they’re fully protected from a variety of risks, but you can choose one or the other depending on your needs and budget.
Should You Get Collision Insurance?
Whether you should purchase collision insurance depends on a few key factors, such as the value of your car, your financial situation, and your risk tolerance. If you drive a high-value car or rely on your vehicle for daily commutes, collision insurance can offer significant peace of mind.
However, if your car is older or has a low resale value, you might consider whether the cost of the premiums is worth the potential payout. In these cases, you may decide to invest in a savings plan for unexpected repairs rather than paying for collision insurance.
What is a Collision Insurance Deductible?
A collision deductible is the amount that you have agreed to pay before your insurance company starts paying for your damages. We can put it that, it is the financial risk you are ready to take on if you are involved in an accident. The higher the risk you are willing to take (higher deductible), the lower your insurance cost. The less risk (lower deductible), the higher your insurance cost.
So, let us say you get into an accident that causes $2000 in damage to your car and you have a $500 collision deductible. You will pay the first $500 in damage for the repairs, and your insurance company will pay the remaining $1500.
How do I Choose my Collision Deductible Amount?
When choosing a collision insurance deductible, it is very important to put a balance between your current financial capabilities and potential budget in the event of an accident. A higher deductible means lower premiums, but you will be responsible for paying more money from your pocket to repair or replace your vehicle. Also, a lower deductible means higher premiums but reduces the amount you have to pay after a collision accident.
You should also consider the value of your vehicle, if you have an old car and you choose a lower deductible in exchange for a higher premium, you will have to pay more in premiums than your car is worth.
Reducing your Collision Deductible
Remember that your collision deductible applies even if you’re not at fault for the damage to your car. If the other driver doesn’t have enough insurance to cover the damage and you don’t have underinsured or uninsured motorist property damage coverage (UMPD), collision insurance will cover the damage.
If it feels unfair to pay for damage someone else caused, you might consider lowering or eliminating your insurance deductible, which will increase your policy cost. Alternatively, you can add a collision deductible waiver to your policy. Available in some states, this waiver eliminates your deductible if an uninsured driver causes the accident and your collision coverage pays for it.
Another option to reduce your collision deductible after an accident is to add “disappearing deductibles” to your policy. Some auto insurance companies lower your deductible by a certain amount, usually $100, for each year you don’t have an accident or ticket. The specifics vary by company, but disappearing deductibles generally cost extra and may not be worth it if you never get into an accident.
How much does collision insurance cost?
Depending on the insurer, you might need to buy both collision and comprehensive coverage together. This requirement could stem from having an active loan or lease or because your insurer insists on purchasing both together.
NerdWallet’s June 2024 analysis of national car insurance rates shows that the average cost for full coverage insurance is $1,717 per year. Car insurance companies set their rates based on several factors, including the type of car you drive, your annual mileage, and your location.
Why Should You Buy Collision Coverage?
- It is used no matter who is at fault in the collision accident.
- Helps to pay the cost of the damage to your car so you don’t have the whole bill on you.
- It might allow you to start the repairs on your vehicle while the claim is being investigated.
If your car is leased or financed, your lienholder may require that you have a collision and comprehensive coverage. This helps to protect the vehicle.
Key takeaways
- It helps to cover car damages when you are not at fault.
- Collision is separate from a comprehensive automobile insurance policy.
- When two drivers are involved in an accident, collision insurance will pay for the damage; it covers damages from accidents and objects.
- Collision insurance cover events that is within a driver’s control when a driver crashes with your car.
- It can only be purchased with liability and comprehensive coverage.
Collision coverage is very vital for insuring your car against the financial loss that comes with physical damages to your car.
Conclusion
When shopping for collision insurance, it’s important to consider your deductible, the value of your car, and your overall risk tolerance. By balancing these factors, you can find a policy that fits your needs and ensures you’re protected on the road. Let us know what you think below.
