What Is Collision Insurance

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What Is Collision Insurance

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.

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 Damage is Not Covered by Collision Coverage?

Collision insurance offers coverage for damages to your car. That means it would not pay for any damage to another person’s vehicle or property. Collision also does not cover all damages to your car. Examples of damages that are not covered by Collision insurance include:

  • Vandalism
  • Floods
  • Fire
  • Theft

How does Collision Insurance Work?

Collision insurance helps to insure your car in case of damage from a crash with another car/object or if your car needs a replacement from an accident. It does not cover damages caused by flood, theft, or vandalism.

If you collide with another driver who is at fault for the collision, the driver’s liability car insurance is to pay for the damage to your car. But in many states, liability car insurance coverage minimum limits are low, about $5000 or $10,000.

Meanwhile, the average cost of a new car is $50,000; a driver with only state-required liability insurance cannot have enough to pay for a newer vehicle. The good news is if you are involved in an accident and the other driver is at fault, if your liability limits are too low, your collision insurance will help pay for your car damage.

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.

Key takeaways

  • Collision insurance 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.
  • Collision insurance 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.

Comprehensive vs. Collision Insurance

­­The key difference between collision and comprehensive coverage lies in what the driver can control. Collision insurance covers incidents within a driver’s control or when another vehicle hits your car. Comprehensive coverage typically applies to events that are usually beyond your control while driving. These can include situations like a startled deer, fire, a severe hailstorm, or a car theft.

Collision coverage pays for damage from crashes, while comprehensive insurance covers non-crash damage, like fire, hail, or theft. When you have both collision and comprehensive insurance along with liability insurance, it is often called full coverage car insurance.

Do you need collision insurance?

As your car ages, collision coverage becomes less beneficial since it won’t pay out more than the car’s current value. If you don’t have a loan or lease that mandates it, collision insurance can eventually become a bad deal, costing you more than what you would receive after an accident.

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.

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