What is Collision Insurance?

Two Cars Damaged In Road Traffic Accident

Collision coverage is a type of auto insurance policy that will repair or replace your vehicle when you have hit another vehicle or stationary object. Based on the specifics of your policy, it may also cover damages if another driver hits your car and doesn’t have enough insurance to pay for the damage.

What does Collision Insurance cover? 

Collision coverage helps pay for the cost of repairs to your vehicle if it’s hit by another vehicle. Below is a list of items that collision insurance will cover:

  • A crash that you are at fault for
  • A collision with an object such as a mailbox or tree
  • Your car flipping because of weather or road conditions
  • If they cited another driver for being at fault for hitting your vehicle and their insurance maximum is not enough to cover all the damages, collision insurance will cover the difference
  • Damage caused by potholes

Unlike liability insurance, your collision insurance policy kicks in even if you are at fault. While this collision coverage definition may sound simple enough, collision insurance can apply to a wide range of accident types. Be aware that collision insurance only reimburses you for damage to your car, not for damage to other vehicles or objects, or for bodily injuries sustained in the accident.

What is Not Covered by Collision Insurance?

Collision coverage only provides coverage for damages to your vehicle. That means it wouldn’t pay for damage to another person’s vehicle or property. Collision insurance also doesn’t cover damage to your vehicle in every situation,

Collision coverage doesn’t apply to:

  • Collisions with animals, which are covered under comprehensive coverage
  • Injuries or damage you cause to another driver and their vehicle, your liability coverage applies instead
  • Damage to your vehicle caused by events outside of your control, such as a tree falling on your car or theft, which is covered under comprehensive coverage
  • Vandalism
  • Floods and fire

What is the difference between collision and comprehensive?

Collision and comprehensive insurance are two types of auto insurance coverages. Each type of coverage pays for the cost of damage to your car, but they cover damages in different situations.

Collision coverage pays for damage to your car that occurs in a crash, while comprehensive coverage pays for damage due to (almost) everything else. They work together to repair or replace most types of damage to your car. However, they don’t pay for damage to other vehicles, or for injuries. It’s important to know what each covers so you have enough coverage for your vehicle.

Comprehensive car insurance pays for damages caused by something besides your car driving into something else. Comprehensive coverage includes coverage due to:

  • Natural disasters, including storms, tornadoes, hurricanes, earthquakes, and hailstorms
  • Fire, civil commotions, and explosions
  • Vandalism and theft
  • Damage from hitting animals, such as a deer
  • Broken windows or windshield
  • Falling objects
  • Acts of terrorism

What is the difference between liability and collision insurance?

The difference between liability and collision insurance is who is covered in the event of an accident. Liability insurance covers the vehicle damage and injuries of the other person’s property, regardless of who is at fault. If you are driving and rear-end a vehicle, your liability will cover the other vehicle’s damage and any bodily injury medical bills within your policies limits. Your collision coverage will cover your vehicle’s damage if you are at fault for the accident.  

Most states require by law drivers to carry a minimum of liability coverage, so there is coverage if you are at fault for hitting another vehicle. Collision is not required by law but may be required by a lender if you have a loan on your vehicle. 

Liability is essential to protect you in the event you cause an accident and while collision will cover damages to your vehicle if an uninsured or underinsured driver hits your vehicle. 

How collision insurance deductible works

Most collision insurance policies have a deductible. When you are deciding on a policy, there is a deductible that can range from $500 to $1500. You can choose how high your deductible is going to be. The higher your deductible, the lower the monthly payment on your insurance policy will be, while choosing a lower deductible will increase your monthly insurance payment or rates. 

A deductible is the amount of money you pay before the insurance covers the remaining balance for work to repair your vehicle. For example, you hit a tree and have $1500 in damages. That would mean you pay $500 and your insurance would pay the remaining $1000. 

If the damage is only $500 and your deductible is $500, you would not want to make a claim with your insurance provider. This will only cause your rates to increase and your insurance provider will cover none of the damage since you are required to cover the first $500. 

When choosing a deductible, it is important to select a deductible that you will afford in the event you are in an accident. Your insurance will not cover the damages until your deductible is paid. You also need to consider the monthly payment, since a lower deductible will increase your monthly payment. 

Do you need collision insurance?

Collision coverage is not required by law, but if you have a loan on your vehicle, the lender will require this coverage. If you do not have a lien on your vehicle, there are a few factors you should consider when deciding if you need collision coverage. 

First, you need to consider the value of your vehicle, as your vehicle ages the value decreases, so if your vehicle is worth $5000 and you have a $1500 deductible and a $105 monthly payment on the collision coverage it may not be worth paying and could cost you money. Next, it is important to consider how much longer you will drive your car. If your car is worth $5500 and you plan to buy a new car in a year, collision coverage may not be the best option. You should consider these items when deciding on collision coverage.

Is the cost of collision plus its deductible add up to more than your car’s value, if so you won’t benefit from collision coverage?

Subtract your deductible from the value of your car. If you can afford to come up with this in the event your car is totaled out, then reconsider coverage depending on the monthly premium. 

Depending on your financial situation, the value of your vehicle, and insurance premium with collision coverage, you may benefit from collision coverage, or it may be money not well spent. 

Conclusion

Collision coverage is not legally required. It is required by many lenders when you have a loan on your vehicle and even if your vehicle is paid off, it may benefit you to have it added to your policy. Collision coverage will protect your vehicle in the event you are in an accident and the other driver is under or uninsured, saving you from a stressful situation of trying to come up with funds to fix your car. Assessing your vehicle’s value, financial situation, and cost of the addition of collision coverage is important to do so you are making the best choice for your finances.

Previous articleWhat Is an Annual Percentage Yield (APY)?
Next articleWhat is a Reverse Mortgage & How it Works?