What is Collision Insurance?
Collision insurance is a type of car insurance that pays the covered person for damage to their car caused by their carelessness. This kind of insurance is often added to a basic car policy as an extra to protect drivers in case of damage from an accident.
As the name suggests, accident coverage pays to fix or replace your car if you hit another car or something like a curb or lamppost. It might also pay if someone hits your car and doesn’t have enough insurance to fix it.
You don’t have to get collision insurance if you have paid off your car. But if you finance or lease it, the company that financed it probably needs it until the end of the lease or loan.
How Collision Insurance Works
If you have collision coverage and are in an accident, you can file a claim to help pay for the repairs to your car, even if someone else was at fault. The same goes for if you’re in an accident and your car is a total loss, which means it can’t be fixed.
What if an accident wasn’t your fault? Most of the time, the other driver’s insurance would pay for your fixes. But accident coverage can pay for your costs if they don’t have insurance or don’t have enough insurance.
You must pay your deductible when you file a collision claim, but your insurance company will pay for the rest of the fixes up to the car’s market value. If your collision policy has a $500 deductible and the fixed cost is $1,200, you would pay $500 out of pocket, and your insurance company would pay the other $700.
What is Covered by Collision Insurance?
If your car gets damaged or destroyed in an accident with another car, collision insurance will pay to fix it or replace it, no matter who was at fault. Liability coverage, however, pays for damage to someone else’s car after you cause an accident.
Collision insurance covers the following types of accidents:
- Accidents involving another car
- Getting hit by a tree, fence, or wall
- The car flipped over.
- Damage from things like bumps on the road
What Isn’t Covered By Collision Insurance
You can count on collision insurance to pay for damage to your car even if you were at fault, but there are times when it won’t be enough. This is what your accident policy won’t cover:
- Damage to the car of another driver.
- Damage from a crash with a person or an animal.
- Any harm caused by a natural event, bad weather, fire, or theft.
- Injury costs for people who get hurt in your car or another car.
You can choose from other types of insurance if you want to be covered in the above cases. If you’re at blame for an accident, liability insurance will pay for damage to property and injuries to people.
Comprehensive insurance might be the best choice if you want coverage for things like theft, natural disasters, and damage from the weather.
Comprehensive vs. Collision Insurance
The main difference between collision and complete coverage is what the driver is in charge of. If you have collision insurance, it will cover things within your power or when another car hits yours.
Coverage for everything usually comes under “acts of God or nature,” which are things you can’t control while driving. These can be things like a scared deer, a big thunderstorm, or someone stealing your car.
Let’s look at what happens after a big storm to show how collision and thoroughness differ. Let’s think about two possible events that could happen during that storm: One was a heavy telephone pole that was blown over and hit your truck. The other was that you tried to miss a falling tree but hit a guardrail instead. In the first case, you had no say over when or why the tree hit your car.
In this case, your comprehensive insurance would pay for the damage. You eventually hit the fence if you drove the car in the second case. It was an accident so that collision insurance will pay for the damage.
Collision Coverage Deductibles and Limits
This is the amount you pay out of pocket before your collision insurance starts to pay for your claim. Most of the time, when you buy insurance, you can choose how much your accident deductible will be.
Depending on your insurance company, you can choose from different deductible numbers. The most common are $0, $500, or $1,000. Your premium is likely to go up if you choose a smaller deductible. In the same way, your rate may go down if you choose a higher deductible.
You must pay your deductible out of pocket to claim car repairs. For example, if you choose a $1,000 deductible and your car gets damaged in an accident covered by your insurance, you will have to pay $1,000 to fix it. Deductibles are usually between $250 and $1,000, but the value of your car is vital to consider when you choose your deductible.
There is a limit on collision coverage. This is the most your insurance will pay for a covered claim. The actual cash value of your car (its value minus how much it has lost value over time) is usually the limit of your collision coverage.
Suppose your car is in destruction from an accident covered by your insurance. Your insurance company would send you a check for the car’s diminished value, less your deductible.
Remember that “depreciated value” means that you might not be able to get a better model or make a car to replace your old one. You’d likely need to pay for that yourself.
Is There a Need For Collision Insurance?
It depends. Collision insurance is not a requirement by law like liability insurance is. In other words, you can decide not to have the coverage, but you might change your mind afterward. If you cause a crash, you must pay for the damage you do to your car. That could cost you a lot of money, and you might have to buy a new car to fix it.
If you haven’t paid cash for your car, your dealer will likely require collision coverage, even if your state doesn’t require it. Most people buy a car with a loan from a bank. If you do this, the bank will require full insurance, including accident coverage. When you lease a car, buy a new one on finance, or buy a used one on finance, you must show this.
What does it matter to your lender if you have an accident with your car? Lenders need you to have car insurance because they are holding your car as collateral for the loan. They can take your car to pay off your debt if you stop making payments. If you get into an accident and damage your car so much that it can’t be driven, the bank may have to repay the loan.
Conclusion
If you have a loan on your car or are leasing it, collision coverage is generally required by the lender or leaseholder. However, you don’t have to buy accident coverage if your car is paid off.
One thing to consider is how much it would cost to fix or get a new car if an accident damage or kill it. Having impact coverage could give you peace of mind if you couldn’t afford to fix or buy a new car after an accident.
