Collision Coverage in an Auto Insurance Policy
Collision insurance is a form of auto coverage that pays for damage to your own vehicle. Collision insurance is typically purchased in tandem with comprehensive coverage to form what is known as physical damage coverage. Collision coverage is not required by any state law, but you may need to carry it if your vehicle is financed.
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Function
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Collision coverage will pay for damage to your vehicle if you are involved in an accident with another vehicle. It will cover you for single-car accidents such as striking a guardrail or backing into your garage door. Collision coverage will not pay for damage if you strike an animal in the roadway or receive a crack or chip to your windshield, as those events would fall under your comprehensive coverage.
Significance
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Without collision coverage, you could be forced to pay for the damage to your vehicle if an accident is your fault. If your vehicle is totaled, you could be caught in a situation where you would be left without a vehicle or the means to purchase a replacement. If the accident is not your fault, the other driver's liability coverage would pay for the damage to your car, assuming the other driver has adequate coverage amounts.
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Features
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Collision coverage will pay for the damage to your vehicle after you pay an out-of-pocket amount known as a deductible. The amount of the deductible can range from as low as $100 to $1,000. The higher the deductible, the more you will have to pay out of your own pocket in the event of an accident, but the lower your premium will be. If your vehicle is financed, the lending institution will usually mandate that the deductible cannot exceed a certain level.
Collision Claim Payment
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When you are involved in an accident and need to get your car repaired, the insurance company can compensate you for the damage in one of two ways: the company will pay for the amount of repairs or replacement minus the deductible, or it will pay you based on the actual cash value of the vehicle. If your company uses the latter method, you will probably receive a lesser amount, because this method factors in depreciation of the vehicle.
Considerations
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If your vehicle is not financed, you are free to choose whether you want to have collision coverage or not. If your car is old or of little value, the cost of the collision insurance may outweigh the need to carry it. If you have the financial resources to purchase a new vehicle if your vehicle is totaled, you might also consider not carrying the coverage. Another option would be to raise the deductible as high as possible to lower the premium.
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References
- Photo Credit Crash on the street. German auto model 2007. image by Dariusz Kopestynski from Fotolia.com
