Researching car insurance can be confusing. Getting comfortable with the vocabulary is one simple step you can take to make shopping for insurance quotes easier.
The words for today? Collision Insurance.
Collision insurance is a car insurance basic. It’s a part of an auto insurance policy that covers objects damaged as a result of a collision. Simple enough, right? But the details (who and what does it cover, for example) aren’t that obvious.
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Now, let’s take a look at collision insurance alongside two other insurance basics first.
Liability, Collision, and Comprehensive
These are the three basic categories of car insurance products that make up what is referred to sometimes as “full coverage auto insurance” or comprehensive car insurance. The phrase full coverage can be misleading, however, so you’ll want to read more on that here. For now, though, let’s look quickly at how collision insurance relates to the rest of these comprehensive coverage basics:
|Liability Coverage||Bodily injury/property damage if you are at fault or if the person at fault is an uninsured motorist or an underinsured motorist.||Doesn’t cover damage to your own car should you be at fault.|
|Collision Insurance Coverage||Damage to objects (not animals or people) and vehicles as a result of a collision regardless of fault. Hit-and-run accidents.||Doesn’t cover damage due to "Acts of God" (see Comprehensive).|
|Comprehensive Coverage||"Acts of God"/things out of a person’s control, like fire or flood.||Doesn’t cover medical expenses/auto damage due to a collision.|
Now that you have an idea of collision in comparison to other basics of a car insurance policy, let’s dive a little deeper into some collision coverage specifics.
What does collision insurance cover?
Collision insurance helps pay for the cost of repairs to your vehicle in the following scenarios (even if you are at fault):
- Your vehicle hits another vehicle
- Your vehicle hits a stationary object (like a guardrail, for example)
- A vehicle/object hits your vehicle while it is parked
Collision coverage is also useful to have if an at-fault decision (and resulting awarding of damages) is tied up in a lengthy court case. Collision coverage can be used to fix your car even while judgment on damages is in limbo.
Wait, I thought that damages were covered under liability insurance.
It’s easy to get confused. Liability insurance helps pay for other people’s damages and medical expenses if you are at fault. It has nothing to do with covering costs for damage to your vehicle. Collision coverage helps cover damage to your vehicle regardless of who is at fault.
Is collision insurance required?
Collision insurance isn’t a state requirement under the law. However, there are certain situations in which carrying collision insurance is typically a must:
- If you are leasing your car
- If you are financing your car
In both of these cases, the dealership or lender could ultimately get stuck paying for damages, so requiring you to carry collision insurance only makes good business sense. And you can’t just choose not to purchase it. There are processes in place that keep lenders informed of the kind of coverage that is carried and future policy changes for the cars they have loans out on.
What does collision insurance not cover?
- Damage due to theft, vandalism, fire, or natural disaster. These are sometimes also referred to as Acts of God.
- Damage that is paid from another driver’s policy, if the other driver was at fault.
How much does collision insurance pay out?
Just like any insurance, you’ll pay a monthly premium (or rate) for collision insurance. The amount you pay monthly is determined by the deductible amount you choose (the deductible is the amount you have to pay out of your own pocket before the insurance company will begin paying their part). Generally, a higher deductible will translate to a lower premium and vice versa.
Let’s see how a typical collision coverage event would play out in terms of the deductible and the ultimate cost to the insured:
Mark hit a fire hydrant with his truck. The fire hydrant was okay, but it cut a 2-foot long gash in the side of his brand new vehicle.
The cost to fix his vehicle was estimated to be $4,500.
Under his collision coverage:
Mark made an insurance claim and paid $1,000 (his deductible) towards the $4,500 estimate.
Mark’s insurance company paid the remaining $3,500.
On paper, this looks like great savings. But Mark still must factor in the cost of his insurance premium to determine if the savings was actually worth it.
Does it always make good sense to carry collision coverage?
When deciding to drop or add collision coverage, you should take into consideration the actual cash value of your car in relation to how much your premium and deductibles are. Although extra coverage may provide you with a sense of security psychologically, imagine an actual scenario in which you have to pay your current deductible to repair damages. What is the true cost of collision? Is the car you are insuring really worth it?
Additionally, are you dependent on your car for income? And finally, would your collision coverage premiums be better spent put towards maintaining and/or repairing your vehicle instead? Anything you can do improve your car insurance rates while still maintaining the coverage you can be happy with is desirable.
How well do you understand collision coverage?
Collision coverage isn’t always straightforward in terms of what is covered and what isn’t. For example, this type of coverage doesn’t apply when it comes to damages caused by fire, theft, and natural disasters (these fall under comprehensive insurance coverage). But even a basic understanding of collision coverage and how it relates to other insurance products can help you get an improved insurance package.
Test yourself! See how well you understand collision coverage right now:
Collision insurance can be a benefit. But, it may also be an added cost you could do without depending on your financial situation, the value of your vehicle, and the level of security you can live with day to day. If having collision insurance is in fact required or if you just think it makes good sense, consider evaluating collision coverage deductibles and premiums for even higher levels of reassurance and savings.
Let Insurify help you compare quotes, unlock savings, choose between optional coverage limits, and select additional coverages for your auto policy.