Car insurance basics - Collision Coverage

In our previous article on liability insurance, we introduced the most basic form of insurance protection - the coverage you buy to protect other people from an accident that you may cause. It’s good to make sure that others are covered, and the law generally requires it, but what about yourself? Is there some sort of car insurance that protects you in an accident?

In an ideal world, you would be covered by the insurance of the other party. But sometimes the other party doesn’t have insurance. If they don’t, you coverage will protect you. And what if the accident is your fault? Your liability insurance will pay for damage to someone else or their property, but it won’t pay once cent for anything that happens to your car. For that, you will need collision insurance.

Collision insurance is the coverage that you buy to make sure that your car is repaired if you cause an accident. It generally isn’t required by the states; they only require you to pay to protect other people you may harm. You will certainly find it required, however, by any company that finances a car you buy. If you take out a loan to buy that new SUV, rest assured that your bank will insist that you protect their loan with collision insurance.

Collision protection tends to be more expensive than liability coverage, and many people drop it from their coverage as soon as their vehicle is paid off. It is possible to keep collision coverage and keep the premiums to a reasonable amount if you choose your deducible carefully. The deductible is the amount of damage in an accident that you must pay out of your own pocket; the company will pay anything over and above that amount. If your deductible is $100 and you have an accident that causes $1000 worth of damage, you will pay the first $100 and your policy will cover the other $900. If you elect to accept a higher deductible, thus requiring your insurance company to potentially pay less in the event of an accident, your premiums will be lower.

While your collision coverage will pay to repair your vehicle, there is a limit to how much it will pay. Generally, that amount is limited to the cash value of your vehicle. Insurance companies have ways of determining cash value, but it tends to be somewhat lower than the replacement value, which is what you will have to pay to get another one. The companies calculate the cash value by determining the replacement value and subtracting any depreciation the vehicle may have had.

Comprehensive is additional coverage that will pay for damage to your vehicle that is caused by things other than an accident - fire, theft, natural disasters, etc. For new or financed vehicles, comprehensive coverage is a must. For others, it’s optional.  Often, with older vehicles, the cost of comprehensive coverage can exceed the value of the vehicle. In those cases, you are better off doing without it.

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