Collision Coverage Insurance What Is It And Why Have It?

By Author: Jerry Pickett
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Collision coverage essentially covers the cost of repair of damage to your vehicle. This includes damage caused in the event of your car hitting or being hit by another vehicle or damage sustained by hitting a stationary object, such as a tree, wall or lamppost. This type of insurance will pay for any repairs to your vehicle, less your chosen deductible.

While not a state requirement, it is sensible to include collision coverage, depending on the age of your vehicle. For drivers of older vehicles, it is worth considering dropping this type of coverage because any payout is limited to the cash value of the car. Therefore, drivers of older cars may not find it cost effective to get collision coverage for their car as the insurance premiums may well be more than the value of the vehicle. On the other hand if your car is relatively new or is worth at least as much as any collision repairs are likely to cost, then collision coverage can be a sensible investment. If your car was bought with a loan or is on a lease, the lien holder is very likely to insist on collision coverage as part of your agreement. Terms and conditions ...
... vary, depending on your individual policy.

How Much Protection Will Collision Coverage Provide?
The amount of coverage depends very much on the deductible you choose. The deductible is the portion of any claim that the insurance holder is responsible for paying. For example, on a $2,000 claim if you have a $500 deductible, the coverage will provide $1,500. A higher deductible can significantly lower the cost of the insurance premiums. You should balance this against your ability to pay the out-of-pocket expenses.

For drivers of older cars, it is worth looking at the Actual Cash Value (ACV) of your vehicle prior to taking out collision coverage. Be aware that the ACV is not the amount you bought the vehicle for, as it is likely to have decreased in value due to age, use, and wear and tear. Insurance companies assess the value of a vehicle by using the Blue Book value and consider the actual condition of the car as well.

Who Needs Collision Coverage?
Anyone who has bought a car through financing is likely to find that the finance agreement requires them to hold collision coverage.

Anyone who has a lease agreement for their vehicle will also find that the agreement requires this coverage.

If your vehicle is new or in very good condition, it would be very sensible to have this coverage to undertake any repairs or, in a worst case scenario, obtain a replacement vehicle.

What Does Collision Coverage Not Insure?
This insurance does not cover damage such as fire, theft of the vehicle or any parts, or "acts of God." Acts of God include incidents such as hail or flood damage. These are covered by comprehensive coverage.

It is not a replacement for liability insurance, which all drivers are required, by law, to carry (the minimum amount of which varies from state to state.) Liability insurance covers damage to others that you are responsible for, whether that is damage to their vehicle or personal injuries.
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