Car Insurance

What Does Collision Mean?

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 8 minute read

The majority of states mandate that motorists get liability insurance. However, unless you have an outstanding balance on your auto loan, comprehensive insurance is not required. That doesn’t imply there isn’t anything to it. This is especially helpful for owners of newer, more expensive automobiles, since it may dramatically lower their share of repair costs.

However, the price of financial security is increased insurance rates. You should find out what it is, how it works, and if you really need it before purchasing any more coverage.

What Is Collision Coverage?

Collision insurance is a supplement to a standard auto insurance policy that pays for repairs to the insured vehicle as well as any costs associated with an accident the policyholder causes while driving. Even if it’s not mandated by law where you live, your auto lender will almost certainly insist that you get collision insurance on your vehicle until you pay off your loan.

Repair or replacement costs for damage to your car resulting from a collision with another vehicle or an immovable object are covered by collision insurance. Three sorts of traffic accidents in particular may trigger its activation.

Accident With Another Vehicle

If you are involved in an accident with another car (or cars), your collision coverage should kick in. It makes no difference whether the other automobile is moving or not. No matter the situation, you need to make sure you have collision insurance.

Collision with a Fixed Object

Collision insurance pays for repairs after crashes with immovable objects including fences, buildings, trees, telephone poles, and embankments. For collision coverage to kick off, your car usually has to be moving. If a tree falls on your unoccupied car while it is parked, collision coverage will not help you out.

Rollover

The insurance company will pay for repairs after a collision even if the car was involved in a one-car accident that resulted in a rollover. In the event of a collision, coverage will continue even if the vehicle stops without colliding with anything.

How Collision Insurance Works

In the event of an accident, collision insurance will cover the costs associated with fixing the damage. If you have a car loan and you still owe money, the auto lender may get all or a portion of the payment.

After deducting your collision deductible, you will get the amount necessary to repair or replace your car. Distinct from the deductibles for bodily injury and uninsured/underinsured motorist coverage is the collision deductible.

The amount of your collision coverage is often equal to the value of your car. Your collision limit would be $30,000 if your automobile was worth that much. Your insurance company will decrease your limit automatically as your automobile loses value.

What Is the Cost of Collision Insurance?

The annual premium for collision insurance is roughly $200, while the actual cost is determined by a number of factors, including:

  • Fair Market Value, or the Value of Your Car. Generally speaking, the monetary value of a vehicle determines the extent to which it can be damaged before being written off. Therefore, higher-priced vehicles incur a premium for collision insurance.
  • The Brand and Model of Your Car. The cost of repairs might vary depending on the manufacturer of your car. As a rule, repairing a luxury vehicle will set you back more than a budget vehicle.
  • Distance Traveled. Your risk of getting into an accident increases the more you drive. The higher your yearly mileage total, the higher your collision insurance premium will be.
  • The Risks Your Car Faces. Automobile insurance costs can be lowered if safety measures are included. Your collision coverage premium may be reduced if your vehicle is equipped with a lane departure warning system or automatic emergency braking.
  • Deductible on your collision insurance. Your premiums will go down if you raise your deductible. However, if you make a claim, your out-of-pocket expenses would increase.
  • A Record of Your Automobile Insurance Claims. Your collision premium will almost likely be greater if you’ve made many claims in the past five years than if you haven’t filed any claims or if you’ve filed just one claim.

What Doesn’t Collision Insurance Cover?

Even with collision coverage, some damages may not be covered. In particular, your insurance does not shield you from financial or legal responsibility for harm or injury caused by the following:

  • An animal collision. Vehicles colliding with animals are not covered by collision insurance. Without additional cars being involved, your collision coverage may not pay out if you strike a deer on the highway. An insurance claim should be filed instead.
  • Animals do several other types of damage. When your vehicle is parked, even a bear pawing at the doors or a squirrel nibbling through the engine wiring won’t be covered by collision auto insurance. In other words, that’s what all-inclusive plans are for.
  • Objects can cause harm even if they don’t collide directly. Flying or falling items, even if they hit the car while it’s in motion, aren’t covered by collision insurance. Damage to windshields from flying debris and body damage from road debris are two common instances.
  • Damage Caused by the Weather. When weather plays a factor in an accident, collision coverage will kick in. However, it doesn’t pay for repairs to vehicles that were damaged while parked or in motion due to weather, such as leaky roofs from falling trees or hail. All-hazards insurance includes protection against weather and natural disasters.
  • Accidental Loss Due to an Explosion or Fire. Vehicle fires and explosions not triggered by a collision or rollover are not covered by collision insurance. Even if your car burns and crashes, you might still be subject to this regulation. The damage from the crash itself may be covered by your insurance, but any fire damage may not be.
  • Misappropriation of property and vandalism. Theft and vandalism are not covered by collision insurance. That holds true even if the damage was caused by a collision, such if a car thief collides with something or another vehicle while trying to get away.
  • Negligence-Related Losses. If your insurance company determines that your carelessness or lack of attention contributed to the accident, they may choose to reject your claim. If you park your car on a steep incline without using the parking brake, for instance, your insurance company may not pay for the damage that ensues.
  • Expenses incurred as a result of your own criminal behavior. Your collision coverage will not pay for repairs if you hit another car or roll yours over while escaping police or driving drunk.
  • Liability Costs Caused by an Accident. Vehicle damage caused by collisions are covered by collision coverage, but medical expenses and liability claims are not. If you cause an accident and someone sues you, you may either use your standard liability insurance or get an umbrella policy to cover their damages.

The Benefits and Drawbacks of Collision Insurance

From different vantage points (or wheels), the argument for or against collision insurance changes.

Benefits

There are a number of advantages to having collision coverage. It may help you get back on your feet after a major accident, regardless of the value of your vehicle, and covers important gaps in the state minimum coverage requirements for auto insurance. For instance:

  1. It can significantly cut down the price of a major collision. Without collision insurance, the cost of repairs to your car after a collision would come directly out of your pocket.
  2. Just the deductible on your insurance coverage (often $500 or $1,000) is due.
  3. It’s a great way to get a new car with minimal out of pocket expense. In the event of a total loss due to an insured event, the policy will pay for a replacement vehicle, less the deductible and any additional down payment required under the policy.
  4. If the vehicle is older, you can skip it. You are no longer required to maintain collision coverage once you have paid off your automobile. Except if your car has a high value, you should probably sell it.

Drawbacks

Having collision insurance does not come without its drawbacks. It raises your premium and eliminates coverage for some types of damage. For instance:

  1. The cost of your insurance premium will increase. It’s a rule of thumb that adding collision coverage to your car insurance will cost you more than adding it to a policy without collision coverage.
  2. There are several places where coverage ends. In the realm of collision, you’ll find car wrecks and overturns. That doesn’t account for many things, including the inevitable occurrence of things like broken limbs, hail, flooding, and vandalism.
  3. It might be necessary to satisfy the requirements of your lender. The terms of your auto loan or lease agreement likely stipulate that you maintain collision coverage on your vehicle at all times.

Do You Require Collision Insurance?

Even though collision insurance is cheap, it’s not something you should buy if you don’t think you’ll ever need it. However, paying a higher premium often makes sense so that you don’t have to worry about paying any more than your collision deductible for repairs that are covered by your insurance.

It is required by your auto lender or lessee.

Most people have collision insurance because it is a condition of their auto loan or lease.
Until you pay off your loan or your lease expires, your lender will require you to maintain collision and comprehensive coverage on your new vehicle if you leased or financed the purchase. You should generally keep your deductible modest, no higher than $500.

The vehicle is really valuable.

Adding collision coverage to a somewhat expensive car, even if you already have comprehensive insurance, makes more financial sense. Without it, you might be out of pocket thousands of dollars after a serious accident.

However, collision insurance might not be necessary for as long as you believe if the car is brand new. The first three to five years of a car’s life on the road are the most damaging to its resale value.

Your collision risk is moderate.

In comparison to the stereotypical tiny old lady who only goes to church on Sundays, your chance of major collision damage increases dramatically if you log 25,000 miles per year on hazardous routes.

Collision insurance is more likely to be worthwhile in the long term the more you drive and the more dangerous the driving conditions are.

You’d Rather Pay in Advance to Avoid a Big Out-of-Pocket Expense

If you would rather pay higher monthly or annual vehicle insurance rates than a big out-of-pocket payment after an accident, collision coverage makes sense.

This wager, of course, may never materialize. Most vehicles will never be involved in collisions significant enough to require insurance coverage. Risk-averse motorists, meanwhile, have options beyond accident coverage. You may do the same thing by building up a substantial emergency reserve.

Bottom Line

Want to lower your monthly payments for auto insurance? Obviously, you do. I mean, who doesn’t? It’s possible that adding collision coverage, which will almost certainly increase your premium, would run counter to your desire to save money.

However, collision insurance will more than pay for itself if you total an expensive vehicle. Even though it would raise your monthly rate, collision coverage should not be ignored. In certain cases, spending more initially will provide better results.

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