Quite simply, collision insurance covers damage to your vehicle when your vehicle collides with, or through your fault is hit by, another vehicle or another object. This coverage generally comes with a deductible of some sort. Geico.com suggests, "to keep your premiums low, select as large a deductible as you feel comfortable paying out of pocket. For older cars, consider dropping this coverage, since coverage is normally limited to the cash value of your car."
Collision coverage is usually not required if you own a vehicle in full (hold the title), however if you are leasing or financing a vehicle, your lender or lien holder will most certainly require it.
Some insurance policy holders choose a higher deductible in exchange for a smaller premium. Assuming no collisions, this will provide a savings to the consumer. It is important to note that collision coverage with a deductible of $1000 in an accident that incurs $1400 worth of damage will leave the policy holder paying $1000, and the insurance company paying $400. On the flip side, an accident incurring $5000 in damage would still only cost the driver $1000.
Must You Buy Collision Insurance?
The law does not require that you buy collision coverage, but he bank that holds the title to your new car will require that you do. This protects their asset in case there is an accident. Car owners who have an expensive or otherwise valuable car might want to buy collision insurance in case something unexpected happens.
As your car ages the value of it decreases, leading to the question, when is it time to get rid of your collision coverage? Your policy will have lower coverage limits, and most likely higher deductibles, but you will be paying lower premiums. So, what are the key factors to deciding when the time is right to get rid of your expensive collision coverage?
Level of Use
As vehicles age, we tend to use them less and less for a variety of reasons, including not trusting them as much on long drives. As you spend less and less time on the road, your chances of becoming involved in an accident decrease, which in turn decreases the amount of coverage you need to carry on the vehicle. You may want to consider reducing collision coverage accordingly. This will also lower your premiums.
Aging vehicles decrease in value. At some point, it may not be cost effective to carry auto collision insurance. Your vehicle may have lost so much value that the cost of the repairs are more than the actual cost of the vehicle. If your vehicle is worth less than $3000, it may be a good idea to drop your collision coverage. Another good idea is to review your policy and see what your annual premiums are. If the cost of the collision coverage is over 10 percent of what you would get for the vehicle in case it was totaled, it may be a good idea to consider dropping coverage. These rules don't apply to all vehicles. Some vehicles, classic cars for example, may actually increase in value as they age. In such cases, speak to your insurance provider to discuss what coverage options are best for your situation.
There are reasons you should retain your coverage as well. Being upside down on a car loan is one of them. Owing more than the worth of the car means you can't afford to take a huge loss in the event your car is totaled. Most likely, you are required to have collision coverage, and maybe even gap coverage, on your vehicle anyway.
Being on a tight budget may be another reason. The small premium you pay could save you a large headache if your car was to be destroyed, plus it could serve as a potential down payment on a new car in the case of an accident.
Dropping your collision coverage at the right time can save you a great deal of money, but shouldn't be done lightly. Consider all the options, including raising your deductible, before dropping coverage outright. When done at the proper time, you can save yourself money while giving yourself peace of mind.
Collision Insurance vs. Comprehensive Insurance
Comprehensive and collision insurance are similar in nature, so it is best to understand what they are and how they differ so you make the best choice.
Collision insurance covers you for damage to your car resulting from a solo accident, or if you collide with another vehicle or object. It covers your car in these instances no matter who caused the accident.
In other words, collision insurance protects you against damage you cause. If you hit another car, for instance, and the accident is your fault, your collision insurance pays for the damage to your car, minus the deductable amount you have to pay yourself.
Collision insurance also covers expenses such as salvaging and towing your car, as well as storage. It does not however, cover the cost of repairs due to mechanical failure as a result of improper maintenance.
It also does not cover any injuries you or somebody else sustains because of a collision. Liability insurance covers you in case of a lawsuit due to injuries caused in a collision.
Comprehensive insurance covers damage to your car not caused by a collision, including fire, flood, hail, theft and vandalism with certain stipulations. If your car has been stolen, your insurer will wait for 30 days before paying you, as the possibility of your car being found exists. You have the option of including car rental in your insurance, to ensure you are not stranded for those 30 days.
Comprehensive insurance usually does not cover vandalism by family or employees, theft of personal objects inside the car, like your cell phone, tires or acts of God.
If you are driving an expensive car, it is usually a good idea to purchase comprehensive insurance.
How do Comprehensive and Collision Insurance Work?
Both types of insurance normally do not pay for the total loss you experience, and you traditionally have to pay the excess amount as your deductible. This is predetermined on your policy.
Because your car's value declines with age, the amount you receive if your car is totaled also declines, and with some older cars it does not make sense to get comprehensive and collision insurance.
In the case of financed cars, the purchasing of both collision and comprehensive insurance is required.
Collision and comprehensive insurance is normally offered as a package, but you can purchase either one or the other. The cost of your insurance will be affected by several factors such as:
- Value of your car
- Age of the driver (normally younger drivers tend to pay more for their insurance as they are considered to be more prone to make accidents)
- Experience of the driver
- Yearly mileage
- Where your car will be driven (some areas are safer than others which decreases the risk of accidents or theft).
- In both collision and comprehensive insurance, your premium could be increased when you claim or claim often.
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Because collision insurance isn't a requirement, it's up to you to decide if your car is worth insuring. For many, collision insurance can provide peace of mind and be more than worth the cost. Others may be willing to front the cost for possible collision-related repairs, or simply not be able to afford extra insurance.