How Does Auto Insurance Collision Coverage Work

January 27, 2012

Auto Insurance companies offer many types of auto insurance. Auto insurance collision coverage is one of the most well-known types of auto insurance, and works in a very simple way.

Understanding How Auto Insurance Collision Coverage Works

Simply put, collision insurance covers damages sustained to your car in case you collide with another vehicle or object. In most states, if your car is financed or leased, you will be required to carry collision coverage on your auto insurance policy.If you are driving a new car, it would almost be impossible to pay for damages that may occur in an auto accident so collision coverage is recommended to help protect your new purchase.

A deductible is the amount of predetermined money that you will pay out-of-pocket prior to your auto insurance company paying for the remainder of the damages. Deductibles range from $100 to $1500, so be aware that if you are in an accident you will need to pay this amount up front. Chances are, if you have just purchased a new car, your car payment coupled with new, higher insurance rates, will crunch your budget. It might be wise to have a lower deductible.

Do You Need Collision Coverage?

If your car is an older model or is not in good condition, you might consider not purchasing collision coverage. The rule of thumb is that if your car is not worth very much, then collision coverage might be an unnecessary expenditure.