Do I Need Collision Insurance?

Fran Majidi
February 13, 2019

Just like comprehensive insurance, collision insurance is not required by law. Collision insurance is very important to have in case you are in an accident that is your fault. Collision coverage is what pays for repairs or the replacement of your car. It’s your liability insurance that is required and that takes care of repairs or replacement of the other driver’s car if you are at fault. It’s important to make this distinction because all too often we think we need collision coverage so we are not responsible to pay out-of-pocket for damages to the other driver. Another mistake drivers sometimes make is they load on collision coverage with the highest limits when their car is worth less than what they pay in car insurance every year. We want you to only pay for what you need, so here’s some information on how collision insurance works and when you need to carry it. 

What Does Collision Insurance Cover?

You may think that a collision always involves two cars, but in some cases, an accident is deemed a collision if the car hits an object, like a pole, guardrail or tree. Collision would cover these types of mishaps. Hit-and-run accidents are also covered by collision insurance. If you hit someone’s mailbox, you’d be covered for that person’s personal property and the damages to your car with the collision portion of your coverage. If you hit another moving vehicle and it was your fault, your liability insurance will cover the other driver’s car and your collision insurance will cover the damages or loss of your car. If you hit a utility pole or random street wall, you may think it doesn’t cost anything but the damage to your car. However, chances are that you will be billed by the city to repair or replace objects belonging to the public.

What’s a Deductible?

The deductible is the amount of money you are responsible to pay before your collision insurance begins paying for the repair or loss to your car. Deductibles can be as low as $250 or as high as $1,000. The way it works is like this: Let’s say the cost to fix your car is $7,000. You’d pay the deductible you elected when you bought your car insurance. Let’s say you chose $500. You’d pay $500 and the insurance company would pay $6500. Good deal? Remember that whenever you file a claim, your insurance rate will go up. There’s no such thing as free money!

When choosing your deductible, it’s important to keep in mind that your insurance company will not pay for damages until you pay your deductible. Even though your premiums are lower every month when you choose the highest deductible, keep in mind that you will be responsible to pay this amount if you are in an accident. Can you afford to shell out $1,000 or is it better to pay a little more each month? Take a good look at your finances before making any rash decisions.

Is Collision Insurance Required?

Collision insurance is not required by law but most lienholders require it. The reason for  this is that a car technically belongs to the lienholder while you’re making payments on it. The lienholder requires that people financing or leasing their property be covered in case they have an accident or total the car. Collision insurance would reimburse the lienholder for the cost of the repair or the total value of the car the day of the accident, if it was your fault. If the accident is the other driver’s fault, the lienholder is paid out by the other driver’s liability insurance. 

Should I Buy Collision Insurance

The rule of thumb is this: If you pay more each year in collision than what your car’s Kelley blue book value is, then it makes no sense for you to continue the collision coverage. However, if you owe payments on a car, chances are that you are required by a lienholder to have full coverage. Even if you own your car and are not required to buy it, it makes sense to get collision insurance if your car is worth more than the amount you pay annually because the money you get back can be a much-needed down payment on another car if your car is totaled (deemed a complete loss). Always think about worst-case scenarios when making insurance decisions. Only you know what you can and cannot afford to do if you cannot use your car any more.

What’s the Difference Between Collision and Comprehensive Insurance

These two types of coverage are often sold together. In some states, you cannot buy one without the other. This is because the two often work hand-in-hand to cover all repair and replacement costs of a car when an accident is your fault.

While Collision takes care of accidents in which you hit another car or object, comprehensive covers you for damages not caused by collisions.

Comprehensive also covers you in case you hit an animal.

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