What Does Collision Mean?
Collision auto insurance is coverage that helps to repair or replace your car if it is damaged in an accident with another vehicle or object such as a fence or a tree. If you are still financing your car, collision coverage is typically required by the lender. After you pay off your vehicle, collision coverage is optional and you can decide if you want to keep collision coverage for your vehicle. It is an important coverage to have for your car and it protects you in times of collision accidents. But as a car ages and its market value plummets, you may decide that collision coverage no longer makes financial sense for your vehicle. Let’s take a closer look at collision auto insurance.
Working with Deductibles
Collision auto insurance comes with a deductible. A deductible is the amount you need to pay before your auto insurance company begins to pay for damages to your car or losses. Deductibles range from $250 to $500 or $1,000. A lower deductible will give you a higher auto premium. And choosing a higher deductible will lower your auto premium.
Let’s say you choose a $500 deductible and your car is damaged in a covered collision. You’ll need to pay $500 toward repair costs for your vehicle.
Here’s a tip. Whatever the deductible amount you choose, place money for the deductible in a small emergency fund. That way the money will be there should you need to make an auto insurance claim.
What Collision Insurance Covers
In addition to a collision with another vehicle and collision with an object such as a fence or a tree, collision insurance covers single-car accidents that involve rolling and falling over.
Collision insurance also covers damage from potholes, poles and guardrails.
Collision insurance will cover another driver hitting your car if the other driver doesn’t have enough or any insurance to cover damage costs.
What Collision Insurance Doesn’t Cover
Collision insurance does not cover damage to your vehicle that is not related to driving. Collision insurance does not cover damage to another person’s vehicle and collision insurance doesn’t cover medical bills, whether they are yours or another person’s.
Limits to Collision Coverage
Your collision insurance coverage has a limit, which is the maximum amount your policy will pay toward a covered claim. This limit is typically the actual cash value of your vehicle, which is your car’s value minus its depreciation. Let’s say your car is totaled in a covered collision. Your insurance company would cut you a check for your car’s depreciated value minus your deductible.
Dropping Collision Coverage
The maximum pay out for collision coverage is limited by the value of the car. So if your older car has a low market value, it may not make financial sense to carry collision coverage any longer. So weigh the financial costs of keeping your older car covered with collision insurance.
For example, if you have $1,000 deductible it would not be worth paying for collision coverage on a vehicle that is worth less than $1,000. So eye the value of that older car carefully. Do what makes the most sense for your wallet.
Working Together with Comprehensive Insurance
When you are financing a car, a lender may require you to get comprehensive coverage in addition to collision coverage. The two coverages work well together to give a range of good protections for covered vehicles.
Comprehensive auto insurance covers events that aren’t covered by collision coverage. These events include fire, theft, vandalism and damages from weather such as a hailstorm, a windstorm, a hurricane and a tornado. Like collision coverage, comprehensive auto insurance comes with a deductible.
Once the financing of your vehicle is complete, comprehensive and collision insurance become optional insurance coverages and drivers get to decide how much of the insurance coverages they wish to keep.
Consider the age and the value of the car when choosing deductibles and when deciding whether or not to keep collision coverage and comprehensive coverage for your newly financed car. As mentioned earlier, they work well together to give a good range of auto insurance coverages and they can be dropped later when the car ages and drops in market value.
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