Collision insurance: who covers and who needs it

Collision insurance sounds simple enough, but it won’t cover all the bills after an accident. Collision coverage pays to repair damage to your own car when you hit another vehicle or an object such as a lamp post or a fence. It can also pay if another driver hits your car and doesn’t have enough insurance to pay for the damage.

Collision insurance isn’t mandatory in any state, but lenders usually require it if you finance or lease a car. Here’s a bit more about what collision insurance will pay – and not pay – and how to know if it’s worth it.

What does collision insurance cover?

Collision insurance covers damage to your own car from:

  • A crash you cause with another pilot.

  • A collision with an object such as a tree or a mailbox.

  • Another driver who hits your car, if they don’t have insurance or enough insurance to cover the damage costs, and you don’t uninsured / underinsured motorist property damage coverage.

If you are in an accident and another driver is fully at fault, their property damage liability insurance covers the damage to your car. Assuming they have it, you would first make a claim against their insurance. This coverage is mandatory in all states except New Hampshire, which does not require auto insurance.

However, in many states the minimum limits are low – only $ 5,000 or $ 10,000. A driver with only the state-mandated property damage limits would not have sufficient coverage to pay for a newer vehicle if it were totaled. Then your collision insurance will take effect.

This is one of the reasons that lenders require collision insurance and comprehensive coverage for as long as you lease or pay for a car: you could be underwater on a car loan, on the hook for thousands of dollars loaned if your car was totaled soon after its purchase.

How the collision insurance deductible works

Usually, collision insurance is subject to a deductible, a fixed amount subtracted from any collision claims check. You can choose your deductible amount, which typically ranges from $ 500 to $ 1,500.

For example, let’s say you swerved to avoid hitting a squirrel on the road and accidentally hit a lamppost instead, and you have a collision deductible of $ 1,000. Your insurance company would pay the cost of repairing damage to your car, less $ 1,000.

If the cost of damage was less than your $ 1,000 deductible, you wouldn’t want to make a claim because your insurer wouldn’t pay – and would likely increase your rates later for a claim. If the vehicle was destroyed by the impact, your insurer subtracts $ 1,000 from the estimated value of your car before the crash and send you a payment for that amount.

This deductible would also apply if your car was still roadworthy, but the damage would cost more to repair than the value of your car, and the insurer declares it total. You could still repair your car, but it would be recorded as recovered on the title. Some insurers won’t cover salvaged cars or charge more if they do.

Reduce or waive your collision deductible

Keep in mind that your collision deductible applies even if you are not at fault, but the other driver does not have sufficient insurance to pay for the damage and you do not have auto coverage. underinsured or uninsured.

If it seems unfair that you have to fork out to repair damage caused by someone else, you may want to consider adding a collision deductible waiver to your policy. Available only in certain states, this will void your deductible if an uninsured driver causes an accident and your collision insurance has to pay.

Another way to reduce the burden on the deductible after an accident is to add “the disappearance of franchises(Which go by several nicknames) to your policy. Some auto insurance companies will reduce your deductible by a certain amount – usually $ 100 – for each year you are away without an accident or traffic ticket. Details vary by company, but it usually costs more and may not be worth it if you don’t end up having an accident.

The cost of collision insurance

The average annual cost of collision coverage in the United States was around $ 363 in 2017, the latest year for which data is available, according to the National Association of Insurance Commissioners. Your own cost may be higher, as this figure includes discounts and may account for group policies which are generally cheaper than an individual policy that you could purchase online.

Depending on the company, you may not be able to purchase collision insurance without full coverage, or vice versa. This could be because you have an active loan or lease that requires both, or because your insurer needs them to purchase the other.

Collision insurance tends to cost a lot more than comprehensive insurance because collision claims are more common. Choosing higher deductibles may lower your premium, provided you can cover the out-of-pocket expenses.

Do you need collision insurance?

Just like your car, collision coverage loses its value over time because it will never earn more than the value of the vehicle. If you don’t have a loan or rental that requires it, collision insurance ends up losing value, costing more than it would pay you after an accident.

Not sure when to give up your collision insurance? To find out if it’s worth it, start with your car’s value and your deductible. If you have a collision deductible of $ 1,000, it’s not worth paying for collision insurance for a vehicle worth $ 1,000 or less.

Then it’s time to see how much your collision insurance costs. If it is not on a recent invoice, you can consult your automobile policy declarations page, usually one of the first pages. If the cost of the collision plus its deductible is more than the value of your car, you won’t see any benefit if your car is totaled, the worst-case scenario for this coverage.

  1. Subtract your collision deductible from the value of your car. This is the maximum you could get from a collision claim. If you can find that many out of pocket, you might reduce coverage knowing that you’ll have to pay for damage to your own car after an accident.

  2. Take the amount above and subtract the cost of your collision insurance for the term of the policy, typically six months. This reflects the highest possible value of your collision insurance – the maximum you would earn if your car were totaled, given the cost of the coverage.

  • Negative, you’re paying more for collision insurance than it’s worth.

  • Small but positive, coverage can still benefit you, but a total loss claim would only be worth that amount, now that you’ve factored in the cost of the coverage. You could therefore decide to take the risk of canceling it now and saving on premiums.

  • Broad and positive, it makes sense to keep collision insurance. The coverage would pay a significant amount if your car was totaled, and much more than what you paid for the coverage itself.

Also, if it is impossible to determine the amount of the first step in an emergency, it makes sense to keep collision insurance. Also keep in mind that if your car was not totaled, the claim check would be less than the first number you calculated.

Even if you decide collision insurance is worth it right now, revisit the calculations as your car ages and each time you get. auto insurance quote.

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