What is Collision Insurance?

Nov 19, 2020 | Personal Insurance

When you recently purchased a car, you need to purchase a basic type of insurance and while selecting coverage for your vehicle, the biggest thing to consider is the cost of the coverage but there are many coverage choices and options available. Insurance is a contract, outlined in a policy, in which an individual, business or item receives financial protection or reimbursement against losses from an insurance provider. For example, if someone accidentally damaged your car your insurance will help you to pay or replace some parts. Collision insurance is a coverage that helps pay to repair or replace your car if it’s damaged in an accident with another vehicle or object like a tree or a fence, standard collision coverage will only cover the actual cash value of the car based on market research. Technically, the at-fault driver’s liability coverage should pay for repairs to the other party’s vehicle. But collision coverage can still give a hand when you were not the one that caused the accident. Your collision coverage would be able to pay the rest. Your coverage limit would be the actual cash value (ACV) of your car. To be able to determine this limit, a comparison would be made of your car to the value of similar cars in your area.

These are some circumstances that are covered by collision insurance:

  • When you get into a car accident with another vehicle, even if you were found responsible for causing the crash.
  • When your vehicle is damaged after crashing into an object, like a cement barrier, a tree, or a stoplight.
  • When your vehicle is damaged in some other accident while you are on the road, that could be the result of a rollover crash or tipping or falling.

That said, collision insurance does not cover everything. Here are a few things that are specifically excluded:

  • Damage to another person’s vehicle
  • Damage to your car from theft or vandalism
  • Damage from an animal running into your car
  • Damage to your car from a fire
  • Damage from a natural disaster or bad weather like hail
  • Medical bills

Collision coverage reimburses for damage to your automobile in situations not included by other sections of your policy.

  • If you do not add comprehensive coverage for vandalism, acts of nature, theft, etc., then you can claim such damages under collision coverage.
  • For hit-and-run injuries or harm caused by a driver without any insurance, you can claim such damages under collision coverage.
  • Using collision coverage in these situations may increase your premiums, as your insurer may estimate such damage as if you were at fault or caused it yourself. This is why it would be best to carry comprehensive (COMP) and underinsured motorist (UIM) to compensate for the loss in any scenario.

If you’re in a vehicular accident and the force of the impact makes your automobile to roll over, collision insurance will compensate for damages caused in the crash. If another driver is at fault for the mishap, and they have sufficient coverage, his or her insurance can possibly cover the damages. However, if you cause the rollover, your collision coverage will cover the damages.

Cost

A collision insurance’s cost depends on your car’s value, vehicle type, or how old it is, and deductible amount. Usually, the lower your deductible, the higher your premium so if you plan to buy auto collision coverage try selecting a higher deductible generally helps lower the cost of your auto insurance. Keep in mind that the lower your deductible is, the more you’ll pay for a monthly premium. The collision deductible is the amount you pay car insurance claims before your policy covers the rest. For example, if your deductible is $1,200 and your car repairs after an accident are $3,000, you would be responsible for paying only the $1,200. If you choose a higher deductible, your monthly rate will drop. However, if you choose a deductible of $1,500, for example, and your car is damaged in an accident, you’ll have to pay $1,500 upfront towards the cost of repairs. Aside from your deductible, your collision coverage also has a limit, which is the maximum amount your insurer will pay towards a claim.For example let’s say you’re driving during a snowstorm and spin out on the road, which causes your vehicle to roll over. You have collision coverage with a $500 deductible. You’ll file a claim, and the insurance provider will give you a check for the cost of damages to the vehicle, minus $500. Most collision coverage limits are the full cash value of your car, minus depreciation. Most insurance companies require that you purchase comprehensive if you purchase collision. On the other hand, if you only want to purchase comprehensive, you don’t have to purchase collision.

Unlike liability coverage that comes with specific coverage limits, collision, and comprehensive insurance top out at the actual cash value (ACV) of your vehicle, minus your deductible.  Your car’s ACV is its fair market value immediately before a total-loss accident occurs.  Thus, if your car is worth $20,000 and your deductible is $500, you could receive up to $19,500 for the car. Your settlement should also include taxes and fees you paid at purchase since you will need to pay similar fees for your replacement vehicle.

Collision insurance is not just for your peace of mind. It helps you avoid paying out-of-pocket for damage to your vehicle that exceeds the cost of your deductible. It can also help cover your losses with a total car.

In an auto claim, your insurance provider considers your car a total loss when:

  • The extent of the damage means it’s unsafe to repair it.
  • The cost to repair it surpasses a certain percentage of your vehicle’s actual cash value before the accident. In many cases, this can vary from state to state.

This type of claim is somewhat different from other more minor claims and needs a bit more effort on the part of the insured. First, to be covered for “Total Loss”, you will want to make sure that you have property damage, comprehensive, or collision insurance included in your policy. Property Damage Liability is compulsory in many states such as Denver, CO, but the only means to receive a payout is to file a claim against another driver’s claim. The other driver will also need to have been negligent in the car accident. The easiest and most sure-fire way of getting paid for total loss is via your own insurance company, which you can do if you have collision insurance, where it does not matter if you were at fault or not.

Second, given you are not instantly injured, you would file claims with your insurer as you would any other accident. A claims adjuster will inspect the car to assess the damages. It is here where the total loss classification will be made.

If you drive a used car, it does not mean that your insurance rate will be reduced. Keep in mind that the value of car insurance depends on several factors:

  • Type of vehicle driven
  • Vehicle theft rate
  • Insurance coverage purchased (deductible)
  • Driving experience (experienced driver with good driving record vs new driver)
  • Where you live

Lastly, when you consider all factors, the age of the vehicle is only a small factor in the overall price of car insurance. Even though having collision coverage can be a lifesaver in certain situations, it’s important to make sure you can comfortably pay your deductible if anything were to happen to your car.

The difference between Comprehensive and Collision Insurance 

Collision Insurance covers damage to your vehicle in the event of a covered accident involving a collision with another vehicle while Comprehensive car insurance or “other than collision” pays for damage to your vehicle caused by covered events that are not related to a collision. If you’re shopping around for auto insurance in Denver, CO, or any other state, or maybe you are just reviewing your current policy, you may want to contemplate getting comprehensive coverage.

Comprehensive Insurance helps cover damage to your car that’s not the result of a collision, such as:

  • Theft
  • Vandalism
  • Fire
  • Natural disasters (i.e. hurricanes or tornadoes)
  • Falling objects
  • The damage was done to your car by animals
  • A civil disturbance

And it does not cover the risks that are related to collision:

  • Damage to your car from a collision
  • Damage to another person’s vehicle from a collision
  • Your (or your passengers’) medical expenses after an accident

Just like collision coverage, if your vehicle is on a lease, then it is mandatory to have comprehensive coverage. However, if you own your car then you have the option of removing it. Before deciding if it is beneficial to have comprehensive coverage or not, factor in all your costs and consider the impact on your finances before making a decision. If you have paid off your car, comprehensive coverage is a good add-on. It may be a good idea to find out the Kelley Blue Book value of your vehicle. Would you be able to pay to repair or replace your car if it were stolen or damaged in an accident? If you can’t afford to pay much out of pocket, then buying optional coverage, like comprehensive coverage and collision coverage, maybe a smart investment.

Why you might need Collision Insurance?

No state requires you to purchase collision insurance coverage, but that doesn’t mean you don’t need it. There are benefits and a lot of help when you have collision insurance and worth it if your car is paid off and you plan on driving it for a long time, if your vehicle is worth a good chunk of change, or you simply want peace of mind that you have that extra layer of protection. Having this coverage can save you a lot of money out of your pocket if you were to get into an accident, and though we hope you avoid any accidents, you never know when the unexpected will happen.

Without collision coverage, you would want to assess your financial situation. Would it be possible for you to save that money during the year and pay for significant repairs entirely?  And also you should consider dropping collision coverage when your yearly comprehensive and collision premiums and your deductible add up to more than the value of your car. If you would not spend the cash to have your vehicle fixed in case of an accident, it is probably not worth paying for collision insurance. This coverage is there when you have made a mistake yourself. It is very frustrating to cause damage to your vehicle, but is covered by your insurance policy can help make you feel a little better.

Do I need collision coverage on an old car?

The age of your car is not as important as its actual cash value when deciding on collision coverage. If your old vehicle is paid off but well-maintained, it likely carries enough value to warrant a collision coverage. Regardless of your car’s age or value, if you don’t have the funds to immediately buy a new ride if your car is total or you’re unable to afford repairs from an accident, you may want to think twice about dropping collision coverage. And if you somehow do decide to drop it, make sure to put the money you save into an account for emergency car repairs or a new vehicle, if necessary.

We are here for you!

Please note that the prices and estimates mentioned within this article may not apply to you or your policy as it may vary from state to state or case to case basis. It would be best to check with your insurer or as a reputable insurance agent in Denver, CO, we would be happy to assist you with a free insurance audit. Connect with us right now! Feel free to call us toll-free at 1(720) 221-8168. Chat with us in the pop-up box located at the lower right of your screen or mobile device. A friendly insurance agent will be with you in the soonest possible time.