Collision insurance is one of those auto coverages that everybody thinks they understand but probably don’t. Most people know it covers their car if it’s damaged or totaled and that’s certainly true, but there’s more to it than that.
A personal auto policy is a package of coverages with many options to buy or decline so it’s important for car owners to understand what each coverage will do but more importantly, what each coverage will not do.
Some coverages in a personal auto policy are required and some aren’t. Your liability coverage requirement depends on the state you live in and your comprehensive and collision coverage requirement depends on your lender if your car is leased or financed. Car owners also need to consider the limit of liability coverage they should carry and what deductibles they can afford on their comprehensive and collision coverage.
This article will provide everything you need to know about your car insurance collision coverage, when it will pay when it won’t pay, and how the auto insurance companies calculate how much to pay.
What exactly is Collision Coverage?
Collision coverage is the coverage in your auto insurance policy that protects your vehicle. It is designed to pay to repair or replace your vehicle if it’s damaged or totaled after a covered event. The collision coverage only applies to the vehicle(s) listed on your policy if you have elected to purchase the coverage.
For example, if you have three vehicles on your insurance policy, you can elect to purchase collision insurance on one particular vehicle, all of the vehicles, or none of the vehicles. It’s important to remember however, having collision insurance on one vehicle does not automatically cover all the vehicles on your policy.
What will my Collision Insurance Cover?
This is where most people are not certain when it comes to their collision coverage. Just because your car is damaged or stolen, your collision coverage doesn’t automatically cover your loss. Your collision will cover your insured vehicle for the following circumstances:
- If you are in an at-fault accident and your car is damaged or a total loss (subject to the deductible). It will not pay for the damage to the other vehicle(s) because that is covered under your property damage liability coverage.
- If you are in an accident and not at fault. In this situation, the other at-fault driver’s property damage liability insurance will pay to repair or replace your car and it will pay your rental expenses while your car is under repair. But, if the at-fault party is not insured or doesn’t carry sufficient property damage liability limits, your collision coverage will also pay subject to your deductible.
- Your collision coverage will also pay for damages to your vehicle that are not vehicle crash-related. For example, if your car is damaged because you hit an immovable object like a tree, a structure, a pothole, a guard rail, or inadvertently drove your car into a ditch. Collision coverage will pay to repair or replace your car in these situations but subject to your deductible.
When will my Collision Insurance not Pay?
In most cases, collision coverage will not pay if other coverage in your policy will pay or if there is an exclusion like intentional acts. For example, if you are angry at your neighbor and intentionally ram their vehicle, this is considered an intentional act and is not covered by your car insurance. Other situations that your collision insurance is likely not to help you are:
- If your vehicle is stolen and not recovered. This claim is payable under comprehensive insurance.
- Instead of hitting a tree, a falling tree lands on your vehicle. This would be covered under your comprehensive insurance because the tree was not stationary.
- If your vehicle is hit by another vehicle and that driver is at fault. In this case, the other driver’s property damage liability would pay to replace or repair your vehicle. If they are uninsured or underinsured, your collision insurance would pay but subject to your deductible.
- If you hit a deer in the road your collision insurance does not pay but your comprehensive coverage will. Remember inanimate versus animate objects. If, however, you swerved to miss that deer and crashed into a tree, your collision coverage would pay for the repairs subject to your deductible.
These are just a small selection of circumstances that might arise for a car owner so always check with your insurance company’s claims department to find out if you have the proper coverage for unusual circumstances not discussed here.
How do I know if I should carry Collision Insurance?
First of all, if your car is leased or financed, the leasing company or lender will require you to carry collision insurance to protect their collateral. Some lenders and leasing companies will also put a cap on the deductible they will accept.
To decide if you should carry collision insurance when you’re not required to depends on what you are willing to pay out-of-pocket to repair or replace your car if you’re in an at-fault accident or hit a stationary object like a tree.
Without collision coverage, you’ll have to pay for repairs or drive your car damaged if possible. Some households have an extra car (typically an older model that is paid for) and use it when their other vehicles are under repair or running in-town errands or transporting objects that might damage your other vehicles. In these cases, the old car is considered a “throw-away” so they’ll forgo the insurance and just sell the car for scrap if it’s too expensive to repair.
What are Deductibles and what’s the best way to Choose One?
You are offered to select a deductible when you purchase comprehensive and collision insurance. This is considered the amount you are willing to self-insure. Most insurance companies will offer deductibles that range from $100 to $2,000 but the most popular is $500.
Your deductible is the amount you have to pay when your vehicle is repaired or replaced. The higher the deductible you select results in a lower premium because you are picking up a portion of the claim. For example, if you select a $500 deductible and then have an at-fault accident which results in $3,500 in damages to your car, the insurance company would pay $3,000 and you would pay $500.
Knowing this, you have to decide how much you could comfortably afford to pay out-of-pocket for a collision claim. Also, as we mentioned earlier, if your car is financed or leased, the lender or lease company will likely put a cap on the deductible you can select. And remember, your deductible will always apply under a collision claim and just because you are a super-safe driver doesn’t mean that you might have to swerve to hit a deer and end up crashing into a tree.