You do not have to be an auto insurance agent or an underwriter to understand that basics of auto insurance.
In fact, as an educated consumer, you should take time to know the basics of car insurance and how each coverage you invest in works before you start comparing auto insurance quotes or purchase a policy.
One coverage that may confuse you when you are comparing premiums and building a customized policy is collision coverage. Learn why you need collision insurance and what it will cover when you are involved in an accident.
What is collision coverage?
Collision coverage is an optional coverage that is not required by state law.
Unlike liability coverage, collision is physical damage cover that will pay for damage to your car when you are at-fault for an accident.
Collision will also pay to cover damages if you are not at-fault and you are hit by a motorist who does not have Property Damage insurance that would normally cover the cost of repairs.
How much will the coverage pay?
If you are involved in an at-fault or uninsured motorist accident, you will need to contact your insurer to file a claim.
The policy will pay for repairs, up to the fair market value of the vehicle, or will total the vehicle and issue you a check for replacement if the damages exceed the fair market value.
The fair market value is the current diminished value of the vehicle based on age, mileage, condition and location. Almost all policies come with a deductible.
The collision deductible is the amount of money that you are obligated to pay before the insurer will issue a claims payment.
If the damages incurred to your vehicle in the accident is less than your deductible, your collision cover will not pay.
Who Needs Collision Coverage?
While collision is not required by law in any state, if your vehicle is financed, your finance company will require you to carry physical damage coverage.
This requirement is to protect the finance company’s interest in the vehicle, as they are the legal owner of the car until the loan is paid off.
Even if you hold the title to your vehicle, you may need to consider purchasing collision cover.
You must consider the fair market value of the vehicle, the cost of carrying full coverage, and whether or not you can afford to replace your car on your own if you do not have physical damage coverage.
It is best to do a costs vs. benefits analysis to make the best choice.
When you are comparing car insurance quotes, it is a good idea to quote the price of collision insurance with several different deductibles.
Remember that the higher the deductible you choose, the lower the premiums.
You should also remember that you will take on more of the burden of paying for repairs when you select a high deductible.
Compare the premiums, determine whether or not you need to coverage, and make the right investment when you are buying your insurance policy.