What is Collision Insurance and What Does it Cover?
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UPDATED: May 11, 2022
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Collision insurance pays to repair or replace your vehicle if it rolls over or impacts another vehicle or object. When combined with liability insurance and comprehensive insurance, you have what is known as “full coverage”.
What Does Collision Insurance Cover?
The loss scenarios below give some examples of what collision covers:
- Running into a highway guardrail
- Hitting a mailbox
- Colliding with a building
- Collision with another vehicle
- Hitting a fence or tree
You should always carry collision insurance, but it is especially important to have it in areas where collisions are common. For example, if you live in one of the states with the worst rural roads, it is vital to have collision coverage to cover any accidents you may have from hitting a pothole or sliding on unpaved roads.
What is Not Covered by Collision Insurance?
Collision insurance does not cover:
- Damage to your vehicle from hail or weather
- Damage caused by fire, flood, or vandalism
- Damage caused by falling objects, birds, or animals
- Breakage of glass if not part of a collision
- Theft of your vehicle
All the examples above that are not covered by collision insurance would be covered by comprehensive insurance if you have it on your policy.
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Collision Deductibles and Limits
When buying collision insurance, you need to specify a deductible amount that will be deducted from any settlement received from your insurance company. Common collision deductibles are $250, $500, or even $1,000.
The limit that collision will pay is the lesser amount of the actual cash value of your vehicle or the cost to repair. Actual cash value, or ACV, is the purchase price of the vehicle minus depreciation.
For example, let’s say you drive a 2010 Chevy Silverado and you back into a concrete pillar in a parking lot. The damage to your bumper and tailgate is $1,800, and you have a $500 collision deductible.
You will receive a check from your insurance compay for $1,300. If you elect to have the truck repaired, you will have to pay the extra $500 out of your own pocket.
Now let’s say you roll your Chevy and the costs to repair the damages exceed the actual cash value of the truck. This is known as a “total loss”.
The ACV of your truck is $12,500, so your insurance company will settle the claim for $12,000 ($12,500 minus your $500 deductible).
Why do I Need Collision Coverage?
If you have a loan on your vehicle, or your vehicle is leased, you will be required to carry collision insurance. This protects the lender’s or lessor’s interest in the vehicle in case it is damaged or destroyed.
If you do not have a loan on your vehicle, or it is not leased, collision is an optional coverage. But if you cannot afford to fix or replace your vehicle if it is damaged or totaled in an accident, then you will want to consider having it on your policy for peace of mind.
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