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Collision Insurance: Why It Is Needed And How To Get a Good Deal

Updated: September 23, 2018

Collision insurance is a policy that pays to fix parts of a car that are damaged as a result of an accident.

This type of policy includes damages from other vehicles or as a result of a collision with a stationary object.

Collision insurance is very important for anyone who wants to avoid paying thousands of dollars out of pocket when they get into an accident.

Another part of collision insurance is that it offers protection if a policyholder’s car is hit by another car while it is parked.

This insurance is not mandatory, but it is recommended in order to have a complete insurance policy.

What Does Collision Insurance Cover?

When a car gets into an accident on the road, there are a number of factors in play. Different parts of an insurance policy offer protection for different incidents.

Even if an accident occurs and it was the policyholder’s mistake, collision insurance should cover the costs up to a certain point.

For example, liability insurance pays for damage to the other person’s vehicle or body. Collision insurance pays for any damage to the policyholder’s vehicle as a result of the accident that is the policyholder’s fault.

Even if an accident occurs and it was the policyholder’s mistake, collision insurance should cover the costs up to a certain point. The amount of covered costs is usually agreed when the insurance contracts are signed.

While a vast majority of the states do not require comprehensive and collision insurance in basic policies, it is a good idea to get collision coverage for added protection.

It is possible to save money by only having liability insurance, but it is almost impossible to predict when an individual will make a mistake and get into an accident as a result of this error. Instead of paying the price through car repair expenses, it is better to get collision insurance.

Collision Insurance Deductibles:

Every type of collision insurance policy will come with a deductible.

When an insurance policy has a deductible, it means that a certain amount of costs related to the accident must be covered by the policyholder. Deductibles range from $0 to $1,000, with higher deductibles typically coinciding with lower insurance premiums.

When choosing an insurance policy, it is important to look at the cost-effectiveness of the premiums vs. deductibles.

If a car insurance holder has a $500 deductible and gets into an accident that is his or her own fault, and incurs $5,000 of damages to the vehicle, they must pay $500 of the costs themselves. The remaining $4,500 is covered by the insurance company.

When choosing an insurance policy, it is important to look at the cost-effectiveness of the premiums vs. deductibles. If a policy has a very low premium, but a deductible close to $1,000, it is not that great a policy for someone who is often on the road.

It is also a good idea to compare the cost of your insurance deductible with the value of the vehicle being insured. It does not make sense for the deductible to come anywhere close to the car’s value.

When Does Collision Insurance Not Make Sense?

If the policyholder has a new car, it is a good idea to keep collision coverage unless it is financially impossible to pay the associated monthly premiums. In addition, most car loan policies make it mandatory to include collision coverage in the associated vehicle’s insurance policy.

If the insurance costs and deductible values mean you are getting very little value out of the collision insurance policy, it is better to put that money towards getting a new car in the future.

However, there is a time when every car owner must decide whether to remove collision insurance. This typically occurs when the vehicle is older and its value decreases significantly.

The first step involves determining the car’s actual cash value, or ACV. Someone with an ACV of $2,500 and collision insurance that costs $500 a year may not think it makes sense to continue paying this amount for coverage.

It is also important to factor in the deductible. With the above example, a $500 deductible would mean you are paying $500 a year plus potentially $500 out of pocket for an accident involving your $2,500 vehicle.

If the insurance costs and deductible values mean you are getting very little value out of the collision insurance policy, it is better to put that money towards getting a new car in the future.

Do I Need Collision Insurance?

If the policyholder has an existing contract for a car loan that is not paid off, removing collision insurance from the policy is not an option. Even if the policyholder attempts to remove collision insurance, the car loan company will enact a “forced-placed” insurance and put the cost into the monthly loan payments.

Another reason to keep collision insurance is if the policyholder’s financial situation means getting a new car is out of the question.

Even if the loan is completely paid off on a relatively new car, it is a good idea to keep collision insurance. This coverage is a cost-effective way to pay for repairs on a car that is worth a significant amount of money.

Another reason to keep collision insurance is if the policyholder’s financial situation means getting a new car is out of the question.

For people who cannot afford to replace their older car, it makes sense to keep paying for collision coverage, even if the vehicle’s value is drastically declining.

For those who can afford to replace their old car, it is time to perform some calculations and determine whether it is a wiser investment to drop collision insurance and get a new car after a major accident, or keep the coverage and continue saving to get a new car in the future.

Comprehensive and Collision Insurance Coverage:

Comprehensive insurance coverage allows for policyholders to receive compensation for damage or theft of a car when it is not being driven on the road.

When getting a policy for a new car, it is important to check the company’s requirements for comprehensive and collision insurance.

This type of policy is great for new cars, or cars that still have a significantly high value. Sports cars in particular benefit from comprehensive coverage because of the likelihood someone will try to steal them.

Some companies combine comprehensive and collision insurance, meaning that the policyholder cannot purchase one without the other. Meanwhile, other companies allow for getting only comprehensive coverage, but make it mandatory to combine collision insurance with comprehensive insurance.

When getting a policy for a new car, it is important to check the company’s requirements for comprehensive and collision insurance.

Even if the policyholder needs both coverages right now, they may not need them both in the future. If they are tied together permanently, this can represent a potential problem down the road. It is usually a good idea to get a policy where comprehensive and collision insurance are purchased independently.