Collision Insurance Can Be a Financial Lifesaver
If you are unlucky enough to have an automobile accident, you are going to be so much happier if you have insurance, and especially collision coverage.
There are several types of auto insurance, and each play an important role in keeping you and your finances safe, but when it comes to anything from a fender bender to a full on interstate pileup, collision insurance is where the most protection comes in.
Before you ask yourself do I need collision insurance, it is important to understand each element of your policy. To begin, you might be asking what is collision coverage.
So, let’s take a few minutes to come up with a collision coverage definition, as well as explain what is comprehensive insurance vs collision coverage.
What is collision insurance?
Collision insurance is the part of your policy that covers you if your vehicle is damaged while it was moving. So, what is collision coverage and what does collision insurance cover?
Collision insurance includes everything from colliding with another vehicle, to hitting a pole, a tree, a pot hole, or really almost everything involving an accident while your vehicle is moving.
All those things would be covered through your collision insurance.
It is important to keep in mind that if you do get into an accident, you will have to deal with your collision deductible. Your collision deductible is the amount of money you have to come up with out of pocket before your collision insurance kicks in.
So, in other words, say you get into a wreck that would cost $5,000 to repair, and let’s say you have a $500 collision deductible. In this case, your collision insurance would pay you $4,500 for the damages once you pay the $500 collision deductible.
Read your collision insurance policy carefully, because some insurers let you pick any body shop you like to get your vehicle repaired, while some collision insurance requires you to stick to one of their preferred shops to get the damage repaired.
Comprehensive vs. collision
Collision insurance is different than comprehensive insurance, though they are often spoken about in the same breath. That might leave the typical policyholder confused about the difference of collision vs comprehensive insurance.
Unlike liability insurance, comprehensive and collision insurance are not required by law. Although if you bought your vehicle through a car loan or through a lease, your lender will require you to carry comprehensive and collision insurance policies.
While collision insurance covers you while your vehicle is moving, comprehensive insurance covers other types of damage, such as a falling object (ie. tree branches or hail), theft, fire, flood, windshield repair, etc. But once your car is moving and strikes another object, that is where collision insurance typically comes into play.
Comprehensive and collision insurance also often extends to your rental car. Although, if you are driving your friend’s car, your collision insurance no longer applies – insurance follows the car, not the individual. So, if your friend is driving your car, your collision insurance covers it, but if you are driving your friend’s car, her collision insurance has to take over.
Although it is typically smart to carry both comprehensive and collision insurance, there comes a time to ask yourself when to drop collision insurance. That time tends to be a) after the vehicle is paid off and b) after the value of the vehicle is around two to three times the cost of the collision deductible.
While your vehicle is still worth a lot, and while you have a loan are not times to wonder do I need collision insurance. Another time when it is super important to pay for the collision insurance, even if it stretches your budget, is when you are in a tight financial situation.
While that sounds counterintuitive, it make sense. If you are struggling to pay the premium for collision insurance, think about how bad things would get if you dropped collision coverage and then got into a wreck. Then things will have gone from bad to worse.
So, to recap comprehensive vs collision insurance — in general, your collision insurance covers you while your vehicle is moving. Your comprehensive insurance covers you from other types of damage. While it isn’t always strictly required to have comprehensive and collision coverage, it is often a very good idea.
And we should all know that your liability insurance covers you whenever you harm or do damage to another person or property and is required by law.