A standard auto insurance policy comes with up to five main types of coverage that can help protect you from financial losses due to vehicle damage and injuries. Collision insurance is an optional coverage you can include. But before deciding whether this type of coverage will benefit you, make sure you understand everything there is to know about collision insurance.
When you buy auto insurance, it’s important to weigh the pros and cons of carrying collision coverage before adding it to your policy. Here are a few to consider.
The biggest benefit of having collision coverage is that it can help save you thousands of dollars by paying for repairs if your car is damaged in a covered incident, including:
When you have collision insurance, you’re covered no matter who is at fault.
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What Are the Drawbacks of Having Collision Insurance?
One of the biggest drawbacks of carrying collision coverage is that it will increase your insurance premium. And the coverage it provides is limited to physical damage to your vehicle caused by a crash. It won’t cover:
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Collision coverage comes with a deductible. So, if you need to file a claim, you have to pay your deductible first. Then the insurance company will cover the cost of the remaining repairs up to your policy’s limit, which is typically the market value of the vehicle.
If the amount of the damage exceeds your car’s value, the insurer will likely declare it a total loss and write a check for the vehicle’s actual cash value (minus your deductible). If you have a loan or lease, the insurance company will probably send the check to the lender. But if you don’t, you can use the money to purchase a new car.
There are no states that require drivers to purchase collision insurance. But if you have a lease or auto loan, the financing company will probably require it. While collision coverage may be optional, it’s important to weigh the cost of skipping it. Without it, you could be stuck with hefty repair bills if you’re in a crash.
It’s easy to confuse collision and comprehensive because both types of coverage help pay to repair physical damage. But each coverage pays for different types of damage. Collision can help pay for repairs after a crash and comprehensive covers non-crash-related incidents, such as severe weather, falling objects, unfortunate encounters with wild animals, and more.
According to the Insurance Information Institute, the average cost of collision coverage is about $290 a year. But your price will vary based on the type of car you have, how much it would cost to repair, and other factors.
It might be tempting to skip adding collision coverage to your insurance policy to save some money. But before you opt out, consider how much repairs would cost if you were in an accident. According to the National Association of Insurance Commissioners (NAIC), the average cost of a collision claim is over $4,000. You might ask yourself if you could afford to pay out of pocket.
If you don’t have a car lease or auto loan, you can drop collision insurance at any time. And as your vehicle gets older, it might make sense to remove it since the maximum amount the insurance company will pay is the actual cash value of your vehicle. If your car’s not worth much or you wouldn’t repair the vehicle if it’s damaged in a crash, it might not make sense to keep collision coverage.
But if you drive a newer car or a vehicle that holds its value for a long time, you’ll have to decide whether saving a couple of hundred dollars a year is worth the risk of not having coverage when you need it.
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