For most people, it takes just one fatal car accident without insurance to fall to the brink of bankruptcy. While liability insurance is a requirement in many states, it doesn’t cover damage done to you or your car.
But collision insurance does. So, how does collision insurance work? If you’re eager to know about this type of coverage, I explain it in pretty simple and clear terms in this post.
What is collision insurance?
Collision insurance is a type of coverage that covers the cost of repair whenever your car crashes with another vehicle or object, irrespective of who is at fault.
As the name implies, it is activated whenever there’s a crash with another car or property such as road signs, trees, phone poles, fences, or homes.
Optional in nature, collision insurance sometimes goes hand-in-hand with comprehensive insurance.
It helps to reduce the amount you would’ve paid out of pocket if you were involved in a ghastly collision with another car or object.
This insurance policy is very crucial because, in 2021 alone, there were 39,508 auto accidents that were deemed as fatal out of over 6 million police-reported cases of accidents.
Car accidents are more common than you think. And the likelihood of you not getting an accident in over five years is not very high.
Even if you drive safely, you cannot control the actions of other drivers on the road. That’s why you need to include collision insurance as part of your coverage policies.
How does collision insurance work?
Collision insurance is set in motion when your car collides with another car or object, not minding if you’re at fault or not.
Here’s how your collision insurance would work assuming you ran into a tree or another car, damaging the front of your car.
You contact your insurer immediately through the mobile app or website and file a claim after reasoning that the cost of repair is way more than your deductible.
If you had paid for roadside assistance, an add-on form of coverage, your insurance company would tow the car to a mechanic or body repair shop that you or your insurer chooses.
The insurance company would assign a claims adjuster to you who would assess the severity of the car damage and present an estimate for repairs. Let’s say the estimate presented was $5,500.
You can either accept or challenge this estimate if you feel that it’s not enough to cover the cost of repairs.
Since it seems reasonable to you, you accept the estimate.
Your insurer then asks you to pay your deductible of $500 so that they can cover the rest of the repairs for $5,000. You pay your deductible and your insurer writes you a check of $5,000 or sends the payment directly to the mechanic to complete the repairs.
If you had rental reimbursement insurance, your insurance company would pay the cost of a rental car for your use while your car is being repaired.
When the repair is complete, you’ll be sent a notification to come pick up your car. Then you come in, inspect the car, and drive off to the repair shop in satisfaction.
What if another car collides with my car instead?
If another car collides with your car instead, you’ll file a claim against the liability insurance of the at-fault driver.
All you have to do is contact your insurance company and you’ll be assigned a claims adjuster who will interact on your behalf with the insurance company of the other driver, till they negotiate a reasonable settlement offer for you.
This can be a long and drawn-out process because the insurance company of the other driver might not accept complete fault.
In some states where comparative negligence laws are active, fault percentages are assigned to each driver. So, the other driver’s insurance could prove that they only have 95% fault, and then you’ll take 5% fault in a legal battle for who’s at fault.
While waiting for a fault to be determined, you’ll need your car repaired immediately so you can resume your normal life.
You can take out your collision coverage and repair the car by yourself. You’ll be paying your deductible, but don’t worry.
When the other driver is deemed at fault, or deemed to carry a major percentage of the fault, your insurance company would reclaim your deductible from the at-fault driver’s insurance company through a process called subrogation.
What exactly does collision insurance cover?
Collision insurance covers the following accident scenarios:
- Collisions with other cars including hit-and-runs
- Single-car accidents such as crashing into a telephone pole or fence
- Damage gotten from your car rolling over
- Car damage from potholes
What doesn’t collision insurance cover?
Collision insurance doesn’t cover the following:
- Damage done to the vehicle of another driver, as you’ll need liability insurance for that
- Damage from a non-collision event such as vandalism, animal attack, theft, or fire
- Medical costs for your injuries and that of your passengers
- Repairs to properties you crashed into like a fence
- Regular wear and tear of a car
- Missing personal belongings in the car
Deductibles and limits in collision insurance
Every collision insurance comes with a deductible. A deductible is the amount you’ve chosen to pay out of pocket when filing a claim before your insurance company covers the rest.
Most people usually choose deductibles from the range of $500 to $1000. It could go way lower than $500 or way higher than $1000 if you want to.
One thing to note, however, is that the lower the deductible you choose, the higher your insurance premiums will be because you’re taking less financial risk during an accident.
The higher the deductible you choose, the lower your premiums will be because you’re willing to take on a greater level of financial risk in an accident.
Let’s say, for example, you got into an accident and the cost of repairs is $4,000 and your deductible is $500.
Your insurance company would require you to first pay your deductible of $500 and then proceed to write a check of $3,500 to you for repairs.
Also Read: How Does Car Insurance Deductible Work?
The limit of collision insurance is the actual cash value of a car. The policy limit is the highest dollar amount an insurer would pay when you file a claim for an accident.
Since a collision insurance limit is the actual cash value of a car, it means that you won’t receive the exact current market value of your car as reimbursement if your car is totaled because the actual cash value is calculated as the current market value minus depreciation.
Car depreciation is affected by things like mileage, mechanical repairs, age, and so on. Your insurer would pay the depreciated value of your car with collision insurance if it’s totaled during an accident.
If you have a car loan and the actual cash value reimbursed by your insurer is not enough to meet up with the loan, you could use gap insurance to make up for the difference.
Pros of collision insurance
- Can be used whether or not you’re at fault
- Hugely offsets the cost of car repairs
- Helps maintain financial stability during car accidents
Cons of collision insurance
- Doesn’t cater to damages to another driver’s car
- Doesn’t include your medical costs
- Doesn’t cover damages from natural disasters
Difference between collision and comprehensive insurance
The difference between collision and comprehensive insurance is that while collision insurance covers damage from crashes or colliding with another car or object, comprehensive insurance covers non-collision accidents like natural disasters, fire, theft, vandalism, animal attacks, and a car getting hit by an object.
If you crash into a tree, for example, you would have to take out collision insurance. But if the tree falls on your car, then you would need comprehensive insurance.
Comprehensive insurance usually contains cheaper premiums than collision insurance and they both include deductibles.
What is the difference between full coverage and collision insurance?
The difference between full coverage and collision insurance is that full coverage is a special insurance package that rolls up liability insurance, collision insurance, and comprehensive insurance into a single coverage policy, while collision insurance only reimburses you for the repairs of your car when you collide into another car or object.
Full coverage is a three-in-one insurance policy that aims to completely shield you from the financial weight of the most common accident scenarios.
Liability insurance covers the property and bodily damage you caused to another driver. Collision insurance covers the damage to your car in a crash. Comprehensive insurance covers the damage your car incurs from non-collision accidents like natural disasters, vandalism, or theft.
All of these are included in full coverage, but collision coverage is just one out of the three packages of full coverage.
Why is my collision premium so high?
A couple of factors come together to contribute towards a high collision premium. Some of it is under your control and others aren’t.
Let’s go over the factors that cause your collision premium to get so high.
A messy driving record with high rates of accidents, traffic tickets, and Driving Under the Influence (DUI) leads to a higher collision premium.
Car insurance companies first look at your driving record when determining premiums. Clean driving records are far more likely to attract low collision premiums.
Teen drivers have been found to pay the highest collision premiums because of their inexperience and increased risk of getting into accidents.
In the same vein, middle-aged drivers from 30-60 tend to pay the lowest collision premiums because of the low statistical rate of accidents for that age range.
Collision premiums begin to increase again for drivers from the age of 75.
State of residence
Collision premiums vary according to state because some states have a higher level of natural disasters and criminal activities than others.
If you live in a state that’s prone to natural disasters and crime, for example, your insurance company would charge you a higher collision premium because you’re most likely going to file claims for vandalism, theft, or hails frequently.
Males tend to attract higher collision insurance fees than females because they’re believed to be more aggressive and reckless behind the steering wheel.
Besides, women have also been reported to engage in fewer accidents than their male counterparts.
A higher credit score obviously results in lower collision premiums because your insurer would use this as an indicator of how financially responsible you are. Conversely, poor credit scores would always attract high collision premiums.