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What is Collision Insurance? What Does it Cover? How Does it Work?

What is Collision Insurance? What Does it Cover? How Does it Work?

Collision insurance is a type of auto insurance coverage that protects your vehicle in the event of a car accident. It can be particularly valuable if you have a newer or more expensive vehicle.  It’s also important if you rely on your vehicle for work and other priorities. Collision insurance helps cover the cost of repairs or replacement for your vehicle, regardless of who is at fault. 

Collision coverage pays for damage to your vehicle from a crash, whether with another car or a stationary object like a tree or guardrail.

It helps in accidents involving no other party, insufficient coverage from another driver, or hit-and-run incidents. However, it does not cover damage from natural disasters, vandalism, or theft—comprehensive insurance covers those risks.

How does collision insurance work?

When it comes to understanding collision insurance, two key components to consider are your deductibles and premiums. A deductible is the amount you’ll pay out of pocket before your insurance company covers the remaining expenses in the event of an accident.

A premium is the regular payment you make to your insurance company to maintain coverage. The amount of your premium is determined by your coverage level, risk profile, and the insurance company’s calculations. Insurance companies will use premiums to cover their costs and generate profit.

When filing a collision insurance claim, first contact your insurance company and provide the necessary details about the incident. You may be asked for photos or a copy of the police report. The insurance company will assess the damage and estimate the cost of repairs or replacement.

Once your claim is approved, you may be required to pay your deductible before receiving the insurance payout.

How much does collision insurance cost?

The cost of collision insurance varies depending on several factors. Take a look at the factors that will have the biggest impact on pricing.

Type of vehicle. Generally, more expensive and luxurious vehicles will have higher collision insurance rates because of the higher repair and replacement costs associated with them. Less expensive and older vehicles may have lower rates as their repair costs are typically lower.

Driver’s age and driving history. Younger, less experienced drivers tend to face higher collision insurance rates because they are statistically more likely to be involved in accidents. Additionally, drivers with a history of accidents or traffic violations are considered higher risk and may be charged higher premiums.

Geographic location. The location where the vehicle is primarily driven and parked could impact the cost of collision insurance. Areas with higher rates of accidents or theft will likely have higher premiums. Urban areas with heavy traffic and crowded parking conditions may also result in higher rates because of the increased risk of accidents and damage.

Coverage limits and deductibles. Collision insurance policies tend to be highly customizable and as a result, come in a wide range of prices. Higher coverage limits and lower deductibles will generally result in higher premiums. Insurance companies may charge a higher premium to offset their potential payout.

Insurance companies’ policies. Different insurance companies have different pricing structures and underwriting guidelines, resulting in a wide range of premium rates. It’s important to shop around and compare quotes from multiple insurance providers to find the most suitable and cost-effective option for your situation.

FAQ

What does collision insurance cover?

Collision insurance pays for damage to your car after a crash, whether it involves another vehicle or a stationary object like a guardrail or tree. It also covers single-car accidents, such as rollovers.

Does collision insurance cover hit-and-run accidents?

Yes, collision coverage can help pay for repairs if your car is damaged in a hit-and-run. However, uninsured motorist property damage coverage may also be an option, depending on your policy.

Is collision insurance required by law?

No, collision coverage is not legally required, but lenders or leasing companies often require it if you have a car loan or lease.

How does collision insurance differ from comprehensive coverage?

Collision insurance covers damage from crashes, while comprehensive insurance covers non-collision events like theft, vandalism, or natural disasters. Many drivers carry both for full protection.

How is the payout determined after an accident?

The insurer pays for repairs up to the car’s actual cash value (ACV), minus your deductible. If repair costs exceed the ACV, the car may be considered totaled, and you’ll receive a payout based on its market value.