Collision Insurance, in it’s most basic form, will pay for any damages caused to the insured driver’s vehicle, given that those damages were caused as a result of a collision. This coverage is generally optional in most states, but may be required if an individual is leasing or financing a vehicle.
In most situations, unless the policy does not require, a deductible will be required before the claim is paid.
What Collision Insurance Covers
While it may be possible to get coverage for additional situations, the following circumstances are generally considered a “collision”.
- An accident with another vehicle
- An accident with an object. i.e. Telephone Pole.
- A Rollover Accident
It’s important to understand that Collision Insurance coverage only covers the insured driver’s damages and expenses, and does not cover the other drivers involved in the accident. Also, unless specified differently, the insurance company will only pay for damages up to the vehicle’s current value. The following example details how a collision insurance policy works in the event of a total loss claim.
A driver is involved in an accident and the vehicle is completely totaled. The cost to repair the vehicle is well over $5,000, while the car is only worth around $3,500. The owner still owes $4,200 on the vehicle loan, and has a $500 deductible on their collision insurance policy.
In this situation, the insurance company would write a check for $3,000 to the insured driver for their liability to the claim.
One may notice in the above example, that it doesn’t matter how much the driver currently owes on the vehicle loan. The insurance company is only responsible to pay the actual cash value for the vehicle, minus the deductible.
Collision Insurance On Rental Cars
Most of the better known car insurance companies will offer the collision coverage to be extended to any vehicle the insured driver rents. Generally, a driver’s collision insurance will not be extended to rental cars, should the rental be used for work purposes.
The real benefit to this extension of coverage, is that one can save a significant amount of money by declining the temporary car insurance that is offered at the rental counter.
Recap
Many individuals choose not to employ the benefits of a Collision Insurance policy. Generally, these individuals are those who own vehicles with very little retail value. For those with more costly vehicles, or those with outstanding loans on their vehicles, collision insurance can be a lifesaver. While it is possible to control the safety level of our own driving habits, the driving habits of others cannot be predicted, and it’s essential to be adequately protected.