Any one who shops for car insurance should become familiar with the term collision insurance. It is understandable that people worry about keeping the premium down, and so are tempted to request the least coverage possible for the lowest cost. Before you do that, some basic insurance facts will help you make a good decision.
What is insurance?
Insurance is a legal contact that is intended to “indemnify” a loss that you experience. The word “indemnify” means to restore you to the situation you were in before the loss. This can relate to the condition of your property, or your legal situation in the event that you are responsible for another party’s injuries or damage to their property.
What insurance does the law require?
All states have laws requiring that you must have insurance to drive a car. What is required is liability insurance so that if you are responsible for an accident, you have insurance to pay for the medical injuries (Bodily Injury Liability) and the damage to the vehicle (Property Damage Liability) that other parties experience as a result of your negligence. You are not required by law to have collision insurance. So if you tell an agent that you want only what your state requires, you will get Bodily Injury Liability and Property Damage Liability only.
What is Collision insurance?
Collision insurance is the part of your auto insurance policy that pays for repairs to your vehicle when it is damaged as a result of a “collision” with an object. It can be another vehicle, a telephone pole, a building or even the ditch, or object in the road. It is important that you make sure that it is included in your policy because it is an optional coverage and can only be purchased as an addition to a policy for liability insurance. You will also choose a deductible with this coverage. The deductible is the amount of the repair bill that you will pay if your car is damaged. You can usually choose anywhere from “0” to “$2500”.The most commonly chosen deductible is “$500”.
Why do you need collision insurance?
If you have borrowed money to purchase the vehicle, then your lender will require that you have collusion coverage to pay for any damage done to the car. You will also be required by the lender to have comprehensive coverage for the vehicle, which covers damage to the car that is not covered under the collusion coverage. Comprehensive is also called “other than collusion,” and includes damage to your windshield, animal encounters and if a tree falls on your car.
You cannot usually purchase collision insurance unless you purchase comprehensive insurance also. Even if you do not have a loan on your vehicle, you will want physical damage ( both Collision and Comprehensive ) depending on how much the car is worth. If it is worth more than you can afford to lose if you are in an accident and the vehicle is a total loss, then you need to have collision insurance. If you do no know how much your vehicle is worth, use on line resources such as NADA or Kelly Blue Book.
It is wise to be as careful when you purchase your car insurance, as you are when you choose your new car!
Note: The information provided is general only. Insurance is regulated by each state and can differ greatly between states. Your own agent is the best source of specific information regarding your personal needs and your state insurance laws.