What Is Collision Insurance and Do You Need It?

Why buy auto collision insurance? If you get in an accident and it is the other driver's fault, you can just sue or get the money from the other insurance company, right? Well, that may be true, but what if they have no insurance or what if the accident is your fault? You may be the most careful driver in the world, but it is still conceivable that you could cause an accident. If that happens, you will not be able to collect any money from the other driver's insurance company to pay for the damage. This is when collision insurance is needed.

Auto collision insurance is one of the most misunderstood insurance types; many people cannot explain it or know what it does and doesn't cover. Basic collision insurance covers your vehicle's repairs if you are involved in an accident with another vehicle. It does not cover accidents involving structures such as walls, telephone poles, or a house. It also does not cover accidents involving animals. It is also not required by law.

There are a few reasons to get auto collision insurance. The first reason, as detailed above, offers an extra layer of protection if you cause an accident or if the other driver has no insurance. Drivers who own a car that is completely paid off and still has a decent value, may want collision insurance in order to have the complete cost of their car covered in case of major damage. If you finance a car, the lender will usually require you to carry collision insurance to ensure that the cost of the car is covered in case the automobile is totaled in an accident.

There are also a few reasons not to purchase collision as part of your insurance coverage. If you have enough money in the bank to cover any major repairs or the full cost of the vehicle, it might be wise to just keep your own funds as insurance instead of paying them out to an insurance company just in case you get in an accident. However, if you don't have the extra funds, this is not a wise decision. The other reason not to purchase collision coverage is if you have an old car that is not worth very much. Collision coverage is often the most expensive portion of the premium and getting this type of coverage for an old car without much value is not a wise financial decision.

Auto collision coverage is basically a promise made by the insurance company to pay a specific amount of money in case of an accident. The ceiling for that amount of money is the book value of your vehicle minus the deductible. This ceiling decreases every year as your car depreciates. The best way to decide if you need collision coverage or how much your deductible should be, is know what you can afford and take that risk with your own funds, but get insurance coverage for what you cannot afford. Once you take the time to understand what collision insurance is, it is a fairly simple decision to make.


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