What is collision insurance?

As the term implies, collision insurance is a type of insurance coverage that protects you financially in case of a collision.

A collision is defined as being hit, or hitting, another vehicle or even an object. Your collision insurance will then cover your expenses for any damage your car has suffered. Of course, the coverage will be up to a certain amount only. Usually, this amount is limited to the cash value of your car.

Collision insurance is not required by the law in any state. In some cases, however, you may be required to take out such an insurance policy. An example would be if your car were financed by a car dealer or you took out a car loan from another entity. These financers or lenders would more likely than not require that you take out collision insurance.

If you have no accountability towards car dealers or lenders and you are pondering on whether or not to carry collision insurance, you should consider that this coverage protects you when an accident is your fault. You may think that you are an excellent driver and that you have absolutely no need for insurance, but you can never tell. In any case, if you do get into one – or cause one – your collision insurance will take care of your car repairs.

To keep your current expenses low, you can aim for lowering your collision insurance premiums. How do you do this? Set a high deductible. The amount that you indicate as our deductible would be the amount that you are willing to pay out of your pocket in case of an accident. Anything that goes beyond that amount falls to the insurance company. For example, if your deductible is $1000 and you get into an accident, any repairs on your car that costs $1000 and below would be shouldered by you. If the total repairs cost $1600, the insurance company will pay $600. So in setting your deductible, aim for the highest amount that you can actually afford. That will substantially lower your premiums.

If you have an older car or your car is in a poor condition, you may want to think twice about carrying collision insurance. Remember, collision coverage is limited to the value of the car. In case of an accident, it may actually be cheaper to replace the car than to pay for all the repairs.