Auto insurance is one of the necessary evils that almost every vehicle owner has to deal with. You almost always have to have it, but you never want to need it. It's so important that almost every state requires at least some form of insurance before you can register your car or truck. Levels of insurance vary greatly, and each type of policy covers a different type of accident situation. Collision coverage is one of the specialized types of insurance that adds to the value of the most basic insurance policies.
Collision insurance is an optional policy that covers the repair or replacement of your car when damaged in an accident, or by an object such as a boulder or a tree.
What Does a Collision Policy Cover?
A collision insurance policy is concerned with the state of your personal vehicle. When your car or truck is damaged in an automobile accident, or by an object like a fence or tree, the collision policy will either help to pay for repairs or will pay to replace your entire car, depending on how extensive the damage is.
Collision coverage does not cover damage to another person's vehicle involved in the accident, damage incurred while the car was not being driven (such as during a theft or from hail or flood), or any medical bills caused by the auto accident.
What is Collision Insurance vs. Comprehensive?
When it comes to vehicle insurance, comprehensive insurance is the opposite of collision insurance. It's another optional insurance policy that covers any damage that happens from any cause other than a collision. Some of the events that comprehensive insurance covers include:
- Rockslides on twisting roads
- Broken or cracked glass
Comprehensive insurance coverage won't pay medical expenses or replace objects stolen from inside the car, but it can be an excellent companion policy with collision insurance.
When Should You Drop Collision Coverage on Your Car?
If you financed your car and you're still making payments, you may not have a choice. Virtually all lenders require full insurance coverage while loans are still in effect. Once you pay off your car, it can become a different matter.
Collision coverage (and the complementary comprehensive coverage) are optional additions to necessary liability insurance. There comes a time in the life of many cars when it no longer makes financial sense to pay for these extras. There are three basic rules that can guide you in making this decision, a virtual set of Rules of Ten.
- The Ten Percent Rule: Take ten percent of the book value of your vehicle and add the cost of your collision deductible. If your collision coverage costs more than this total, it may be worth considering dropping it.
- The Ten Year Rule: If your vehicle has reached its 10th birthday, it may not be worth enough to keep full coverage in place.
- The Ten Times Rule: How much money do you have put away in a rainy day savings account? If you've saved at least ten times your collision premium, you've probably got enough to make a down payment on a replacement car, and can afford the risk of going without the coverage.
This decision should be made on a case-by-case basis, and some situations warrant keeping collision coverage despite falling under one of the above rules. If you're leasing your car, you have to keep the coverage. If you only have one vehicle, you may need to keep the insurance to deal with the problems of being without a car in the event of an accident. Also, depending on where you live, being hit by an uninsured driver may be a large possibility. If that happens, you'll have to deal with the expense of repairing your car on your own, unless you've got collision insurance.