Collision Coverage Regardless of Fault
Collision coverage protects a vehicle when it is involved in an accident, whether a rollover, collision with another vehicle or costs resulting from an encounter with a fixed object like a pothole, guardrail or light post. Collision coverage applies only to your vehicle, it doesn’t cover whatever your vehicle collided with. That damage would be covered under property damage liability coverage if you were found legally responsible for the accident. Your insurance company will assess the damages to your car and pay for the repairs. All you’ll owe is the deductible.
A deductible is the out-of-pocket expense you agree to pay per loss before any payment from the insurance company is distributed. Deductibles range from $0 - $2,000, but limits of $250, $500 or $1,000 are most common. So, if you have a $500 deductible and the estimated cost of repairs to your vehicle total $2,000, you would owe $500 to the repair facility before your insurance will send the remaining $1,500 their way. Generally, the rule of thumb is the higher the deductible, the lower the corresponding coverage premium.
Do I Need Collision Insurance?
Although collision insurance is not required by any state, your lending institution may require it if you are financing your auto. If your vehicle is involved in an accident and considered “totaled” (when the repair costs exceed a certain threshold of the vehicle’s value), you and your lending institution would be protected up to the actual cash value (ACV) or “fair market value” of the vehicle. Your deductible will still apply in a total loss scenario.
Depending on the term of your loan, it’s possible that the vehicle will depreciate more quickly than the value of your loan. To avoid paying the difference to the lender out of pocket, you can purchase gap insurance, which typically covers the difference between a vehicle’s actual cash value and the sum owed to the lender.