How to Decide if You Need Collision Coverage

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There are several things to consider to help you decide if collision coverage is right for you.

Collision coverage is a type of car insurance. It is generally not required. But motorists may want to add it to their policies in order to protect themselves from financial loss.

Whether or not a driver will need collision insurance depends on many factors. Here are some things motorists should consider to help them decide if buying this type of car insurance coverage is the right choice.

What is collision coverage?

Collision coverage pays for the repair or replacement of your car if a policyholder becomes involved in a crash and another driver isn't liable for covering the damage.

See, if another motorist causes an accident, their insurance should pay to fix any victims' cars or to get victims a new one if their vehicles are declared a total loss.

But if a policyholder causes an accident, then his or her insurance will pay only if they have collision coverage. Any other coverages, such as liability car insurance (which most states require) won't pay anything for the policyholder's own vehicle -- it would pay only if they damaged someone else's car.

Do lenders require it?

For drivers who have a leased vehicle or who have a car loan, chances are good that they will be required to have collision coverage as part of their insurance.

Motorists who are required to buy it won't have a choice in the matter -- they'll need to maintain the coverage that the lender or leasing company mandates.

How much is the deductible and how much is the vehicle worth?

Collision insurance coverage generally comes with a deductible. For example, a policyholder might have a $500 or $1,000 deductible.

The deductible is an amount the policyholder must pay personally before the insurer pays for anything. If a policyholder has a $1,000 car insurance deductible and his car is only worth $900, then there would be no point in having collision insurance coverage. The insurer won't pay more than the car is worth, and since the policyholder has a deductible that's higher than the vehicle's value, the insurer won't pay anything at all.

While motorists can pay more for a policy with a lower deductible, this may not be worth it if their car isn't worth a lot. It doesn't make sense to pay hundreds of dollars per year for a collision insurance policy if they'd end up paying enough in premiums to cover the cost of their vehicle after just a year or two.

How much does collision coverage cost?

The cost of collision coverage varies depending on many factors including the policyholder's driving history and the vehicle they drive. Drivers need to make sure it makes sense to pay these premiums based on the value of their vehicle.

For example, if a vehicle is worth $1,000, the policyholder has a $500 deductible, and premiums for collision coverage are $400, then the value of your collision coverage is $100 ($1,000 minus the deductible minus the premiums you're paying for the coverage). Since the value it provides is relatively low, it may very well not be worth it.

Is replacing the vehicle affordable?

Drivers also need to consider whether it is possible to afford to pay to replace their vehicle if they don't have collision coverage.

If a motorist cannot afford to pay for the replacement of their car without insurance to help cover the costs, then it's likely worth having collision coverage -- at least until they can save enough to pay for a new car. After all, no one wants to be left with no way to buy another vehicle if something goes wrong.

By considering what the covered car is worth, how much collision insurance costs, what the deductible is, and whether a lender requires collision coverage, motorists can make the best choice possible.

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