Collision Coverage

Who Needs Collision Coverage

Whether you need collision coverage depends on the kind of vehicle you own―and whether you actually own it.

If you plan to lease a vehicle or solicit the help of a financial institution to pay for a vehicle, you should also plan to purchase a car insurance policy that includes collision coverage. Because leasing companies and lienholders also have stakes in these vehicles, they generally require collision coverage to help ensure they’re covered, too.

On the flipside, if you buy your vehicle outright or have made your final car payment, protecting it with collision coverage is usually your own choice. As you’re deciding, keep in mind collision coverage is generally limited to the vehicle’s actual cash value, so:

• If your vehicle is fairly new or in great condition, both its value and the cost to repair it might be high. Having collision coverage would certainly pay in the event your vehicle becomes damaged.

• If your vehicle is older or in not-so-great shape, both its value and the cost to repair it might be low. Having collision coverage might mean you’d pay more in extra insurance costs than it would take to repair the vehicle or than the vehicle is actually worth.

If you need help determining your vehicle’s value, Kelley Blue Book and NADA Guides are excellent resources.

Where to Get Collision Coverage

Shopping for collision coverage is as easy as shopping for any other kind of auto insurance. You can talk with your current insurance provider about adding collision coverage to the plan you already have or, if you don’t currently have auto insurance, you can purchase collision coverage from whichever carrier you choose after you shop around.

How Much Collision Coverage Costs

Like other kinds of car insurance coverage, collision coverage costs commonly break down into two different kinds of payments:

• The premium, which you’ll usually pay every month, every six months, or once a year. Simply put, the premium is your insurance payment.

• The deductible, which you’ll only pay in the event your vehicle becomes damaged. Deductibles are out-of-pocket expenses and usually range from $250 to $1,000.

The goal is to figure out whether what you’re paying (or may end up paying) in collision coverage costs is worth it in the end. To do this, you must consider how the premium and deductible fit into your budget.

Comparing Premiums

In addition to shopping around for the premium that suits both your needs and your budget, the amount of your deductible will also help determine how high or low a premium you’ll pay.

For example, if you opt for a high deductible, you’ll generally pay a lower premium. If you choose a low deductible, you’ll probably have a higher premium.

Choosing Your Deductible

A mistake many people make when choosing their deductibles is to assume “it” won’t happen to them (“it” being any kind of collision covered under collision insurance). So, they choose high deductibles in order to get low premiums. Then, when “it” does happen to them, their deductibles might not fit their budgets.

When choosing your deductible, think about the out-of-pocket expenses you’re able to absorb right now. If your budget allows you to easily pay a high out-of-pocket expense, choosing a high deductible might be worth it to keep your premium low. However, if you can’t afford a high deductible it might be in your best interest to pay a higher premium.

In the end, getting the best premium and the deductible that fits your budget is a balancing act and an experienced car insurance agent will be able to help you determine if what you’re willing or able to pay will line up with the coverage you need.