Collision coverage pays for the damage to your car, less the deductible, in the event your car hits something or is hit by something. If you have a car loan, your loan company will most probably require you to carry collision coverage. If you lease your vehicle, your lessor also will most probably require you to carry collision coverage.
The most common and straightforward use of collision coverage is when you hit something and it is your fault. Not only does it cover you if you, say, run a stop sign and hit another car; but it also covers you in the event you back into a pole. Now, in the event you are hit by or you hit an animal (a pheasant, or a deer for example), your comprehensive coverage will cover that damage. But under any other circumstance if you collide with something and it is your fault, your collision coverage pays to repair your damage.
But did you know there are other instances when your collision coverage will kick in as well? Say you are in an accident where it is clearly the other person’s fault, but they have no insurance. Your collision coverage will pay for the damage to your car less your deductible. What if the at fault party has insurance, but the $10,000 property damage coverage limit doesn’t cover the $18,000 bill for your car? Your collision coverage will take care of the difference. Some states also offer uninsured/underinsured property damage coverage that will take care of these situations.
Liability for an accident is not always clear cut, though. If there is a question as to who’s at fault in an accident and you wait for the other party’s insurance to determine their driver is at fault and decide to pay for your damage, you could have a long wait. In addition, if the other company balks and you want to take the case to court, you would have to pay the court fees unless the other driver is found liable. On the other hand, if you have collision coverage, then your insurance company will pay for the damage to your vehicle, less your deductible. Your company will then, in turn, go after the other company for the damages they paid on your behalf as well as your deductible. If this requires taking the other company to court, your insurance company will pay the fees. This process is called subrogation. It is important to know, though, the insurance company can only go after another person or company on your behalf in the event they have paid out something. Otherwise, they have no legal interest on which to pursue a claim.
Remember the primary goal of insurance is to return you to substantially the same financial condition you were before the loss. If you have an old clunker that is totaled in an accident, don’t expect your collision coverage to pay for a brand new car. Yes, you have insurance but the insurance will only pay the value of your vehicle at the time of the collision.
Insurance coverage varies somewhat from state to state and also depending on your individual circumstances. This article is intended to give you a basic idea of what collision coverage is for. Be sure to discuss your needs with an insurance agent licensed in your state to get the best coverage for your individual situation.