There are three coverages that insureds need to have a firm understanding of when shopping insurance. These three coverages are collision, liability, and comprehensive (other-than-collision). Over the next three weeks, I will go over all three, but we will start with collision coverage today.
Collision insurance is the most simplistic coverage to understand. Think of your vehicle "colliding" with an object, or an object "colliding" with your vehicle. These objects could include other vehicles, pedestrians, or inanimate objects. Typically, your car or another vehicle must be moving for collision to apply. Some examples of collision include: one car hits another car, a car drives into a tree, a car hits a pedestrian crossing the road.
There are three essential items to remember when you are talking about collision insurance:
1) Collision insurance covers your vehicle
2) Deductible applies
3) Does filing a claim affect your rates
If you remember these three things, you will be prepared for both shopping coverage and filing a claim.
Always remember that collision insurance covers your vehicle. Collision coverage does not cover another person's car or property. For vehicles that do not have a loan or lease on them, collision insurance is entirely voluntary, and there is no legal requirement to carry it. However, most loan and leasing companies require that you keep collision coverage on vehicles with loans or leases on them.
The second essential item is that your deductible does apply. When you shop for collision insurance, the agent will ask you what you want your deductible to be. A deductible is an amount that you must pay yourself to fix your vehicle. The insurance company will pay everything beyond that amount. Typical deductibles today are either $500.00 or $1,000.00. However, they can go as low as $100.00 and as high as $2,500.00. As an example, if you have a $500.00 deductible and there is damage of your car that will cost $1,500.00 to repair, you would pay $500.00, and the insurance company would pay $1,000.00. However, if the damage were $400.00, then there is no collision claim because it is less than your deductible and there is nothing for the insurance company to pay.
Collision insurance can get tricky with insureds when the damage to their car is caused by someone else. For example, if John Doe damaged my vehicle, John's insurance is responsible for covering the cost to repair it (see my articles on liability). However John's insurance company may take longer than I want to fix it, he may not have enough insurance to repair it, or I may just feel more comfortable with my insurance company taking care of me. In any one of these scenario's, I may decide to go to my insurance company to repair my vehicle. Since I am filing a claim for my collision insurance, my deductible would apply. The adjuster might waive the deductible but they might not. So even though someone else hit me, I might still have to pay the deductible. The good news is that if my insurance company can be reimbursed by John Doe's insurance company, my deductible would be refunded.
Finally, does a collision claim affect your insurance rates? It depends on the situation, but usually, the answer is yes. Typically fault determines if the insurance rates will increase at renewal. In the case of my insurance rates would not be affected, because I was not at fault for the accident. Unfortunately, most of the time a collision claim is filed is because the insured is at fault for the accident. If I were to rear-end the car in front of me, I would have to pay a collision claim to repair the front end of my vehicle (as well as the liability paid to the other vehicle). Even if I drive into a post or tree, it would still be my fault and would count at renewal. Because it can affect your rates, I typically recommend higher deductibles around $1,000.00 to deter filing claims with lower damage. Why file a claim that would leave the insurance company paying $200.00 or $300.00 and your insurance premiums raise $150.00 for the next three years? File your claims for significant losses and notable accidents that involve other vehicles and amount to more than $1,200.00.
Keep these three things in your mind when both shopping for insurance and filing a claim. The agent will ask you what you want for a deductible. When they do, you know they are asking what you want to pay to fix your vehicle. When they mention collision, you understand they are talking about damage to your car. Finally, always talk with your agent before you contact the insurance carrier to file a claim. The agent is your ambassador for the insurance company. Give your agent the opportunity to help you with the claim.