What is Collision Coverage on an Auto Insurance Policy?

Auto Collision Coverage

Collision coverage covers your car against damage to your car in an accident you cause, or damage caused in a hit and run accident.  It is purchased on a car by car basis on a policy, meaning that not all cars on a given policy have to have it, or to have the same deductible chosen.  You might have an auto insurance policy with two cars for example, one of which is a 2011 vehicle that is leased, the other that is a 1999 car that you don’t wish to carry collision coverage on.  Deductibles are selected by the owner, although if a car is leased or financed the bank has the right to dictate the maximum deductible allowed.

An example of how this coverage works:

A policyholder has a new car and is driving  and loses control and slams into a telephone pole.  The car is damaged badly and is deemed to be “totaled.”  This means that the damage exceeds the market value of the car in the owner’s locale.  The auto company will issue a check for the market value, less the deductible.  If the car is leased or financed, the check is generally sent to the lien holder to pay off the loan/lease, and the owner then receives the balance, or a bill if the car loan is valued at more than market value.

Generally collision coverage is dropped when a car’s market value drops substantially.  It generally does not make sense to have collision coverage that costs $250 for the year when the car value is only $1000.