Collision insurance is coverage that helps pay to repair or replace your own car if it’s damaged in an accident with another vehicle or object.
What does collision insurance cover?
Collision insurance is designed to protect you from yourself, essentially. It covers a number of scenarios, but it doesn’t cover everything. Collision coverage is “first party” coverage that protects your vehicle, and possibly any other vehicle you may be driving.
Collision insurance is offered by your insurance company to kick in after the following scenarios:
- Let’s say that you hit another car and cause damage to both their car and to your own. Your liability insurance will cover the damage you cause to the other vehicle, but not to yours. That’s what collision insurance is for: It covers and pays for the repairs needed to get your car back into pre-accident condition, or it pays you out the actual cash value of your car in the event of a total loss.
- You’re cruising down the road and your tire blows out; you lose control of your car, hitting a guardrail. Or, your brake lines go out, leading to a single vehicle accident. Or you simply get distracted and wind up in a ditch. In all these cases, collision coverage has your back.
- Collision insurance also protects you if someone else hits you, but doesn’t have enough insurance to cover the full cost of repairs to your car. In addition, if you get hit by someone who is uninsured, or leaves the scene of an accident (the dreaded hit and run), your collision insurance will also cover damages to your car.
Is collision insurance required?
It depends. Unlike liability coverage, collision insurance is not required by law. That means that you can choose not to have the coverage, but you might end up regretting your decision later. If you get into an accident, and the accident is your fault, you would be responsible for the damage that you cause to your own car. That can run into the thousands of dollars, and may require you to fully replace your car.
While the state you live in won’t require you to get collision coverage, your lender will usually require it if you haven’t bought your car outright. If, like most people, you buy your car and take out a loan — financing it through a bank — the bank will require you to take out a full coverage policy, which includes collision coverage. This is also required when leasing a car, as well in the case of new financed purchases, and used financed purchases.
Why does your lender care if you have collision coverage? Lenders require auto insurance coverage because they hold your car as collateral for your loan. If you stop making payments, they can take your car to pay off your balance. If you get into an accident and your car is totaled or not drivable, your bank may end up on the hook for the loan.
Collision coverage policy limits
Every portion of your car policy comes with a limit to the various types of car insurance coverage. That limit is the most that your insurer will cover in the event that a claim is made. Collision coverage is usually an exception to this rule; the limit is usually the actual cash value of your car (minus your deductible, of course).
Here’s an example of how this works: Let’s say your car slides on black ice, sending you into the median.
It’s one expensive slip: The damage to your car is estimated to be around $10,000. The vehicle is assessed and the actual cash value of your car is determined by the adjuster to be $26,500.
Since the damage amount is less than the actual cash value of your car, this scenario wouldn’t be a total loss, and the insurance company would pay out the amount to repair your car, minus your deductible. In this case if your deductible was $1,000, the insurance company would pay out $9,000 ($10,000 of damage mins that $1,000 deductible) to pay for the repairs to your car.
Another part of your collision insurance policy to keep in mind is your deductible. You decide on the deductible amount when you buy your insurance policy. The deductible is the portion of repairs that you pay, before your automobile insurance kicks in to cover the balance.
On a Lemonade Car policy you can choose your deductible, between $250 and $2,000. If you lease or finance your car, you may want to check if there’s a maximum deductible the lender will allow you to have on your car insurance policy. There are some other policies (usually commercial) with higher deductibles.
A Lemonade Car policy allows you to choose your collision deductible, and allows you to pick a different deductible for the other coverages on your policy too, like for your comprehensive insurance.