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Understanding Collision Insurance: A Comprehensive Guide

Is your car adequately protected if you get into an accident? While most states require drivers to carry a certain amount of liability insurance, collision insurance is not typically mandated by law. However, if you lease or finance your car, you may be required to have it. Even if it’s not required, there are several reasons why collision insurance could be worth the cost.

What Is Collision Insurance?

Collision insurance covers the cost of repairing or replacing your vehicle if it’s damaged in a collision with another vehicle or object. This type of insurance is usually part of a standard auto insurance policy, which also includes liability insurance, medical payments or personal injury protection (PIP), uninsured/underinsured motorist coverage, and comprehensive coverage. Opting out of collision coverage can lower your insurance premiums, but it also means you won’t be covered for collision-related damages.

What Does Collision Insurance Cover?

Collision insurance covers damage to your vehicle caused by:

• Colliding with another vehicle
• Colliding with an object, such as a tree, building, guard rail, or mailbox
• Hitting a pothole
• Flipping your car

What Doesn’t Collision Insurance Cover?

Collision insurance does not cover:

• Liability claims
• Medical expenses
• Vehicle theft
• Damage to another driver’s car
• Damage to your car when you aren’t driving
• Wear and tear on the car
• Mechanical breakdowns
• Aftermarket vehicle modifications

Is Collision Insurance Required by Law?

While states typically require a minimum amount of liability insurance, collision insurance is not usually mandated. However, if you lease or finance your car, the leasing company or lender will likely require you to carry collision insurance until the lease ends or the loan is paid off. Once your car is paid off, the decision to buy collision insurance is up to you.

How Much Collision Insurance Do I Need?

The amount of collision coverage you need is determined by your car’s value. To reduce your insurance premiums, you can choose a higher deductible, which is the amount you’ll pay out of pocket when you file a claim. Deductibles typically range from $0 to $2,500; the higher your deductible, the lower your premiums.

How Much Does Collision Insurance Cost?

According to the National Association of Insurance Commissioners (NAIC), the average cost of collision insurance nationwide is $370.73 annually. However, costs can vary widely based on factors such as your location, the type of car you have, your driving record, and your annual mileage.

Is Collision Insurance Worth It?

Whether or not collision insurance is worth it depends on your individual circumstances. You may not need collision insurance if your car is older and not worth much, or if you can afford to repair or replace the car without an insurance payout. On the other hand, collision insurance may be a good investment if you would struggle to pay for car repairs or a new vehicle after an accident.

The Bottom Line

Going without collision insurance can save you a few hundred dollars a year, but is that savings worth the risk of paying for car repairs or a new car yourself? Only you can decide. There are other ways to save on car insurance, such as comparing quotes from multiple insurance companies, shopping for insurance every year, looking for discounts, and raising your deductible. Maintaining good credit can also help you save on car insurance, as some insurers check your credit-based insurance score when setting premium rates.

For any mortgage-related needs, feel free to call O1ne Mortgage at 213-732-3074. We’re here to help you with confidence and expertise.

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