Auto Insurance: Physical Damage Policies
In addition to the basic liability coverage outlined above, the most commonly recognized coverages are collision and comprehensive. Collision coverage pays for physical damage to your car as the result of your auto colliding with an object, such as a tree or another car. This coverage is relatively expensive. This coverage is optional and not required by law. However, if your vehicle is financed or leased, your lending institution or lessor may require collision insurance.
Most Collision Coverage policies are a lot of money upfront but cover your vehicle completely from any damages in might incur during an accident.
If you have an older vehicle worth less than $2,000, there is little reason for you to purchase Collision Coverage, because you are likely to pay more money in premium than you would ever receive as a result of a claim. The loss settlement agreement for collision coverage allows the insurance company the option to pay for repair or replace your vehicle with like kind or quality.
Comprehensive Coverage pays for damage to your auto from almost all other causes, including fire, severe weather, vandalism, floods and theft. It also covers broken glass, such as windshield damage. Comprehensive coverage is less expensive than collision coverage and many consumers choose to carry it. However, remember it is your choice; you are not required by law to carry comprehensive coverage.
Deductibles reduce your premiums because you agree to deduct an amount from the claim your insurer otherwise would have to pay. Insurers offer deductibles because they reduce the number of small claims that are costly for them to handle.
If you buy your car with a loan from a bank or car dealership, they may require you to carry collision and comprehensive coverage. They consider your car as collateral for the loan, and they want to make sure it’s damage free in case they need to repossess it.