When purchasing an auto insurance policy, one area you will need to consider is the amount of collision coverage you will need.  In order to make this determination, however, you first need to gain a better understanding of what collision coverage is and how this type of coverage benefits you.

What is Collision Coverage?

Collision coverage provides your vehicle with protection if it becomes damaged.  If you are involved in an accident and you are found to be at fault for the accident, your collision coverage will pay for the cost of repairing or replacing your vehicle.  With most collision policies, you will receive payment for any necessary repairs that are less than the fair market value of the vehicle.  If the damage is more than the fair market value, on the other hand, you will only receive payment up to the amount of the fair market value.

Do I Have to Carry Collision Coverage?

This type of coverage is not required by any state, but you may be required to carry collision coverage if you have borrowed money in order to purchase your vehicle.  This is because the company you purchased the vehicle from, which is the lienholder, wants its investment to be protected in case an accident occurs.  Therefore, in order to finalize the loan process, you will have to demonstrate proof of adequate coverage.

Why Should I Carry Collision Coverage if I Don’t Have to?

Many people that have paid off their car loans still decide to carry collision coverage. If your vehicle is still quite valuable, for example, carrying collision coverage is a good idea because you will recover that money if your vehicle becomes damaged.  If your car is not worth a great deal of money, on the other hand, you may be better off carrying basic insurance coverage.  In order to make this determination, it is a good idea to get quotes for coverage with and without collision insurance.  This way, you can decide if the extra cost of carrying collision coverage is worthwhile.

What if My Car is Damaged and I Still Owe Money?

If you do not have collision coverage and your car becomes damaged or completely totaled, you will still be responsible for paying off the car loan.  If you have collision insurance, however, part or all of these expenses can be paid for you.  That way, you aren’t stuck with a car loan for a wrecked car.  If your car’s value becomes less than the amount of coverage provided by your policy, you will be responsible for paying off the remainder of your car loan after you receive payment through your policy. To prevent this from happening, you might want to consider adding gap insurance to your policy.

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