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What is Collision Insurance?

By John Markley
Updated Feb 18, 2024
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Collision insurance is a type of automobile insurance that provides the insured with compensation to repair or replace his or her car if it is damaged or destroyed in a car crash or other driving accident. It is distinct from liability insurance, which covers damages suffered by others in the event of an accident caused by the insured. Unlike liability insurance, which is legally mandatory for drivers in many jurisdictions, collision insurance is generally optional. Collision insurance does not encompass vehicle damage caused by other sources, such as theft or natural disasters. Coverage for these sources of damage is called comprehensive insurance. Though not required by law, people who lease a car or take out an automobile loan are often required to buy collision insurance as a condition of the lease or loan.

As with other forms of insurance, collision insurance is a way to decrease risk and uncertainty. The insured protects himself or herself from the risk of a relatively improbable but sudden and potentially catastrophic financial loss due to a collision by regularly paying the insurer a comparatively small amount of money, called a premium. In the event of a collision, the insurance company pays the cost of repairing or replacing the vehicle, minus a fixed fee called the deductible or excess paid by the insured. The size of the deductible is variable, according to the risk the insurer believes the insured poses. Different collision insurance plans offer different tradeoffs between cost and risk, with some plans charging lower regular premiums in return for a higher deductible if damage occurs.

The cost of collision insurance also varies according to a number of factors about the person buying insurance and the vehicle. The financial risks posed by customers are calculated by actuaries, financial professionals who specialize in evaluating uncertainty and risk. Insurance customers are classified by traits such as age, sex, and marital status and may pay higher or lower rates if they are members of a high-risk group. The driving record of the person being insured is also taken into account, and rates tend to be higher for people who have caused past collisions or have a record of fines or criminal charges for traffic violations. The amount of the distance the driver drives and the conditions under which he or she does so can also affect the cost.

Vehicles with good records for safety and durability cost less to insure, as they are less likely to be badly damaged. Types of vehicles commonly associated with risky behavior, such as high-powered sports cars and motorcycles, tend to be more costly to insure. In some jurisdictions, insurance rates are regulated or fixed by law, though this is more common for liability insurance than for collision insurance.

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Discussion Comments
By Animandel — On Oct 30, 2014

My approach to car insurance is give me everything you have because I don't want anything to happen to my car that is not covered in my policy. I pay a little more, but I don't have to worry about a tree falling on my car and the insurance not covering the cost to repair the car or replace it. When you buy cheap insurance you get what you pay for.

By Feryll — On Oct 29, 2014

@Laotionne - I understand exactly what you mean about the high price of auto collision insurance for people under the age of 25 years old. When I bought my first car, I didn't know much about any type of car insurance. When I went to the insurance agent, he explained that I was required by law to carry the liability insurance for my car, but that the collision auto insurance was an option I could take or leave.

Since I was in high school and didn't have much money, I chose to simply take the minimum and drive very carefully so I didn't get into an accident.

By Laotionne — On Oct 29, 2014

It is so unfair that young people have to pay so much more for insurance than older people. I have to pay more for my insurance than my great grandmother pays for hers. I love granny as much as anyone possibly could love another person, but she should not be driving a car. She definitely is not a better driver than I am, and yet I am the one paying the unbearable premiums for my auto insurance.

Some young people may be risky drivers, but all of us shouldn't have to pay a penalty because of the wild drivers. I could understand having to pay more if I had caused several accidents or if I hand a handful of speeding tickets. We all deserve cheap insurance, in the beginning anyway. Let us prove we are bad drivers before you start charging us for being bad drivers.

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