Though reading the fine print in your auto insurance policy sounds confusing and overwhelming, it's important to understand exactly what your policy covers—as well as what it doesn't. Since car insurance is required in most states, knowing the type of policy that you have and the incidents that you're covered for can make a big difference when it comes time to file a policy claim.

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Understanding Auto Insurance Collision Coverage

Auto insurers offer many different types of coverage. Collision insurance is one of the most common forms. This policy covers the damages that are sustained to your vehicle in the event that you collide with an object or with another vehicle. If you lease your car, or if your vehicle has recently been purchased and financed, it's likely that you're required to carry collision insurance. It costs a great deal more to pay for damages that are sustained on a brand new car, so this coverage is often mandatory.

How Collision Coverage Works

Collision coverage is essentially designed to pay for either the replacement or the repair of your vehicle in the case of an accident, regardless of whether you or the other driver was at-fault. You're usually required to pay a stated amount of deductible when you file your claim. If the amount to repair your car is $400 and your insurance policy's deductible is $500, then it doesn't make sense to file a claim. If, however, your deductible is $500 and it costs $2,000 to repair your car, it will be well worth it to file the insurance claim.

What Collision Coverage Does Not Cover

While collision coverage provides payment in various instances, there are some limitations to when insurers pay out. For example, collision coverage typically won't pay for damages that were sustained due to:

  • Natural disasters
  • Acts of God
  • Damage from fire
  • Storms and storm-related damage
  • Damage from riots
  • Theft or damage sustained from vandalism

In addition, some insurance companies' collision insurance policies may not pay out for damages from the following:

  • Accidents that involve an animal
  • Accidents in which you hit a structure such as a house
  • Collisions in which you come in contact with other types of personal property, such as lamp post or a fence

It's also important to note that while your collision coverage pays for the covered damages that were sustained to your vehicle—even if an accident was your fault—the policy doesn't pay for damages that were sustained to another driver's vehicle. Often, what a policy will or will not cover comes down to how the auto insurance company defines a "collision." Therefore, it is essential to understand exactly what your insurer deems as a collision prior to obtaining this type of coverage.

With this in mind, it's also recommended that in addition to collision coverage, you also consider purchasing comprehensive coverage. With a comprehensive auto insurance policy, you are protected against damages to your vehicle that are the result of perils unrelated to a collision. These damages include:

  • Fire
  • Vandalism
  • Theft
  • Falling objects
  • Natural disasters
  • Civil disturbances

As with collision coverage, many leaseholders and auto loan lenders require you to have comprehensive coverage on your vehicle. Therefore, if you lease or still owe money on a vehicle that you have purchased, you may need to have this type of auto insurance policy.

Should You Purchase Auto Insurance Collision Coverage?

Many auto owners wonder if they should purchase auto insurance collision coverage. One rule of thumb is that if you have an older model vehicle, or if your vehicle is not in good condition, then you may consider going without this type of coverage. If you have a vehicle that is leased, or if you have a newer model vehicle—especially if you are still making payments on the car—it's probable that you will be required to, or will want to, carry this type of coverage.