What does collision cover?
When your vehicle is damaged because you drove into something, the collision portion of your policy will pay for the physical damage to your vehicle up to the limit of coverage (more on “limit of coverage” later). What can you hit that causes damage to your car and have collision liability pay for the damages?
Just about anything. Light poles, street signs, other vehicles, mailboxes, guardrails; the list goes on and on. In every one of these situations, your collision coverage will pay for damage to your vehicle. Also, in these situations, your property damage liability will pay to repair or replace the light pole, street sign, other vehicle, mailboxes, or guardrails. Read “what your property damage pays for” to obtain more information about that portion of your policy.
Notice that the first sentence of the last paragraph stated, “Just about anything.” That means there are some exceptions to the rule. If you hit a deer or other animal and your vehicle is damaged, that will not be covered by the collision portion of your policy. The comprehensive portion of your policy covers damage caused by you hitting an animal, as described in the previous section.
A little-known fact is that if you hit a living animal, then the comp portion of your policy will cover the repairs and replacement. If you hit an animal on the road that is not living, the collision portion of your policy will cover the physical damage. This nuance is probably only necessary if you had decided to add comp but not collision coverage to your policy (more on this below). If you have both, you are covered either way.
What do comp and collision have in common?
Both comprehensive and collision coverage are optional for New York State car insurance policies. These are optional coverages because they cover the vehicle you own for damage, and only your vehicle. Most states are willing to let you take the risk of not having coverage to pay for repair or replacement of your vehicle, but they have minimum requirements for coverage you must have to protect others.
While the states are willing to allow you to run a financial risk, they will not allow you to run that risk on behalf of anyone else. That is why you must have minimum insurance coverage protecting other people and their property. Also, if you borrowed money to purchase the vehicle, the bank will require comp and collision to be included in the policy.
There are circumstances when having comprehensive or collision coverage no longer makes sense, and we will explain in further detail in the next section of the article.
Should I always include collision and comprehensive coverage?
If you owe money for your car, the bank will require you to include comprehensive and collision coverage. That means the option of including coverage is limited to vehicle owners who owe nothing on the vehicle. You either paid cash for the vehicle or have owned it long enough to have made all the payments on a loan.
How do you determine if you should include coverage? No formula will give you this answer; each person needs to decide based on their financial situation. If you paid cash for a $25,000 vehicle, can you afford to buy another one if that vehicle is totaled next week?
If you own a 12-year-old vehicle worth $4,000 can you afford to buy another vehicle if that vehicle gets totaled next week? The answer to this question will go a long way in helping you decide.
The more expensive the vehicle, the more critical having coverage becomes. If the cost of insurance is more affordable than potential repairs or replacement of the vehicle, then keep the insurance. If you can afford to pay for those potential costs, then perhaps you do not need to pay for the coverage.
Another consideration is if the vehicle is your primary transportation or a toy. Let’s say you bought an older pickup truck for occasional use only. Maybe you use it less now than in previous years. It may not be worth replacing if damaged in an accident.
But if the vehicle takes you to work every day, you may decide keeping the coverage will allow you to repair or replace the vehicle so you can keep your job.
The bottom line is to let your budget be your guide when deciding to include coverage. It is worth noting that this is not an all-or-nothing decision. You can add comp all by itself without adding collision; however, if you add collision, you will be required to add comp coverage.
You might include “comp only” so at least you have coverage for items outside your control (like being stolen). You may be willing to run the risk of damage to your vehicle while you are driving because you feel in control.
You have some say over how much of a deductible to use for comp and collision. In fact you can have a different deductible for each. The higher the deductible, the lower your insurance cost. This topic is explained further in the article how do deductibles work for car insurance?
Adding one or both types of coverage can impact other coverage within the policy. For example, if you have ever asked, “should I have rental insurance?” be aware that this can be impacted by whether you include comp and collision, more details are in that linked article.
What are common questions about claims?
What if the cost to repair exceeds the value of the vehicle?
Whether a newer vehicle is severely damaged in a rollover accident or an older vehicle sideswipes a guardrail, the cost to repair can exceed the vehicle’s value. In those situations, the vehicle may be labeled as a total loss, and the insurance company states that the vehicle is not worth repairing.
Instead of paying for repairs, the insurance company will pay you an amount they feel the vehicle was worth immediately before the accident. The concept is that this amount would allow you to purchase another vehicle with similar age, mileage, and features. It is not designed to allow you to buy a brand-new version of the exact vehicle.
How does my loan get paid if my vehicle is totaled?
The insurance company is not concerned about how much you may have borrowed when you purchased your vehicle. When you add comp or collision coverage to your policy, the value of the vehicle has nothing to do with your loan amount. The vehicle’s value will often decrease faster than the loan balance, at least early on during your ownership.
If the vehicle’s value is higher than the loan amount when a vehicle is totaled, the bank gets paid first, and you will receive the remainder. If the vehicle’s value is lower than the loan balance, the bank gets paid the full amount up to the coverage limit, and you still owe the bank money.
In this scenario, you no longer have a vehicle you can drive, but you still have payments to make to pay off the remaining balance of the loan. Since the collateral for the loan is gone, the bank may require you to pay them off in full. This is why purchasing vehicles you can afford is essential.
At the time you purchase a vehicle, you may have the ability to include in your loan package something called GAP insurance. This will pay the difference between what you owe the bank and what the vehicle is worth, if you owe more than the vehicle’s value. Read Do you really need gap insurance? for more details on this topic.
If I include comp and collision, how much coverage should I get?
You learned above that these coverages are optional, meaning you do not need to include them in your car policy. However, if you elect to include this coverage, the insurance company will determine how much coverage is included. When determining how to get car insurance, you must provide the vehicle identification number (VIN).
Each VIN is unique to each vehicle and provides very detailed information about the features included in that vehicle. Does it have a sunroof? Does it have adaptive cruise control? Is it a hybrid? The VIN is like a fingerprint for a vehicle.
This fingerprint allows the insurance company to determine the value of the vehicle. The insurance company will determine how much comp or collision liability is needed for your vehicle based on industry repair and replacement costs.
You have no control over the value that the insurance company determines; you either accept that number, or you do not. Based on the above information, the insurance company determines the actual cash value (ACV) for your vehicle. That will be the amount the insurance company will include for that vehicle.
However, if you borrowed money for the vehicle, the finance company will require you to include comp and collision on your policy regardless of the cost. The highest deductible you can use when you have a loan is $1,000 for comp and collision. That is required by the lender, not the insurance company. For more information on this topic read the article “how much deductible should I have”.
Keep in mind that as your vehicle ages, the repair cost may not change much, but the cost of replacement goes down. Age and mileage are two significant factors when determining the value of a vehicle.
You are now more aware of how these two critical pieces of your car insurance work. You’ve learned about their similarities and their differences. Next, apply your knowledge to your current auto insurance policy. Are there improvements or changes you can make? If you’re not certain, that’s okay. Let us know what you’re thinking via the Contact Us feature below. Remember, we do this for a living!
If you don’t have a policy (or want your current one reviewed), tap the Get Quote below and one of our insurance professionals will be in touch.