Car Accident:

Collision and Comprehensive Coverage

Collision coverage pays to repair your own car in the event of a car accident regardless of fault. If the car's repair costs exceed a certain percentage of the car's value (such as 70 percent), the car is considered totaled. This percentage varies from company to company. When a vehicle is totaled, the auto insurance company will tow the car to a salvage yard and give you the actual cash value of the car. The actual cash value is usually calculated by taking the replacement cost and subtracting the depreciation. The replacement cost is the cost of replacing or repairing your vehicle with materials that are of similar type and quality. Depreciation is the decrease in value of your vehicle caused by age or wear and tear. Collision coverage can be expensive and lead to high premiums. In order to keep your premium costs down, you might consider increasing your deductible.

Comprehensive coverage pays for damage to your car is caused by something other than an auto accident, such as theft, fire, vandalism, and collisions with animals. In some states, comprehensive coverage also includes glass replacement (such as your windshield) with no deductible. When you purchase your policy, you should ask your agent about the specifics of comprehensive coverage in your state.

Unlike liability insurance, neither collision nor comprehensive coverage is required by any states. However, if you are financing your car, your bank may require that you carry this coverage until your car is paid in full. After your car has been paid off, you have the option of dropping this coverage.