What is COLLISION DEDUCTION under Coverages and Limits in Auto Insurance?

9.02.2021
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Introduction to collision coverage

Collision coverage is an add-on coverage policy that helps to pay for the damage to your vehicle caused by contact with another vehicle or object, such as rollover, fence, or a tree. In the case of a lease or a car loan, collision coverage is typically required by the lender. If the car is paid off, collision is an optional coverage on auto car insurance policy. It does not matter who is at fault in the accident that damages the insured vehicle; the owner of the insured vehicle can make a claim under collision coverage. Within a collision coverage, most parts of the automobiles are covered.

Adding collision insurance coverage to an auto insurance policy increases the cost of your monthly premium, however, these monthly premiums may vary greatly from driver to driver, depending on several factors. These factors may include the level of education, income, age, gender, credit score, driving habits, driving history, geographical location, and the condition of the vehicle. In addition, most of the insurance coverage have deduction limits that are also important to decide the cost of premiums.

Here we discuss the deductibles and coverage limits of collision insurance and how they work in an auto insurance policy.

What does the collision coverage deductibles mean?

A deductible is considered a key feature of many types of insurance coverage. The amount of money an insured has to pay out of his/her own pocket toward a covered claim is known as the deductible of the insurance. Typically, deductibles can be found for certain coverages in homeowners, renters, and auto insurance policies. When purchasing collision coverage, an individual must decide the amount that he/she wants for collision deductible. It can be better understood by the following example:

Let’s say the collision coverage on a car insurance policy has a $500 deductible. The insured vehicle is damaged in an accident and it costs $3,000 to repair. The insured has to pay $500 toward repairs, and the collision coverage policy covers the remaining $2,500.

How does collision insurance deductible affect premiums?

Simply, a deductible is an amount that an insured agrees to pay upfront when an insurance claim is made, while the insurance company pays the rest up to the coverage limits.

When choosing the deductible of collision coverage, an individual must think about how much he/she has to prepare to pay out of pocket if the claim is required after an accident. It should also be considered that higher deductibles generally mean lower premiums. Therefore, an individual must weigh between the premiums and the deductible amount. The deductible amount may really come down to satisfy a policyholder.

In addition, if another vehicle is responsible for your car’s loss, but you use your collision coverage for the claim, you still owe your deductible. However, your auto insurance company subrogates (legally tries to recover the repair costs from the at-fault party). If your insurer is successful in its subrogation, your deductible may be refunded to you.

Collision insurance coverage limits

Similar to most of the insurance coverage policies, collision coverage is subjected to limits. The coverage limit is the maximum amount a policy has to pay toward a covered claim. The collision coverage limit is typically the actual cash value of the vehicle (original value of the vehicle minus depreciation).

For instance, say an insured car is totalled in a covered collision. The insurer will cut a check for the car’s depreciated value, minus the deductible amount stated by the policyholder. Bear in mind that “depreciated value” means the insured may not be able to replace the old vehicle with a brand new model.

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