Auto Insurance: Collision Coverage

Collision insurance pays for damage to your car, not the other guy's, and it's optional. After all, you can sue someone you think is to blame for damages to your car. So why buy collision insurance, unless you have to (for instance, if you are financing a car)? For a number of reasons:

• You may be the world's most careful driver, but it is still possible that you will cause an accident or be held responsible for one. In that case you can't collect for damage to your car from the other driver. Collision coverage will pay for the damage, even if an accident is your fault.
• You may think an accident is the other driver's fault, but he may disagree, casting you both into lengthy legal proceedings. With collision coverage, your company can repair the car and take over your claim against the other driver (a procedure known as subrogation). Your company is ethically, but not legally, bound to fight for enough money to pay you back part or all of the deductible.
• You could get into an accident in which the other driver is clearly at fault but has no liability insurance. Suing could be pointless. The auto policy's uninsured (or underinsured) motorist coverage does not necessarily pay for damage to your car in this situation. Collision does.
• Suppose you smash your car into a tree or a telephone pole. There's no one to sue. Collision will pay for the damage to your car.

The amount of collision coverage your policy provides, and its cost, will depend on your car and its value. Premiums are much higher for vehicles that are expensive, accident-prone, easily damaged, frequently stolen or hard to repair. Those that score well for safety and durability often cost much less to insure. How much you will be paid for an accident depends on the nature and extent of the damage, whether new or refurbished parts are used, and other factors.

However, you should be aware of one special restriction: The company is obligated to pay only up to the car's cash value. That means the market value of the car before the accident, minus the salvage value of the damaged vehicle.

For example, say your car was worth $4,000 before the accident and $500 for salvage afterward. The company does not have to pay more than $3,500 in repairs. If the repairs would exceed that amount, the company can take the damaged car and give you the $4,000.

The cutoff for declaring a car to be totaled is usually somewhere around 75% to 80% of the car's retail value, though it may be the cost of repairs plus the car's salvage value. If your car was in the kind of condition that would make it worth more than others of its kind, you'll have a fight on your hands to get what you think it's worth.

You don't have to accept the claims adjuster's first settlement offer. Counter with an amount you think is fair. If that fails, take your case to a senior adjuster at the company. Bring your agent in as an ally. Ultimately, you can seek help from your state insurance commissioner, take your case to arbitration, or even file a lawsuit. As your battle gets more and more expensive, you may decide to settle for a somewhat better offer than you got to begin with.

For an extra premium, some insurers will offer replacement-cost coverage for new or recent-vintage cars under the collision (and/or comprehensive) part of a policy. This coverage provides for the full cost of replacing a new or similar car — not just its cash value before the accident — as long as the insurer considers the car not repairable.

Many companies extend their collision coverage to rental cars (provided they are not being used for business). If you are covered, you can turn down the costly collision damage waiver that car-rental agents sell. Check with your insurance agent to find out whether your policy covers rental cars. There are other economical ways to get insurance on rental cars. If you’re a member of an auto club, such as AAA, you can get collision protection covering damage to rental cars above a certain amount. Some credit cards provide similar coverage when you charge a rental to them.