August 17, 2010

Auto Insurance Differences Between Collision And Comprehensive Coverage

There are basically three kinds of car insurance included in an auto insurance quote: collision, liability and comprehensive insurance. In most states, it is mandatory for auto owners to maintain liability insurance as indemnification against financial loss resulting from automobile accidents; other coverage options are discretionary unless the vehicle is financed. Lenders normally require collision and comprehensive coverage as well.

Collision insurance is purchased as protection for the vehicle owner in the event of an accident involving a collision that damages or totally destroys the vehicle. This indemnification is designed to cover the cost, in both labor and parts, if the car is damaged in an accident. If the car is totally rendered a loss, collision coverage will pay the fair market value of the car. For example, if a car collides with an 18-wheeler and the insurance adjuster determines that it will cost more to repair it than it will to replace the vehicle, the insurer will consider the vehicle to be "totaled." If the fair market value is $10,000 and there is a lien on the car for $2,500, the finance company will receive the $2,500 that remains unpaid; the car owner will receive a check in the amount of $7,500, the fair market value of the vehicle minus the loan pay-off. If the insured has included a rental car addendum, collision insurance will pay the daily rental fee for a replacement vehicle until the check is delivered or a settlement is reached.

However, collision insurance is very specific; it only covers damage to the insured's car in the event of a collision. Unlike liability coverage, it will not pay any benefits for other vehicles involved in the accident. Collision insurance is often eliminated from the car insurance quote in an effort to lower overall premiums. Often, it is a more prudent decision to eliminate plain collision coverage, especially when it is included in the comprehensive policy, which is required on vehicles that are being financed.

Collision will cover the driver for damages resulting from an accident relating to the collision, while comprehensive insurance provides indemnification from other sources of damage such as vandalism, fire, theft, weather damage, and other situations that may result in damage to the vehicle. However, comprehensive insurance usually does not cover theft or vandalism by family members, members of the insured's household, or damage to the vehicle caused by inept maintenance, for example, tire damage caused by under-inflation. Collision and comprehensive coverage are different in purpose, but when reviewing an auto insurance quote, keep in mind that both are intended to prevent financial loss to the insured.