Collision Insurance Explained

A new car definitely needs collision coverage and it will be required from your lender or lien holder, if financing your car. Collision is coverage for damages to your car after being hit, or you having hit another car or object. In order to keep your premiums down, a deductible needs to be taken that will be comfortable if you ever have to pay it. A deductible is your out of pocket expense, in essence sharing the cost with the company. For example, if your car sustains damages totaling $2,000 and your deductible is $500, you will pay $500 and the insurance company will pay the remaining $1,500. The cash value of your car is what you would receive in the event of a claim, therefore, with an older car collision should be dropped from the policy. You will be paying a large sum of money to get very little in return, to repair damage to your car.

The basic rule in insurance is to take the risks you can handle (deductibles) and insure through premiums, risks which will be a hardship on your finances should they occur. The insurance industry like any company is in business to make money. You will always pay more in premiums than you get back in claims. If you collect more than you paid in premiums, the premiums will certainly rise to bring you back into equilibrium. Keep in mind that insurance companies do not take in all that much more than they pay out. It is incumbent upon insurance companies to make investments in financial instruments to earn sufficient money that will be available if there is a surge in claims. This is why you should check the financial strength of your insurance company. You want them to be in business when you file a claim.

$500 is the average deductible taken out by car owners for collision insurance. If you are not sure of how much of a deductible to take, do not concern yourself. At any time you may raise or lower your amount in deductibles, by simply changing the numbers online or calling your insurance representative.

Comprehensive Insurance Explained

Comprehensive insurance is not required for your car, unless your car is financed, whereas the lien holder will require it. This section in your insurance policy will cover your car in the event of flood damage, vandalism, fire damage, theft, if an animal takes up residence in your car, or if civil unrest breaks out and your car is in the middle of the action. You may take a deductible, based on your ability to comfortably pay out of pocket expenses. A deductible is a sharing of the risk with the insurance company. The more risk you are willing to take the lower will be your premium. A $1,000 deductible for $2,000 worth of damage, will have you and the insurance company sharing the cost equally.

Along with collision insurance, comprehensive insurance costs will vary from region to region. If you live in an area of the country where theft, vandalism and flooding might affect your car disproportionately, you will pay more for the privilege of living in this area. The insurance company has statistics which tell them in which area of the country their costs will be higher in supplying comprehensive insurance, and you will pay more if their costs are higher in that region. All insurance is based on statistics; if you are the safest and most careful driver but happen to live in an area of increased risk, your premium will have to reflect the overall picture.

Similar to collision coverage, if your car is older comprehensive coverage taken will be unwise on your part. Your damage will be repaired according to the book value of your car, not the car's sentimental value and you will be paying too much to get back very little in claims. In addition, filing a claim will raise your rates and you will come out on the short end in the claim and your new higher premium. A $500 deductible is a fair amount to be taken in comprehensive coverage. Changing the amount of your deductible can be done at any time without charge. Insurance coverage is becoming more competitive and it would be to your benefit to check out a few insurance quotes before buying a policy.