Difference Between Liability and Collision Coverage

Welcome Here. Purchasing a car insurance may be quite overwhelming. You find so many various words. You are seeing prices up and down. One does not know what he/she really needs.

New drivers are usually puzzled by two important words. These include liability and Collision Coverage. You may be asking yourself whether you need the two.

Perhaps you just require one of them. We are here to help you decide. We will clarify it all in a simple manner. You will be made better acquainted with your policy. Today, let us get into some detail.

The Fundamentals of Car Insurance

First you need to know about the way insurance works. It acts as a safety net for you. A monthly fee is known as a premium. The insurance company is the one that guarantees to cover the damages. However, they will simply spend money on certain things. Not all the policies cover all the accidents.

You must decide the appropriate package. It is at this point that confusion usually begins. Majority of the states will have you to be liable. However, the Collision Coverage is normally optional to owners. You must know the dissimilarity. It would save you thousands of dollars.

The only thing that you purchase and hope that you will never use is insurance.

You do not want to be tied up when paying bills. Repair of cars is costly nowadays. Even higher are medical bills. There is a need to watch your bank account.

What Exactly is Liability Coverage?

To begin with, Liability Insurance. It is the basis of the majority of auto policies. You can imagine it to be oops insurance. It compensates in case of an accident. It encompasses the harm that you cause others.

There is no use repairing your vehicle. It assists the other driver in the traffic. It also serves to assist pedestrians whom you may hit. The majority of states say that you need this. It is the law in most places. You can not legally drive without it.

The coverage of liability has two broad sections:

Bodily Injury Liability: This will cover the medical expenses. It assists individuals that you hit in an accident.

Liability Damage to Property: This covers the damaged items. It repairs the automobile of the other person.

You have this to safeguard your possessions. If you get sued, this helps you. It prevents the loss of savings. Responsible driving would not be possible without it.

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What is Collision Coverage?

At this point, we shall examine Collision Coverage. This is in contrast to liability. This is a coverage that is vehicle specific. It pays to repair your own car. It will start when you bump into something.

You might hit another car. You might back into a pole. You might fall down the side of the road. This is assisted by Collision Coverage which pays these repairs. It operates even in cases when it was your fault.

The first thing is they require you to pay a deductible. We will talk of deductibles later. And just know that this will insure your car. In case of total loss of your car, it pays. It makes a payment of the cash present value of a car.

This is necessary in case you lease a car. Loans are normally taken by the banks with Collision Coverage. They desire to hedge their investment. In the event that your car is paid off, then you have the option. You have to choose whether it should be worth it.

A Rapid Comparison of Liability and Collision

You have a low table we have prepared. It presents the key distinctions. This can be scanned in order to learn quickly.

The obvious divide is evident here. Liability is for “them.” Keep the Collision Coverage to “you”

Why Should You Have Liability Cover?

Why is liability compulsory you may ask. It is concerning the safety and responsibility of the people. Accidents cost a lot of money. Majority of the population is not able to afford such expenses. The government is interested in making victims remunerated.

Imagine that you were involved in an accident where you hit a luxury car. The repair bill could be $20,000. Have you that money at hand? Most of us do not have it. Liability insurance comes and covers that bill.

It also covers the costs of legal defense. You will require a lawyer in case the other driver is suing you. One of them is supplied by your insurance company. Liability policies have a great advantage in this. You can enjoy the freedom of information during commuting.

Deep Dive into Collision Coverage

Per Person Limit: The maximum that is paid due to the injury of one person.

According to Accident Limit: The amount paid per single crash.

Property Limit: The highest price paid to damaged objects/cars.

Limitations should be taken to secure your assets. State minimums are usually low. We recommend purchasing in excess of the minimum.

Deep Dive into Collision Coverage

We have to go back to Collision Coverage. It is also the costliest aspect of insurance. Why does it cost so much? Repairing cars is very expensive. There is an increase in parts and labor costs.

You apply this on when you break your car. This involves single car crashes. Did you get on ice into a tree? That is a collision claim. Have you run over a pothole and spoiled your bumper? The latter can also be a collision claim.

Key benefits include:

Repair or Replace: Fixes your car or buys a new one.

Peace of Mind: You know your car is safe.

Loan Requirement: Keeps your lender happy.

This is not claimed due to weather damage. Hail or floods are different. Those are classified as Comprehensive coverage. Collision Coverage is pure impact coverage. It involves an object or a vehicle collision.

The Role of Deductibles

You have to be informed about collision deductibles. The amount you are required to pay is a deductible. This is paid out in advance of the insurance. Common amounts are $500 or $1,000.

If you have a $1,000 deductible:

Your repair bill is $3,000.

You pay your mechanic $1,000.

The insurance company pays $2,000.

You are allowed to select your level of deductible. An increased deductible will reduce your monthly premium. Reduced deductible increases your monthly premium. You must be able to balance your budget.

When you do not have any savings, go with a low deductible. You do not want a bill of surprise. If you have savings, go higher. You will save on the rate per month.

Real-World Scenarios: Which One Applies?

We have made a grid to help you. This presents real life scenarios you may encounter. It assists you to witness which insurance works.

Scenario Grid Features:

You are able to observe their collaboration. They discuss various aspects of the same coin. It takes them both to be properly covered.

Financial Considerations for Collision Coverage

You may be enquiring about the price. Is the Collision Coverage worth the additional amount of money? It is determined by the value of your vehicle. This we refer to as the Actual Cash Value (ACV).

The amount that will be paid by insurance will never exceed the ACV. If your car is worth $2,000, stop. Do not pay $500 a year for coverage. You will be paying higher than the car itself.

We propose the elimination of collision of old cars. In case your vehicle is more than 10 years old, compute it. When the premium is 10 percent of the value of car, drop it. It is worth more saving that money.

Nonetheless, in the case of new cars, it is crucial. You can not afford to lose a 30,000 car. A single error can destroy such an investment. You must ensure that you secure that asset.

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External Resources for Verification

You must never neglect official sources. The insurance laws differ by state. Our advice is to visit trusted governmental sources.

Data may be accessed in the Insurance Information Institute. Costs statistics are great with them.
Your local DMV Website should also be checked. They provide state minimum requirements.
These are the sites that can aid you in checking our info. We want you to be sure. Credible data is critical to Insure Hook.

The “Full Coverage” Myth

You keep on hearing the phrase Full Coverage. People believe that this is a particular policy. It is in fact not a physical product. It is only a nickname that people use.

When full coverage is said by the agents, they are referring to a package. This package normally consists of:

Liability Insurance.

Collision Coverage.

Comprehensive Coverage.

These you put together in a bundle, to be as safe as possible. It puts a cloak over your automobile. The limits can still be customized. A deductibles can be changed on each part. Do not think that Full Coverage is the best. You must read the fine print.

Factors That Affect Your Premium Costs

You could ask yourself why you are paying so much. The insurance companies give complicated mathematics to determine your rate. They consider a lot of things concerning you.

They want to predict risk. If you seem risky, you pay more. If you seem safe, you pay less. It is intimate yet it is nothing more than statistics.

The following is what they consider primarily:

Your Driving Record: A good record helps you to save money. Accidents and tickets are the quick way to increase your rates.

What is your Age and Gender: Young drivers are the heaviest payers. They are less experienced on the road.

Your Location: The drivers in the city usually pay higher. The traffic is increased and theft risk is high.

The Type of your Vehicle: Sports cars are more expensive to insure. Family sedans are normally less expensive to cover.

Collision Coverage is the most affected by the type of car. Cars that are expensive to maintain are expensive to repair. Luxury car parts are very expensive. As such, the insurance company will charge you a premium rise.

Knowledge of No-Fault Insurance States

It is important to find out whether you reside in a No-Fault state. This alters the functioning of liability. In such states, your insurance covers your injuries. It does not matter who caused the accident.

This is referred to as Personal Injury Protection (PIP). It is compulsory in such states as Florida or Michigan. This is however only limited to injuries. It is not normally applicable to damages on vehicles.

In case of repairing the car, fault is still an issue. When you strike someone, the payment against your car is that of their car. In case you hit a tree, your Collision Coverage will cover your car. PIP is not to be mistaken with collision insurance. They discuss very disparate things.

The Role of Gap Insurance

We mentioned loans earlier. This is an add-on that is special, called Gap Insurance. This operates in co-ordination with collision policies.

Cars lose value very fast. You drive a new car off the lot. It instantly loses value. You might owe the bank $30,000. But the car is only worth $25,000 now.

In case of a totaling of the car, the insurance pays the value. They pay you $25,000. You still owe the bank $5,000. That is a dreadful position to be in.

Gap insurance will cover that disparity. It includes the difference between the value and the loan. If you have a big loan, get this. On top of it it is generally extremely inexpensive. It can save you from debt.

Chart: Where Does Your Premium Go?

Our chart to indicate cost breakdown is developed. This will assist you in tracking the money. It is an approximate figure of complete coverage.

Estimated Premium Cost Allocation.

As you can see the bulk is the liability and collision. You know, they are the meat of your policy.

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How to File a Claim: Step-by-Step

Accidents are scary. You might panic. You must have an idea of what to do. We have a simple guide for you. These are the steps to follow when dealing with a claim.

Step 1: Ensure Safety First
Immediately check on injuries. Call 911 if anyone is hurt. Move the car if it is safe. Turn on your hazard lights.

Step 2: Document Everything
Use your phone camera. Take photos of both cars. Record pictures of the signs and road. Get the other driver’s info. Their name and insurance number are required.

Step 3: Call Your Insurer
Report accident immediately. Take them and tell them what happened. Admission of guilt is inadmissible on the scene. Allow the insurance companies to determine the wrongdoing.

Step 4: The Adjuster Visit
One will examine your car, an adjuster. They make estimates of the cost of repair. With Collision Coverage, they give approval to repairs. You make your deductible to the shop.

Step 5: Get Back on the Road
The shop fixes your car. The remaining part of the bill is paid by the insurer. You get your car back.

Common Mistakes People Make

You do not want to make rookie mistakes. It is easy to observe how people commit the same mistakes repeatedly. You may pay hefty sums of these mistakes.

Mistake 1: Deductibles that are Too Low.
You may decide to have a 250-dollar deductible. This renders your monthly bill huge. You may save by increasing it to $500.

Mistake 2: Falling out of Collision.
There are individuals who lose coverage in order to save money. Yet they do it on expensive vehicles. When you hit a crash then you lose the entire car. Check the car value first.

Mistake 3: Underinsuring of Liability.
You could choose the minimum in the state. That would be no more than $10,000 in property. It is not good enough to strike a Tesla. You will be sued for the rest. Always purchase in excess of what is required.

Great cheap insurance is good until the time you need it.

You get what you pay for. Sacrifices of necessary protection are never to be made.

How to Save Money on Your Policy

You are not obliged to pay the full price. Discounts are available in a variety of ways. You just have to ask for them. We have a list of easy savings.

Bundle Policies: Home and auto insurance. This normally gives you a saving of 10% to 15.

Drive Safely: Years of clean record. Discounts on safe drivers are important.

Pay in Full: Pay the 6-month premium in advance. You escape processing fees on a monthly basis.

Good Student Discount: Do you attend school? High grades will decrease your rate.

Telematics Devices: Have them tell your driving. If you drive safe, you save.

It is recommended to go shopping once a year. Loyalty does not necessarily work. There may be other companies that are available at better rates. Check quotes frequently.

Comprehensive vs. Collision: The Confusion

There is one more thing that we need to explain. Individuals confuse comprehensive and collision. They are alike and yet different.

Collision Coverage is hitting things. It involves a crash.
Extensive Insurance is against misfortunes.

Comprehensive covers:

Fire damage.

Theft or vandalism.

Hitting a deer (animal impact).

Falling objects (such as tree branches).

Broken windshields.

You tend to purchase them in bulk. Both loans are required by lenders. On an old automobile you may, however, retain comprehensive. You might drop collision. It is much less expensive to maintain comprehensive.

The Future of Auto Insurance

The situation is evolving rapidly in this industry. The driving is evolving with technology. It is transforming our way of insuring as well.

Cars are getting smarter. They possess sensor and cameras. This helps avoid accidents. Less accidents translate to less claims. This would reduce Collision Coverage rates in the long-run.

Sensors are however costly to repair. A bumper used to be plastic. Now it has radar inside. So, repair costs are going up. This compensates the savings.

There is also self-driving automobiles. Who should be guilty of any crash involving a robot? Laws will have to change. We will see big shifts soon.

When to Drop Collision Coverage

This we have mentioned very briefly in Part 1. Let’s dig deeper. You need a math rule. We use the “10% Rule.”

Divide the average annual collision insurance cost. Let’s say it costs $400 a year.
Now, find your car’s cash value. Let’s say it is worth $3,000.
$400 is more than 10% of $3,000.

Coverage in this case should be dropped. You are over paying and underrewarding. Save that $400 in a bank account. Use it if something happens.

But if your car is worth $20,000? Retain the coverage. $400 is a paltry amount to insure $20,000.

Verifying Your Insurance Company

You need a reliable company. Do not simply choose the lowest price. You would have them pay you to call.

Test their financial viability. Look at ratings from AM Best. They rate payment capacity of claims. You want an “A” rating or better.

Customer satisfaction is another thing to look at. J.D. Power places insurance companies. That is who behaves well with people. It is of no use having a cheap policy when they reject claims.

Uninsured Motorist Coverage

Then what about the other man who has no insurance? This occurs more than you would imagine. One out of every 5 drivers in certain states is not insured.

They should pay off, in case they strike you. But they have no coverage. Who pays for your car?

Collision Coverage: This will provide the compensation of your repairs. Nevertheless, you must make your deductible.

Uninsured Motorist Property Damage (UMPD): This is provided in some states. It pays for your car. It tends to possess a smaller deductible.

This you ought to inquire of your agent. It is a vital safety layer. Do not expect other people to be accountable.

A Summary of Liability

We should summarize the liability one more time. It is a kind of shield to your wallet. It prevents the destruction of you by lawsuits.

Bodily Injury: Reimburses their pain and their medical expenses and lost wages.

Property Damage: Covers their automobile, home or street signs.

You legally must have this. Do not let it lapse. Driving without it is a crime. You can lose your license. You can be fined heavily.

A Summary of Collision

Now, we are going to summarize Collision Coverage. It is the shield for your car. It maintains your car in a new look.

Your Fault: It is good when you get it wrong.

Not Your Fault: It pays to have the other man lie.

Single Car: It is worth taking when you hit a pole.

It is not mandatory yet advisable. Newer vehicles cannot do without it. It releases you out of anxiety.

Final Thoughts for Insure Hook Readers

We have covered a lot today. You now know the difference. Liability is for them. Collision is for you.

You have to assess your position. Look at your car’s value. Look at your budget. Look at your savings.

It is not something to be shy about asking. Call your insurance agent. Ask them to define you limits. Enquire of them about Collision Coverage in particular.

You are the customer. You have to know what you are purchasing. We hope this guide helps you. Drive well and do not get uninsured.

Frequently Asked Questions (FAQs)