While liability coverage takes care of others, collision coverage is designed to protect you and your vehicle. If you are found not to be at fault, the at-fault driver’s liability coverage will take care of you.
If you are found to be at fault in an accident, collision coverage will pay to repair or replace your vehicle.
The state of Texas does not require you to carry collision coverage. However, in most cases, if you have a loan for your vehicle, your lender will require this coverage. They will want to make sure that if your car is deemed a total loss, they get their money back.
Let’s take a second to address a total loss situation. When the damages to your car exceed a certain threshold, determined by the insurance company, the car will be declared a total loss. This means that it would cost more to repair the vehicle than the insurance company deems reasonable as compared to the value of the car.
The insurance company will determine the value of the vehicle based on several factors including, but not limited to, age, mileage, prior damage, overall condition, and market value. Each insurance company will have its own way of deciding the value.
If you do not have a loan on the car, the insurance company will pay you the determined value of the vehicle (less your deductible, which we will discuss later). You can then take these funds to get another vehicle. If there is a loan on the car, the outstanding balance on the loan will be paid to the lender and you will receive the remainder. For example, you total a car that is determined to be worth $25,000 by the insurance company. The remaining loan balance on your car is $10,000. In most cases, the insurance company will issue a check for $25,000 to the lender. The lender will then give you the excess, in this case, $15,000.
If you are upside down on the car, meaning you owe more than the determined value, you will likely have to pay the remainder to the lender out of pocket. There is something called gap insurance to prevent this. While it is called insurance, it generally comes from the lender. Be sure to inquire about gap insurance when financing a vehicle.
Collision coverage is subject to a deductible
A deductible is what you are obligated to pay before your insurance coverage kicks in. For example, if you have a $500 deductible and the repairs to your car cost $1500, the insurance company will pay $1000 and you will pay $500.
Deductibles can be adjusted based on preference. In general, the lower your deductible, the higher your premium. You can save money every month with a high deductible, but you will have a higher financial obligation if an accident does occur.
If you choose not to carry collision coverage with your car insurance, any damages done to your car in an at-fault accident would be your responsibility.
Like collision coverage, comprehensive coverage protects your vehicle. In many cases, people who carry either collision or comprehensive also carry the other. Some people will refer to this as “full coverage”, while this is a common term it is a bit deceptive. We will discuss that in a later chapter.
Comprehensive covers damage to your car that does not involve a car accident.
The most common comprehensive situation that we see in Texas is hail damage. Other common issues that result in comprehensive claims are fire, theft, vandalism, and natural disasters. Some companies will also classify a collision with an animal (such as a deer) as a comprehensive claim.
The easiest way to determine whether an incident is comprehensive or collision is whether or not you were driving the vehicle when it happened. However, this is just a general statement and exceptions apply.
Just like collision coverage, comprehensive coverage is also subject to a deductible. Most people keep their comprehensive and collision deductibles at the same amount, but that is not required. As we discussed earlier, a higher deductible will save you on the premium but may cost you more in the long run.
The inverse is true as well, lower deductibles will cost more in premium, but save you on out-of-pocket expenses when you use the coverage.
While it is less common, a comprehensive claim may also result in a total loss. The same factors that we discussed in the collision section apply here as well.
Also, like collision coverage, the state of Texas does not require comprehensive coverage. However, without it, you will be responsible for any damage to the vehicle.
Lastly, while most people bundle comprehensive and collision, most companies will allow one without the other.
If you need collision and comprehensive insurance you just need to get no money down car insurance. When comparing multiple rates from many providers, you will be able to select the policy that best meets your insurance needs.