Collision coverage is an optional part of the car insurance policy that covers the driver or policyholder in case of a collision. Basically this type of coverage pays for the damage caused to a car in case of a collision. However it does not pay for any medical expenses incurred to any party that was involved in the accident.

• The viability of such cover totally depends on the type of car or vehicle that is being used. Costly vehicles may definitely require such cover since the amount of premiums put together would usually be less than the expenses incurred in such cases. On the other hand older vehicles for which the cost of repair exceeds the worth of the vehicle may not require collision cover.
• Such cover is also offered by credit card companies when you rent a car; however loss due to vandalism and theft are usually not covered. The exceptions being MasterCard and Amex which cover damage due to theft, vandalism and loss of use whereas Visa omits vandalism, theft and loss of use from the contract.
• Collision cover has a deductible which the car owner or policyholder has to shell out before the insurance company pays for anything. The amount of deductible is inversely proportional to the amount of premiums paid. This means that if you opt for a big deductible then the amount of premiums will drop.
• Another important point to consider is that the length of the policy is directly proportional to its cost. This means that if you do not meet with an accident you will keep paying the premiums while the cost of the vehicle devalues. Therefore it is important to drop or modify the cover at the breakeven point. The breakeven point is where the cost of premiums exceeds the cost of the car and the maximum possible amount spent on its repair (if any).
• Collision coverage can be a RCV (Replacement Cash Value) or an ACV (Actual Cash Value). Replacement cash value cover totally replaces the vehicle whereas actual cash value will pay for the repairs to the vehicle to restore it back to the condition prior to the accident. An expensive vehicle usually needs a RCV whereas for an old car an ACV would be suitable.
• In some cases you will be required to carry collision coverage such as when the vehicle is financed, leased or rented. This is because the bank or the financer doesn’t want to incur a loss due to your negligence or accident. This means that if you take out a car loan then the loan provider would ask you to purchase collision cover before forwarding any funds. Another situation where collision cover will automatically be included is when you use your company vehicle.
• The need for such cover only arises when your car is new or expensive and the repairs would cost more than you can afford. In old cars where the damage is not very costly or is more than the price of the vehicle itself such type of cover is not required. However it is advisable to make a rough estimate of how much it will cost you in case of an accident even if your vehicle is comparatively old.

If you have any additional points to share please feel free to leave a comment.