AUTO INSURANCE Collision Coverage: Don't Take Chances
Collision insurance pays for damage to your car, not the other guy's, and
it's optional. After all, you can sue someone you think is to blame for damages to
your car. So why buy collision insurance, unless you have to (for instance, if you are
financing a car)? For a number of reasons:
You may be the world's most careful driver, but it is still possible that you will
cause an accident or be held responsible for one. In that case you can't collect for
damage to your car from the other driver. Collision coverage will pay for the damage, even
if an accident is your fault.
You may think an accident is the other driver's fault, but he may disagree, casting
you both into lengthy legal proceedings. With collision coverage, your company can repair
the car and take over your claim against the other driver (a procedure known as
subrogation). Your company is ethically, but not legally, bound to fight for enough money
to pay you back part or all of the deductible.
You could get into an accident in which the other driver is clearly at fault but has no
liability insurance. Suing could be pointless. As you will see later in this chapter, the
auto policy's uninsured (or underinsured) motorist coverage does not necessarily pay
for damage to your car in this situation. Collision does.
Suppose you smash your car into a tree or a telephone pole. There's no one to sue.
Collision will pay for the damage to your car.
The amount of collision coverage your policy provides, and its cost, will depend on
your car and its value. Premiums are much higher for vehicles that are expensive,
accident-prone, easily damaged, frequently stolen or hard to repair. Those that score well
for safety and durability often cost much less to insure. How much you will be paid for an
accident depends on the nature and extent of the damage, whether new or refurbished parts
are used, and other factors.
However, you should be aware of one special restriction: The company is
obligated to pay only up to the car's cash value. That means the market value
of the car before the accident, minus the salvage value of the damaged vehicle.
For example, say your car was worth $4,000 before the accident and $500 for salvage
afterward. The company does not have to pay more than $3,500 in repairs. If the repairs
would exceed that amount, the company can take the damaged car and give you the $4,000.
The cutoff for declaring a car to be totaled is usually somewhere around 75% to 80% of
the car's retail value, though it may be the cost of repairs plus the car's
salvage value. If your car was in the kind of condition that would make it worth more than
others of its kind, you'll have a fight on your hands to get what you think it's
worth.
You don't have to accept the claims adjuster's first settlement offer.
Counter with an amount you think is fair. If that fails, take your case to a senior
adjuster at the company. Bring your agent in as an ally. Ultimately, you can seek help
from your state insurance commissioner, take your case to arbitration, or even file a
lawsuit. As your battle gets more and more expensive, you may decide to settle for a
somewhat better offer than you got to begin with.
For an extra premium, some insurers will offer replacement-cost coverage for new or
recent-vintage cars under the collision (and/or comprehensive) part of a policy. This
coverage provides for the full cost of replacing a new or similar car -- not just its cash
value before the accident -- as long as the insurer considers the car not repairable.
Many companies extend their collision coverage to rental cars (provided they are not
being used for business). If you are covered, you can turn down the costly collision
damage waiver that car-rental agents sell.
IN THIS TUTORIAL
Collision Coverage: Don't Take Chances
