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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.
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