Collision Insurance

Definition

Found on automobile insurance policies, collision insurance is one of several categories of coverage.  Collision insurance pays for damages to the policyholder's car when they are at fault.  The car is usually covered for damages up to the fair market value of the automobile.

Explanation

In the event that a collision repair is necessary, the policyholder is responsible for any deductible identified in the policy.  For example, if the collision deductible is $500, then the policyholder will pay the first $500 of any repair.

Drivers are not required to carry collision insurance on a car; however, if a loan or lease exists on the vehicle, it is very likely that collision insurance will be required until the loan has been satisfied, or the lease is terminated.  This coverage protects the lender's remaining investment in the car in the event it is damaged in an accident.

Damages to the car that are caused by an "act of God," or an unidentified party, are covered by comprehensive insurance.

Related Terms

gap insurance, liability insurance, comprehensive insurance