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Auto Insurance is there to protect your assets. Auto insurance will help you take care of medical bills, the cost of reparation for vehicles involved, and even sew costs (this may vary, depending on the insurance plan you have selected) should an accident occur.

Auto Insurance Coverage: Understanding Collision Insurance and Deductibles

Collision insurance covers damage to you vehicle when it hits, or is hit by another vehicle or object. Collision coverage will pay to repair the physical damage to your vehicle less the deductible. So in other words if you have collision insurance with a $500.00 deductible you are liable to pay for the first $500.00 in damages. If you need a bumper replaced that cost $1200.00, you will still pay $500.00, but the insurance company will pay the remaining $700.00. The deductible amount helps to determine the cost of coverage. The higher the deductible, the lower the premium.

Collision insurance is one of the few auto insurance coverage options that is not equally required by all drivers for all vehicles. And in fact, the need for collision changes over the life of your vehicle. As your vehicle ages and starts to lose its value, the value of having, and therefore paying for collision insurance also diminishes.

When you have a brand new vehicle, obviously most people want to have collision, if you are leasing or financing your vehicle, often the leasing company or financial institution requires that you have collision. However, many drivers do not really understand when they reach the point where it no longer makes sense to maintain collision insurance.

Drop Collision or Keep It?

The first place to start to understand if you need collision insurance is to determine your vehicles Actual Cash Value (ACV). There are several popular sites online that can tell you accurately what your vehicle is worth, such as NADA Guides (http://www.nada.com/) or the Kelly Blue Book (http://www.kbb.com/). When using either source you must be honest about the condition and mileage on your vehicle, this will affect the value, and what you can expect to be compensated should your vehicle be "totaled" in an accident.

Once you know what your car is worth, and can take careful stock of your own personal situation you will be better able to determine if keeping your collision coverage makes sense. Let's say your car is worth $2500.00. If you are paying $500.00 a year for your collision coverage with a $500 deductible, that means you are paying $1000.00 in any given year you use that coverage. You may be at that point of diminishing returns. If the car is totaled you will only receive $2000.00. If you go two years accident free you have and "paid yourself" that same amount you not only have saved the money, you have enough to replace the vehicle should you have to. If you continue to go accident free, you have a nice little saving for yourself for something else - or even the down payment on a new car!

Still you need to consider you own personal situation. If your older vehicle is your only means of transportation, and it should be totaled and you feel you cannot afford to replace it, you may still want to keep the collision insurance.

Why Car Insurance?

First reason why you need Auto or Car Insurance is because it is required, in almost all 51 States, to have auto liability insurance.

Auto Insurance is there to protect your assets. If you are involved in a car accident, auto insurance will help you take care of medical bills, the cost of reparation for vehicles involved, even sew costs (this may vary, depending on the insurance plan you have selected).

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