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Which insurance coverage pays for damage to my own vehicle if I'm at fault in an accident?

Collision insurance pays for repairs to or replacement of your vehicle when it's damaged in a traffic accident, regardless of who was at fault. Liability insurance, which is required by most states, pays for damage you do to other people and their property.

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Like comprehensive insurance, collision is an optional form of coverage. (Comprehensive covers theft of your vehicle or damage to it from causes other than traffic accidents, including vandalism, theft, natural disasters and collisions with animals.)

Both types of coverage include a deductible. If the deductible is $500, for instance, and it costs $3,000 to repair your car after an accident, the insurance company will pay $2,500. However, if someone else causes the accident, your insurance company will work with the other driver's insurer to recover its costs and your deductible. This process is called subrogation.

Collision and comprehensive insurance are highly recommended for any vehicle of significant value. If you finance the purchase of a new car with a loan, your lender generally will require the coverage.

You can save money on car insurance rates by raising the deductible on collision and comprehensive to $1,000 or more. If you go that route, make sure to set aside money in a savings account to cover the deductible in case you get into an accident and have to make a claim.

For older cars that have lost most of their value, it often makes sense to drop collision and comprehensive insurance. When repair costs exceed the value of the car, the insurance company declares the vehicle a total loss and pays you the amount the car is worth, minus the deductible. There's no use paying a premium for collision and comprehensive when the maximum payout would be minimal.

For more, see Car insurance basics.

Last updated: Apr. 23, 2012
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