Is collision insurance right for you? Here’s what you need to know

Car insurance is essential for every vehicle owner in the Philippines, protecting them from financial burdens caused by accidents. Among the various types of insurance, collision insurance stands out for its specific role in covering damages to your vehicle when you are involved in an accident. But is collision insurance the right option for you?

Let’s delve into the details to help you decide.

What is collision insurance?

Collision insurance is designed to cover the costs of repairing or replacing your car if it’s damaged due to a collision with another vehicle or a stationary object, such as a tree or a wall.

This type of insurance is crucial if your vehicle gets into an accident where you are at fault. While it helps cover repairs, you’ll still need to pay a deductible, which is a set amount before your insurance kicks in. The insurer covers the remaining repair costs beyond this amount, up to the car’s market value.

Also Read: Must-have car insurance policies for Philippine drivers

What does collision insurance cover?

In the Philippines, collision insurance addresses the following coverages -

• Damage from accidents with another vehicle or object.
• Single-car accidents, such as rolling over or hitting an obstacle.
• Damage caused by potholes or road debris.

However, collision insurance has some limitations, as it does not cover certain damages/costs. The list includes -

• Damage not caused by collisions, such as theft, vandalism, or natural disasters (these are usually covered by comprehensive insurance with add-ons like Acts of God coverage).
• Medical bills for you or the other driver
• Damage to another person’s vehicle

In short, collision insurance for you or the other driver, or damage to another person’s vehicle in motion. Conversely, comprehensive insurance is broader and covers additional risks like natural disasters and theft. Below we’ll be discussing the said comparison in detail.

Why might a car owner need collision insurance?

In the Philippines, the necessity of collision insurance depends on a variety of factors:

Vehicle financing: If you're financing or leasing your vehicle, your lender will often require collision insurance as part of the contract. This protects their financial stake in the vehicle.

High accident risk: The Philippines is notorious for heavy traffic congestion, especially in cities like Manila, where frequent accidents occur. If you frequently drive in high-risk areas, collision insurance can be a wise investment.

Peace of mind: Repairing cars after an accident can be expensive. Collision insurance helps mitigate these costs, providing peace of mind if an unexpected accident happens.

Also Read: How to select a good car insurance provider in the Philippines: Key tips & considerations

When collision insurance might not be necessary for a car owner?

Collision insurance isn’t always necessary for every driver in the Philippines. Say, if your car is older or fully paid off, you might want to reconsider it. Here’s why:

Depreciating vehicle value: Collision insurance covers the value of your car at the time of the accident, which means you’re paid for the depreciated value of the car, not the price you paid for it initially. If your car is older and worth less, the amount you’d get from a claim might not justify the cost of the policy.

Out-of-pocket repairs: if you have enough savings to cover the cost of repairs or replacement, you might opt out of collision insurance. The premiums and deductibles might outweigh the benefits, especially for an older car.

Low mileage usage: If your vehicle is not used frequently, the likelihood of being involved in a collision decreases. In such cases, the necessity for collision insurance diminishes.

Collision insurance vs. Comprehensive insurance

While collision insurance covers damages from accidents, comprehensive insurance offers a wider range of protection.

Note, that comprehensive insurance covers everything collision insurance does, along with - theft & vandalism, natural disasters, and non-collision-related damage. It is generally recommended for newer cars or those in areas prone to natural disasters, which can be common in the Philippines during the typhoon season.

How much does collision insurance cost?

The cost of collision insurance in the Philippines depends on several factors including,

Vehicle value: The more expensive the vehicle, the higher the premium.

Deductible amount: Opting for a higher deductible will lower your premiums but increase out-of-pocket costs in the event of an accident.

Driver history: Applicants' history of accidents and claims can impact the cost of your premium​.

Note: On average, the annual cost of collision insurance ranges between ₱15,000 and ₱50,000, depending on the vehicle and coverage choices​

Pros & cons of collision insurance

Pros

• Covers repair or replacement costs after an accident.
• Reduces out-of-pocket expenses.
• Provides peace of mind, especially for new vehicles

Cons

• Does not cover all types of damage (e.g., natural disasters or theft)
• Costs can be high, particularly for older vehicles

Alternatives to collision insurance

While collision insurance provides substantial benefits, some drivers might find that alternatives better suit their needs. Here are a few alternatives to consider:

Third-Party Liability (TPL) Insurance: This type of insurance is mandatory in the Philippines and only covers damages caused to other people’s property or vehicles. It’s much cheaper than collision or comprehensive insurance, but it doesn’t cover any damages to your vehicle​

Comprehensive insurance: Comprehensive insurance provides the broadest protection, covering everything from collisions to theft, vandalism, and natural disasters (if you opt for Acts of God coverage). For those seeking more extensive protection beyond what collision insurance offers, this can be the better choice​.

Self-insurance: Some people may choose to self-insure by setting aside money specifically for potential repairs. While this doesn’t offer the same protection as insurance, it can be a reasonable approach for those with older vehicles or who prefer not to pay premiums.

Customizing collision insurance policy

In the Philippines, many insurance providers offer add-ons that allow you to tailor your collision insurance policy to your specific needs. Here are a few common add-ons to consider -

Acts of nature coverage: Given the Philippines' vulnerability to natural disasters like typhoons, floods, and earthquakes, adding Acts of Nature coverage to your collision insurance can be crucial.

Personal accident coverage: This add-on protects the driver and passengers in the event of an accident, covering medical expenses, loss of income, or even death benefits.

Uninsured motorist coverage: Since not all drivers in the Philippines carry sufficient insurance, adding uninsured motorist coverage to your policy protects you in case you’re involved in an accident with someone who doesn’t have insurance or doesn’t have enough coverage

Also Read: Electric car insurance in the Philippines: All you need to know

How to file a claim in the Philippines?

Filing a claim for collision insurance involves a few key steps:

• Notify your insurance provider immediately after the accident.
• Gather necessary documents, including a police report, photos of the damage, and your driver’s license.
• Submit these documents to the insurance company to initiate the claims process.
• Your insurance company will issue a Letter of Authorization (LOA), allowing an accredited repair shop to begin work on your vehicle

Bottom line

Is collision insurance right for you? Well, choosing whether or not to invest in collision insurance depends on your personal circumstances. If you’re driving a new, financed car or frequently driving in high-risk areas, collision insurance can be an excellent way to protect your investment. However, if your car is older or its value has significantly depreciated, paying for this coverage might not be the best option. Therefore, it is important to weigh the costs and benefits and consult with your insurance provider to choose the right coverage for your needs. In some cases, comprehensive insurance might offer more value, especially if you’re concerned about non-accident-related incidents like theft or natural disasters.

Also Read: Dealer or third-party car insurance provider: The better choice