What Is Collision Insurance, and What Does It Cover?
Collision insurance covers most types of vehicle damage, but it may not be worth it for older vehicles.
Collision insurance may appear to be simple, but it will not cover every bill incurred as a result of a collision. Collision coverage pays to repair the damage to your own car caused by a collision with another vehicle or an object such as a lamppost or fence. It may also pay if another driver collides with your vehicle and does not have enough insurance to cover the damage.
Collision insurance is not required in any state, but it is typically required by lenders if you finance or lease a car. Here's a breakdown of what collision car insurance will and will not cover, as well as how to determine whether it's worth the money.
What does collision insurance cover?
Collision insurance covers damage to your own vehicle caused by:
- A collision caused by you and another driver.
- A collision with a stationary object, such as a tree or mailbox.
- Your car is flipping over.
- If another driver hits your car and they don't have any or enough insurance to cover the damage costs, and you don't have uninsured/underinsured motorist property damage coverage.
If you are in an accident and another driver is entirely to blame, their property damage liability insurance will cover the damage to your vehicle. You'd file a claim with their insurance first, assuming they have it. Except for New Hampshire, which does not require auto insurance, this coverage is required in all states.
However, in many states, the minimum limit is only $5,000 or $10,000. If a driver only has the state-required property damage limits, he or she will not have enough coverage to pay for a newer vehicle if the vehicle is totaled. Your collision insurance would then kick in.
This is one of the reasons lenders require collision and comprehensive coverage when leasing or paying off a car: If your car was totaled soon after you bought it, you could be underwater on an auto loan, owing thousands of dollars in loaned money.
Full coverage car insurance is typically defined as collision and comprehensive insurance combined with liability insurance.
How the collision insurance deductible works
Collision insurance is typically subject to a deductible, which is a predetermined amount deducted from any collision claim check. You can set your own deductible amount, which typically ranges between $500 and $1,500.
For example, suppose you swerved to avoid hitting a squirrel in the road and instead hit a lamppost, and you have a $1,000 collision deductible. Your insurance company would cover the cost of repairing the damage to your car, less $1,000.
If the cost of the damage was less than your $1,000 deductible, you wouldn't want to file a claim because your insurer would refuse to pay — and would likely raise your rates as a result of the claim. If the impact destroyed the vehicle, your insurer would deduct $1,000 from the estimated value of your car prior to the crash and send you a check for that amount.
This deductible would also apply if your car was still drivable but the damage was more expensive to repair than the car's value, and the insurer declared it totaled. You could still repair your car, but it would be listed on the title as salvaged. Some insurers will not cover salvaged vehicles or will charge a higher premium if they do.
Reducing or waiving your collision deductible
Remember that your collision deductible applies even if you are not at fault, but the other driver does not have enough insurance to cover the damage and you do not have underinsured or uninsured motorist coverage.
If paying to repair damage caused by someone else seems unfair, you might want to consider adding a collision deductible waiver to your policy. This is only available in certain states and waives your deductible if an uninsured driver causes an accident and your collision coverage is required to pay.
Another way to reduce your collision deductible burden after an accident is to add "disappearing deductibles" (also known as "disappearing deductibles") to your policy. Some auto insurance companies will reduce your deductible by a certain amount — usually $100 — for each year you go without an accident or citation. Details vary by company, but it usually costs more and isn't worth it if you don't end up in an accident.
The cost of collision insurance
According to the National Association of Insurance Commissioners, the average annual cost of collision coverage in the United States was around $363 in 2017, the most recent year for which data is available. Your personal cost may be higher because this figure includes discounts and may account for group policies, which are typically less expensive than an individual policy purchased online.
You may not be able to purchase collision insurance without comprehensive coverage, or vice versa, depending on the company. This could be because you have an active loan or lease that requires both, or because your insurer requires you to buy one before you can buy the other.
Because collision claims are more common, collision insurance tends to be much more expensive than comprehensive insurance. Higher deductibles can help you save money on your premiums as long as you can cover the out-of-pocket expenses.
Do you need collision insurance?
Collision coverage, like your car, loses value over time because it will never pay out more than the vehicle's value. If you don't have a loan or lease that requires it, collision insurance eventually loses its value, costing you more to have than it would pay you in the event of a collision.
Are you unsure when it's time to drop collision insurance? Start with the value of your car and your deductible to determine whether it's worth what you're paying for it. It's not worth paying for collision coverage on a vehicle worth $1,000 or less if you have a $1,000 collision deductible.
Next, consider how much your collision insurance costs. If it isn't on a recent bill, check the declarations page of your auto policy, which is usually one of the first pages. If the cost of collision plus the deductible exceeds the value of your car, you will not receive any benefit if your car is totaled, which is the worst-case scenario for this coverage.
Here's how it works:
- Subtract your collision deductible from the value of your vehicle. This is the maximum amount you could receive from a collision claim. If you can come up with this much out of pocket, you could reduce your coverage, knowing that you'd have to pay for your own car's damage in the event of a collision.
- Subtract the amount above from the cost of your collision insurance for the duration of the policy, which is usually six months. This represents the maximum possible value of your collision insurance — the amount you'd receive if your car was totaled, taking into account the cost of coverage.
If the number is:
- Negative, you're overpaying for collision insurance.
- The coverage can still help you, but a claim for a total loss would only be worth this much after you factor in the cost of coverage. So you may decide to take the risk of canceling it now in order to save money on premiums.
- Keeping collision insurance makes sense because it is large and positive. If your car is totaled, the coverage will pay a large sum, much more than you've paid for the coverage.
Furthermore, keeping collision insurance makes sense if you are unable to come up with the amount from step one in an emergency. Keep in mind that if your car was not totaled, the claim check would be less than the first figure you calculated.
Even if you decide that collision insurance is worth it for the time being, you should revisit the math as your car ages and whenever you get car insurance quotes.
Frequently asked questions
When should you drop collision insurance?
You can cancel it if the collision deductible plus the total cost of the coverage exceeds the current market value of your vehicle. You should also cancel it if the value of your car is equal to or less than the deductible, because the coverage will not pay out if you file a claim.
Do I need collision insurance on an old car?
Most likely not. The coverage will only pay out up to the current market value of your vehicle, less your collision deductible. Because older cars typically have a low market value, collision coverage will pay little, if anything, in the event of a total loss. Before deciding whether or not to drop the coverage, make sure to research the value of your vehicle.
Is collision insurance required by law?
Collision coverage is not required by law in any state, but it may be required by your lender if you are leasing or financing your vehicle. Even if you own your vehicle outright, the coverage may be worthwhile to purchase. It may provide some peace of mind if you drive an expensive car or would be unable to pay for repairs after a bad crash.