What is Collision Insurance?

By Jennifer Brozic 10/05/2021 8:00am

Collision insurance is one of the many types of coverage you can include in your auto insurance policy. It can help protect you from a financial loss by covering repairs to your vehicle if your car gets damaged in a crash.

Collision Insurance Definition

Collision insurance helps pay to repair or replace your vehicle if it’s damaged in a crash with another car or a fixed object such as a telephone pole or guard rail. It can help protect you no matter who is at fault. Collision coverage is optional in all states. But your lender will probably require it if you carry an auto loan or lease.

What Does Collision Insurance Cover?

Collision coverage can help pay for repairs in multiple situations, including when:

You’re in a crash with another vehicle
You’re in a collision with a fixed object such as a telephone pole or fence
Your car rolls over — even if there are no other cars involved
You hit a pothole
Someone hits your car while it is parked

If you’re in an accident and another driver is at fault, their liability coverage should pay for the damage to your vehicle. But if they’re uninsured or don’t have enough coverage to pay for the damage, you may be able to file a collision claim with your insurer to get reimbursed for repair costs.

What is Not Covered by Collision Insurance?

If you have collision insurance, it only covers damage to your vehicle that occurs in a crash. It won’t cover:

Damage to someone else’s car if you hit them. You need liability coverage for that.
Theft and vandalism. But if you have comprehensive, your insurer will cover you.
Run-ins with animals. Collision covers many crash-related scenarios, but it won’t cover damage from hitting an animal. You need comprehensive for that.
Medical bills. Collision coverage only pays for property damage. It doesn’t cover injuries to you or anyone else.
Weather-related damage. Collision won’t pay for the damage if a strong storm comes through your area and floods your vehicle. But comprehensive will.
Falling objects. If hail dents your roof or a tree branch falls onto your windshield and shatters it, collision won’t cover it. For that, you need comprehensive.

How Much is Collision Insurance?

According to the Insurance Information Institute, the average cost of collision coverage is $290 per year. But you may pay more or less depending on multiple factors, including your age, gender, marital status, driving history, where you live, type of car you drive, deductible, and more.

Insurers base the price you pay for collision coverage in part on how much your vehicle is worth. So, you’re more likely to pay a higher premium if you drive an expensive car.

What is a Collision Insurance Deductible?

A collision insurance deductible is the amount you must pay before your insurance starts paying. Standard amounts range from $250 to $1,500 but vary by insurer. When choosing a deductible, consider the following:

Your premium. Typically, policies with higher deductibles cost less. But the amount you save usually decreases as your premium increases. So, it’s a good idea to ask the insurer how much you can save if you increase your premium.
How much you can afford to pay if you file a claim. Increasing your deductible to lower your premium may sound like a good idea. But it could create a financial hardship if you can’t afford to pay it after an accident. It’s crucial to select a deductible you can comfortably afford to pay.
The cost to repair your vehicle. If the cost to repair your car is low, having a high deductible may mean you’re on the hook for most of the repair costs if you need to file a claim.
The value of the vehicle. The maximum amount the insurance company will pay is the current value of the car minus your deductible. So, higher deductibles are generally better for more expensive vehicles, and lower deductibles are typically better for less expensive cars.

Are There Collision Insurance Limits?

The limits for collision coverage work differently than limits for other types of coverage like liability or uninsured/underinsured motorist coverage. You don’t choose the amount of coverage you want when you purchase your policy. Instead, the insurance company pays up to the vehicle’s actual cash value if you file a claim.

For example, let’s say you’re in an accident that causes $10,000 worth of damage to your vehicle but the car’s only worth $7,500. The insurance company will declare your car a total loss and write you a check for $7,500 minus your deductible. They won’t reimburse you for the amount you paid when you bought the car or how much it would cost to buy a new version of the same car today.

What Are the Advantages and Drawbacks of Collision Insurance?

Having collision coverage can help protect you from a financial loss by reducing your out-of-pocket expenses if a crash damages your vehicle. But adding this coverage to your policy will increase your premium. It doesn’t cover medical bills. And it only pays up to the actual cash value of your vehicle at the time a covered incident occurs. That usually isn’t enough to buy a new version of the car you’re driving if the insurer declares it a total loss.

Do You Need Collision Insurance?

The answer to this question varies from person to person. Since cars depreciate over time, the amount the insurer will pay also decreases over time. So it’s best to compare the cost of your premium and deductible to how much your vehicle is worth because that’s the maximum amount the insurer will reimburse you.

For example, if your car is worth $30,000, the insurance company will write you a check for up to $30,000 (minus your deductible) if you need to file a claim. But if your car is only worth $2,500, the insurer will write you a check for up to $2,500 (minus your deductible). If your premium and deductible are more than (or close to) what the insurer will pay, the cost of coverage may not be worth it.

Is Collision Insurance Required?

There are currently no states in the U.S. that require drivers to maintain collision coverage. But if you lease a car or financed it with a loan, your lender will probably require the coverage because it helps minimize their risk if you’re in a crash.

If you need to file a collision claim, the insurer typically pays the lender first and then pays you if there’s any money left.