What Collision Insurance is and What it Covers

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Your auto insurance policy is made up of several different types of coverages that protect you financially from property damage or injuries to yourself or others in an accident.

One of those coverages is collision insurance, which covers damage from accidents that occur while your car is in motion or parked.

Here’s what you need to know about collision insurance:

What is collision insurance?

Collision insurance covers damage to your vehicle if you get into an accident. This applies if your vehicle is damaged while in motion or even if it’s parked.

Collision insurance examples

Here are a few common examples of events when collision insurance coverage kicks in:

  • Crashing into another vehicle, building, or object: If you get into an accident involving another vehicle or stationary object, collision insurance covers damage to your own vehicle. For example, if you crash into a tree, collision insurance pays for the cost of repairing or replacing your vehicle.
  • Flipping over: Your car can be seriously damaged even if you don’t hit another object. For example, your vehicle might flip over if you take a sharp turn too fast or overcorrect a turn. Collision insurance would cover the damage to your vehicle in this situation.
  • Experiencing road hazards: Potholes and other road hazards can damage your vehicle. Collision insurance covers this type of damage as well.
  • Another vehicle hitting your parked vehicle: Collision insurance also covers you if another driver hits your car while it’s parked (this includes hit-and-runs).
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What does collision insurance cover?

Collision insurance helps pay for the cost of repairing your vehicle, minus your deductible.

For example, say you back into a mailbox, causing $1,500 of damage to your vehicle. Your auto insurance policy includes collision coverage with a $250 deductible. In that case, your insurance policy will pay $1,250 ($1,500 minus the $250 deductible) to cover the cost of repairs.

If your vehicle is damaged beyond repair, collision coverage can kick in, too. When a car is “totaled,” this means the cost of repair is greater than the value of the vehicle.

For example: Say you drive an older car that’s only worth about $4,000. You’re involved in a major accident, and the repair estimate is $10,000. In most cases, instead of paying to repair the vehicle, your insurance carrier will issue you a payment for the actual cash value of the totaled vehicle, minus your deductible.

What does collision insurance exclude?

Collision insurance doesn’t cover everything. Here are some types of losses collision insurance excludes:

  • Damage to your vehicle from anything other than a collision: If a tree falls on your car, a flood washes it away, or someone steals your car, collision insurance won’t help you. Instead, these instances are covered under the comprehensive coverage portion of your auto insurance policy.
  • Damage to another person or their property: If you hit a pedestrian or crash into another car, collision coverage won’t cover those claims. Your auto liability insurance would cover those events.
  • Medical expenses for you or your passengers: Collision coverage doesn’t pay for medical expenses if you or a passenger in your vehicle are injured in a crash. Your policy’s medical payments coverage or personal injury protection (PIP) would kick in here.

Who’s required to get collision insurance?

While most states require vehicle owners to carry some form of auto insurance, collision insurance isn’t required by state law.

If you own your vehicle, you can choose whether you carry collision coverage. However, it’s a different story if your car is leased or financed. Most car loans and leases require you to have comprehensive and collision insurance coverage.

Check Out: Full Coverage Car Insurance: What Does It Mean?

How much collision insurance do I need?

While there’s generally no required minimum amount of collision insurance for drivers, collision insurance does have a limit. Your collision coverage limit is typically your vehicle’s actual cash value (ACV) just before the accident, minus your deductible.

Good to know: ACV is what the car is worth in its current condition, or what you could reasonably expect to get for it if you sold the vehicle.

When to drop collision insurance

You may want to consider dropping collision coverage in the following situations:

  • Your car isn’t worth much. If you own an old vehicle or one that isn’t worth much, you might consider dropping your collision coverage in order to save money. If your vehicle is worth less than a few thousand dollars and you have a high collision deductible, it may be wise to drop this coverage.
  • Someone else has your vehicle on their policy. If a family member or spouse’s auto insurance policy covers your car (including collision coverage), you don’t need your own collision coverage.
  • You don’t currently drive your car. If you’re storing your car right now or simply not driving it, you can drop collision coverage.

Learn More: What Happens if You Get Into an Accident Without Car Insurance?

Pros and cons of collision insurance

If you’re trying to decide whether you should carry collision insurance, here are a few pros and cons to consider:

Pros

  • Covers damage to your vehicle: Small fender benders and deep potholes can cause thousands of dollars in damage to your vehicle. Collision coverage can help offset the cost of those repairs.
  • You’re covered regardless of who’s at fault: If you get in a dispute over who’s at fault in an accident, you don’t have to wait for an investigation to decide which driver’s insurance will pay for your damage. Your collision insurance will cover repairs, and the other driver’s policy can reimburse your insurer if the other driver is found responsible.

Cons

  • Increases your premium: The average cost of collision insurance is around $290 per year, according to the Insurance Information Institute. Your cost will depend on your insurance carrier, claims history, and the value of your vehicle, but additional coverages always up your premium.
  • Using it can increase your future insurance rate: Insurance providers consider your driving and claims history when calculating your auto insurance premium. Filing a claim against your collision insurance could result in a higher premium when your policy is due for renewal — and for three years after the claim.

Full coverage vs. comprehensive coverage vs. collision coverage

When shopping around for car insurance, you might hear the term “full coverage.” Full coverage isn’t a type of coverage you’ll find on your policy’s declaration page. Instead, it refers to a combination of coverages: liability, comprehensive, and collision. It can also include uninsured/underinsured motorist coverage, and medical payments coverage or personal injury protection (PIP).

While your actual coverage will vary from policy to policy, here’s a look at what these types of insurance policies typically cover:

Full coverage

Having all coverages will protect you if you get into a car accident and:

  • You damage someone else’s property.
  • You cause injury to others.
  • Your own vehicle suffers damage.
  • You or your passengers get injured.
  • You get into an accident with a driver who doesn’t have enough or any insurance.
  • You need help paying for medical expenses for your own injuries.

Comprehensive coverage

This form of coverage will protect you if:

  • Someone steals or vandalizes your car.
  • A tree falls on your car.
  • Your vehicle sustains other types of damage due to natural disasters while it’s parked.

Collision coverage

Collision coverage will protect you if:

  • You collide with another car.
  • You hit an object, like a fire hydrant.
  • Your car rolls over.
  • Another car hits yours while it’s parked.

Good to know: Collision and comprehensive coverage are typically sold together as part of an auto insurance package, but it’s possible to buy the coverages separately.

Do I need collision insurance on an older car?

If you have a car loan or a lease, you must have collision insurance. If you own your car, you’re not required to carry collision insurance, but you may want to. No matter how old your vehicle is, you can benefit from collision insurance, since this coverage isn’t based on age but on the vehicle’s value.

How to save on collision insurance

If you’re worried about the cost, rather than dropping the coverage entirely, consider these ways to save money on collision insurance:

  • Increase your deductible. You may be able to save a considerable amount by raising your deductible from $250 to $500 or from $500 to $1,000. Higher deductibles lead to lower premiums.
  • File claims only for major damages. Insurance claims stay on your claims history for three years and can impact your premium. To avoid having your insurance carrier raise your rate, consider covering small claims out of pocket and tapping your collision insurance only for major accidents.
  • Shop around. Rates on collision coverage can vary drastically by insurer. Be sure to shop around to find the best coverage at the most affordable price.
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Disclaimer: All insurance-related services are offered through Young Alfred.

About the author

Janet Berry-Johnson

Janet Berry-Johnson is an authority on income taxes and small business accounting. She was a CPA for over 12 years and has been a personal finance writer for more than five years. Janet has written for several well-known media outlets, including The New York Times, Forbes, Business Insider and Credit Karma. In 2021, Canopy named her one of the Top 10 Influential Women in Accounting and Tax.

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