Collision auto coverage can be very expensive—usually adding several hundred dollars per year to your annual policy cost. Is adding it to your insurance premium worth the price?
To understand whether it’s worth adding or retaining collision insurance, you need to understand what it covers, what it doesn’t cover, and how it works after an accident. Collision insurance can make up a significant part of your annual car insurance, but it may save you money long-term if you’re in an accident or if you drive a car you want to protect.
Collision insurance can often be confused with comprehensive insurance, but each type covers different events. Learn more about collision insurance, how it works, common misconceptions, and how to determine if you can drop it altogether.
- Collision coverage pays for collision damage to your car, no matter who is at fault.
- Collision insurance coverage is optional in most states, but lenders and lessors usually require it to protect their investments.
- Collision and comprehensive coverage work together to cover your car for most causes of damage, but they are separate types of coverage.
- Older cars with low value may not be worth the cost of collision insurance.
What Is Collision Insurance?
Collision insurance is a type of auto insurance coverage that helps pay for damage to your car, no matter who’s at fault—even when an accident is 100% your responsibility. This type of insurance might pay to repair the damage or even give you a payout if your car is totaled.
While most states require liability insurance, collision insurance is often optional. However, if your car is leased or you owe money on a car loan, your financial institution could require you to carry collision insurance.
Collision coverage doesn’t pay for damage to others’ cars or their property (like liability insurance does). It also doesn’t help reimburse you if your car was damaged due to theft, vandalism, fire, or other natural events—but comprehensive insurance does.
However, in some cases, collision coverage might help cover damage inflicted by an uninsured or underinsured driver, even if you don’t carry uninsured/underinsured motorist coverage.
If you’re at fault in an accident that damages your car and you don’t have collision insurance, your insurance company will not pay to repair your vehicle.
What Does Collision Insurance Cover?
Collision insurance could pay to repair or replace damage to your car resulting from a collision —no matter who is at fault—but not in other situations. Here are some common claim situations and where they fall regarding collision insurance:
|Situation||Does Collision Insurance Cover It?|
|Damage to your car after colliding with another vehicle or an object such as a tree, building, or guard rail||Yes|
|Your injuries after an accident||No|
|The other driver’s injuries or car damage after an accident||No|
|Car damage from a hit-and-run driver||Probably|
|Damage from overturning||Yes|
|Your car’s damage when the other driver is at fault or doesn’t have enough insurance||Possibly|
|Your car’s damage when you’re at fault||Yes|
|Car damage if you’re using your car for business purposes||Probably not|
Your collision insurance may even extend to cars that you borrow or rent in the U.S. and Canada, but it might not extend to truck or moving van rentals. Ask your insurer in advance.
How Does Collision Insurance Work?
Filing a claim under your collision coverage works much the same as other claims. In short, you take the following steps.
Contact Your Insurance Company About the Collision
Contact your insurance company about the incident, providing information about the accident, photos, and any police or accident reports. Ask your insurer or review your coverage to see if you can get a rental car while your car is undergoing repairs, and determine whether you need to pay a deductible.
Work With the Insurance Adjuster
Work with the adjuster who investigates your claim and any damage to your car. If you caused the accident, in part or completely, your collision insurance should step in to help repair the damage.
Get Your Car Repaired or Accept a Check
Get your car repaired at either a shop recommended by your insurer or at a shop of your choice. In some circumstances, the insurance company may decide that repairing your car is more expensive than the car’s actual value, declaring it a total loss.
Just like other forms of insurance, there are limits to your coverage for a totaled car. Usually, this is the actual cash value of your car, which includes depreciation or the decreased value over time—not what you paid for the car or what a new vehicle would cost. So if your 2015 Honda Accord is totaled after a guardrail incident, the amount your insurer sends you probably won’t be enough to buy a brand-new 2021 Honda Accord.
After declaring your car a loss, the insurer can take your car (and title) for salvage value.
If you have classic car insurance or collector car insurance, your coverage amount could be based on the agreed value of your car. That’s the value you and your insurance company have agreed to, following an appraisal. This might be higher than the actual cash value.
Collision Insurance and Deductibles
Typically, when you add collision insurance to your auto policy, you’ll choose a deductible. The deductible is the amount of money you pay first if your car is damaged. Then, your insurer pays the remainder of the costs. Unlike a health insurance deductible, the deductible applies to each accident—so it’s more like a (very expensive) copay.
You’ll be able to select from a variety of deductibles. Higher deductibles usually lead to cheaper annual insurance premiums, as you’re assuming more of the financial responsibility for any auto repair costs. Taking on the highest deductible you can truly afford would be an amount you could comfortably pay to repair after an unexpected fender-bender.
For example, raising your deductible to $1,000 from $500 could potentially save you 20% on your annual insurance policy. However, consider how this might impact you if you’re in an accident where there’s been $7,000 in car damages:
|Deductible||You Pay||Insurance Pays|
The cost of your collision insurance depends on the type of car you drive. Cars associated with frequent insurance claims or higher claim costs will likely lead to a higher annual coverage cost. Elite cars are expensive to repair or replace, while other cars may be associated with more severe bodily injury or death.
Do I Need Collision Insurance?
You will likely be required to include collision insurance on your auto insurance policy if you’re leasing a car or borrowing money from a bank to buy a car. The lender hopes to protect its investment (the vehicle). If you don’t buy insurance, forget to renew your insurance, or try to drop collision insurance, your bank may add a higher-premium auto insurance payment to your loan until you get insurance again.
If your car is totaled and you owe more on your car than the actual cash value you’d receive from a collision claim, you might need GAP auto insurance, another type of optional coverage.
After the loan is paid off, collision insurance is optional. If you do drop collision insurance, you might want to add uninsured motorist coverage to protect your car against damage from an uninsured driver, an underinsured driver, or a hit-and-run accident.
Collision Insurance vs. Comprehensive Insurance
In short, collision insurance covers your car damage if it was caused by a collision between two objects (car and car, car and streetlight, car and building). Comprehensive insurance covers your car damage from a non-collision incident: theft, vandalism, hail or other weather-related circumstances, and incidents involving your window glass.
|Collision Insurance||Comprehensive Insurance|
|Required by auto loan lender or leasing company||Probably||Probably|
|Required by state law||Probably not||Probably not|
|Covers car damage from accidents and collisions with objects||Yes||No|
|Covers car damage from theft, vandalism, and weather such as hail||No||Yes|
|Covers car damage if you collided with an animal||Possibly; check your policy||Probably|
|Compensates you based on the actual cash value of the car||Yes||Yes|
Most insurers sell comprehensive and collision insurance together as a package deal—you may not be able to pick and choose which you’d like to include.
When Should I Consider Dropping Collision Insurance?
When is collision insurance no longer worth it? Here are some situations where you could reconsider collision insurance:
- You’ve just paid off your car’s loan entirely. You feel confident that you can pay costs out of pocket for any damage that could occur to the car or even replace it entirely if necessary.
- You’re driving an older car and paying more for insurance every year than your car is worth based on actual cash value. If your car is worth less than $2,000, you might pay more in annual premiums than you’d receive if you had to make a claim.
- Your car is paid off, you’re keeping it in a garage or otherwise off the road, and you consider it to be at low risk of being damaged. You may be able to cancel collision insurance and keep comprehensive insurance (in case, say, the garage catches fire).
- Your car is so old or already so damaged that collision insurance might not be available to you. The insurance company won’t think it’s worth insuring.
Before dropping collision entirely, consider instead raising your deductible. You’ll pay less for your annual collision coverage, and you will likely only use it in extreme (and expensive) circumstances.