What is collision insurance?

In a nutshell

Collision insurance is part of a car insurance policy. If your car is damaged in an accident in which you’re at fault, your collision coverage will help pay to repair or replace it.

• Collision is not mandatory coverage under the law.
• If you finance your car with a loan or lease, your lender may require it.

What does collision insurance cover?

If you have collision coverage on your policy, you can file a claim after any of these situations to have your insurance company help pay to repair or replace your car.

• You’re in an accident with another vehicle and are determined to be at fault.
• Your car collides with a stationary object, such as a guardrail, mailbox, or tree.
• You’re involved in a single-vehicle accident in which your car rolls over.
• You’re the victim of a hit-and-run accident.
• You’re in an accident in which an uninsured driver is at fault for hitting your car, and you don't have uninsured motorist coverage.

Your policy contract should list precisely what types of events are covered.

How collision insurance deductibles work

Your collision coverage will include a deductible, which you choose when adding the coverage to your policy. Deductibles are usually offered in increments such as $500, $1,000, or $1,500.

Your deductible is an amount of money the insurance company will subtract from their payout to repair or replace your car if you file a claim. You can think of the deductible as your “share” of those costs. Here’s an example:

1. You choose a collision deductible of $500.
2. On an icy road, your car skids and slams into a guardrail. Fortunately, you're not injured. But your car has extensive damage. You file a claim, and a body shop charges $9,000 for the repairs.
3. Your insurance company pays $8,500 toward the repairs. You’re responsible for the final $500.

Choosing a lower deductible means you’ll pay more in premiums for your policy. But you’ll have a lower share to pay for a covered repair. A higher deductible costs less in premiums but means you'll have a higher share at claim time.

Collision coverage total loss claims

If the cost to repair your car exceeds its actual cash value (ACV), the insurance company may declare the car a total loss. In this case, the insurer will take possession of your car and title and pay you a settlement based on the ACV.

A concept that can often cause confusion, ACV is the value of your car in its depreciated condition (before the accident). And because even new cars can depreciate quickly (new cars depreciate 10% in their first month, according to Carfax), total loss claim payouts can sometimes be disappointingly low from the vehicle owner’s perspective.

If low total loss payouts are a concern, check if your insurance company offers new car replacement coverage. This feature bumps up your total loss settlement to give you enough money to replace your car with a new car of the same or similar make and model. It will cost you a little bit more in premium, however.

What’s not covered by collision insurance?

Your collision coverage does not cover any of the following.

• Damage to your car not related to driving (such as damage from severe weather, fire, or theft).
• Damage to another person’s vehicle or property.
• Medical bills related to injuries sustained in an accident.

However, each of these types of incidents can be covered by other parts of your car insurance policy.

Your policy should also list certain excluded activities. "Excluded" means they're not covered under any circumstances. Typical exclusions include damage due to illegal activity such as street racing, business use of the vehicle, or unapproved vehicle modifications.

Tip: if you do use your car for a business purpose, including driving for a rideshare service such as Uber, contact your insurance company. You may need to insure the car with a commercial auto policy or add rideshare coverage to your existing policy.

What’s the difference between collision and comprehensive?

Collision and comprehensive coverages are often lumped together when talking about policy options. In fact, the two coverages do complement one another.

Whereas your collision coverage pays for damage resulting from accidents when driving your car, comprehensive coverage pays for damage resulting (mostly) from incidents that occur when your vehicle is standing still. Some examples include:

• Theft and non-recovery.
• Vandalism.
• Fire.
• Falling objects, such as a tree branch.
• Severe weather, including floods, hurricanes, or hail.
• Hitting an animal (one instance where comprehensive pays for an incident that happens when the car is moving).

As with collision, comprehensive involves a deductible, and the insurer will likely declare a total loss if the cost to repair your car exceeds its ACV.

What collision insurance costs

According to the National Association of Insurance Commissioners, the national average annual premium for collision insurance coverage in 2021 (its most recent year for data) was $377.31.

As this is an average, you can expect your premium to vary significantly based on factors such as your driving record, your car insurance claims history, the year, make, and model of your car, and where you live.

Collision is considered part of a “full coverage” policy and is available from most insurance companies. You can check sources such as Insure or everquote to get quotes from multiple insurers or check with a single company such as Allstate.

How to decide if you need collision insurance

Unlike liability insurance and some other coverages, collision is not required by state law anywhere in the U.S. However, if you finance your car with a loan or lease, the lender may require you to have it (along with comprehensive and gap insurance). Your lender will let you know when you apply for your financing.

An old rule of thumb states that you should drop collision insurance when a car is six years old or passes 100,000 miles. Modern vehicles are making that advice outdated. Most now have sensors and other electronics that can cost thousands of dollars to repair or replace. So, when considering collision insurance as an option, you should strongly consider how much the cost to repair or replace your car would stretch your finances.

You might also consider consulting with an insurance agent. An agent can discuss your insurance needs and options and ensure you're getting the right policy for you.

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