Nearly all states require car owners to carry liability auto insurance. But comprehensive coverage is optional unless you’re still making payments on your car. That doesn’t mean it has no value. It can significantly reduce out-of-pocket repair costs, especially on newer, higher-value vehicles.
Of course, that financial protection comes at a cost: higher insurance premiums. So before you add any additional coverage, learn what it is, how it works, and whether you need it.
What Is Collision Coverage?
Collision insurance coverage is an auto policy add-on that covers more than just medical expenses and property damage caused by the policyholder’s actions behind the wheel. It’s not required by state law, though auto lenders almost always require borrowers to carry collision coverage until they pay off the car.
Collision coverage pays for vehicle repair and replacement costs caused by rollovers or collisions with other vehicles or stationary objects. Specifically, it may kick in following three types of road incidents.
Collision With Another Vehicle
Your collision coverage should kick in after a crash involving another vehicle or vehicles. It doesn’t matter whether the other car is stationary or in motion. Collision coverage applies in either case.
Collision With a Stationary Object
Collision insurance covers damage resulting from run-ins with stationary objects, such as fences, buildings, trees, telephone poles, and embankments.
Generally, your vehicle needs to be in motion for collision coverage to apply in this scenario. Don’t expect your collision insurance to cover damage caused by a tree falling on your parked, vacant car.
Rollover
Collision also covers damage resulting from single-vehicle crashes that cause the vehicle to roll or fall over. Collision coverage applies even if the car comes to rest on its own rather than as a result of hitting a stationary object.
How Collision Coverage Works
Collision coverage pays for damage covered by the policy. If you still owe money on your vehicle, all or part of the sum may go to the auto lender.
You receive what it costs to repair or replace the vehicle, less your collision policy’s deductible. Your collision deductible is separate from your bodily injury and uninsured and underinsured motorist deductible.
Your collision coverage limit is generally the actual cash value of your vehicle. For example, if your car is worth $30,000, your collision limit is $30,000. Your insurer automatically adjusts the limit downward as your car depreciates.
How Much Does Collision Coverage Cost?
Collision insurance premiums usually cost around $200 per year, though the exact amount depends on several factors, such as:
- Your Vehicle’s Market Value. A more valuable vehicle can sustain more damage before being deemed a total loss. As a result, collision coverage is more expensive on higher-value cars, all else being equal.
- Your Vehicle’s Make and Model. Your vehicle’s make affects your repair costs. The general rule is that premium cars cost more to repair than value cars.
- How Much You Drive. The more you drive, the more likely you are to run into trouble on the road. Expect to pay more for collision coverage the more miles you log.
- Your Vehicle’s Vulnerability to Potential Hazards. Safety features that reduce crash risk and severity can reduce collision premiums. If your car has a lane departure warning system or automated emergency braking, your collision policy probably won’t cost as much.
- Your Collision Policy’s Deductible. The higher your deductible, the lower your premiums. That said, you’ll pay higher out-of-pocket costs if you file a claim.
- Your Auto Insurance Claim History. If you’ve filed multiple claims over five years, your collision premium will almost certainly be higher than if you went claim-free or filed a single claim.
What Isn’t Covered by Collision Insurance?
Collision car insurance doesn’t cover everything. Specifically, your policy doesn’t protect you against financial or legal liability for damage or injury resulting from:
- Collision With an Animal. Collision insurance doesn’t cover expenses resulting from vehicle-on-animal collisions. If you hit a deer on the open road and no other vehicles are involved in the crash, you probably won’t be eligible for compensation under your collision policy. Instead, you’ll need to file a comprehensive insurance claim.
- Other Animal-Related Damage. Collision car insurance coverage doesn’t cover animal damage to stationary vehicles, either, such as a bear pawing at your doors or squirrel chewing through your engine wiring. That’s comprehensive coverage’s job.
- Non-Collision Damage Caused by Objects. Collision insurance doesn’t cover damage caused by flying or falling objects, even when it occurs while the vehicle is in motion. Common examples include windshield damage from a high-speed pebble and body damage caused by highway debris.
- Weather-Related Damage. Collision coverage does kick in after crashes in which weather plays a role. But it doesn’t cover weather-related damage to stationary or moving vehicles — say, roof damage caused by wind-loosed tree branches or hail. Comprehensive insurance covers weather and natural disaster damage.
- Damage Caused by Fire or Explosion. Collision insurance doesn’t cover vehicle fires or explosions not directly caused by a collision or rollover. This rule may apply even if your vehicle crashes as a result of catching fire. Your insurer might cover the damage caused by the impact itself but not the fire damage.
- Theft and Vandalism. Collision coverage doesn’t cover damage or injury resulting from theft or vandalism. That applies even if the damage is due to a collision, such as when a car thief crashes into an object or another vehicle while fleeing.
- Damage Caused by Negligence. If your insurer can show your negligence or inattentiveness is to blame for a crash, they might deny your claim. For example, if you park on a steep incline with the parking brake disengaged, your insurer might not cover the inevitable result.
- Damage Due to Your Own Participation in Criminal Activity. If you strike another vehicle or roll over while fleeing police or driving under the influence, your collision policy won’t cover the resulting damage.
- Crash-Related Liability Expenses. Collision coverage doesn’t provide any additional medical or liability coverage for incidents in which it also covers collision-related vehicle damage. For example, if someone sues you for a crash you caused, you must rely on your existing liability coverage or a supplemental umbrella policy.
Pros & Cons of Collision Coverage
The case for collision coverage grows stronger or weaker depending on where you stand — or drive, as the case may be.
Pros of Collision Coverage
Collision coverage has some notable benefits. It fills key gaps in mandatory auto insurance coverage and has the potential to make you whole after a serious accident, even if your car is quite valuable. For example:
- It Can Drastically Reduce the Cost of a Serious Collision. Collision insurance slashes the out-of-pocket cost of repairing your vehicle after a serious collision. You only pay your policy deductible — perhaps $500 or $1,000.
- It Can Get You a New Car at a Low Out-of-Pocket Cost. If you total your vehicle in a covered accident, your coverage gets you into a new car for the cost of your deductible — and possibly an additional down payment, depending on the cost of the new vehicle.
- You Can Drop It on an Older Car. Once you pay off your car, you can drop collision coverage at will. And you probably should unless your vehicle is still worth a lot.
Cons of Collision Coverage
Collision coverage also has some downsides. It adds to the total cost of your policy and excludes some damage. For example:
- It Raises Your Policy Premium. An auto insurance policy with collision coverage almost always costs more than an otherwise identical policy without it.
- It Has a Lot of Coverage Gaps. Collision covers road crashes and rollovers. That leaves a lot of gaps, including common incidents like falling branches, hail, flooding, and vandalism.
- Your Lender May Require It. If you have a car loan or lease, your lender requires you to carry collision coverage until you pay off the car.
Do You Need Collision Coverage?
Collision insurance is relatively inexpensive, but that doesn’t mean you want to pay for it if you don’t need it. But sometimes, it’s worth the added premium expense to ensure you won’t pay more than your collision deductible for covered repair work.
Your Auto Lender or Lessor Requires It
The most common reason to carry collision coverage is that the terms of your auto loan or lease require it.
If you lease or finance the purchase of a new car, the lender will almost certainly ask you to carry both collision and comprehensive coverage until you pay off your loan or the lease expires. To make matters worse, you’ll probably need to keep a lower deductible — no more than $500.
The Vehicle Is Worth a Lot
In purely financial terms, it makes more sense to add collision coverage on a relatively valuable vehicle, even if you own it outright. Without it, a severe crash could result in thousands of dollars of out-of-pocket expenses.
But if it’s a new vehicle, it might not warrant collision coverage as long as you’d think. Cars lose value quickly during the first three to five years on the road.
Your Collision Risk Is Relatively High
If you drive 25,000 miles per year on treacherous roads, you have a relatively high risk of sustaining serious crash damage compared to the proverbial little old lady who only drives to church on Sunday.
The more you drive and the more treacherous situations you find yourself in, the more likely your decision to carry collision coverage is to pay off in the long run.
You’d Rather Pay Upfront to Avoid a Major Out-of-Pocket Expense
Collision coverage makes sense if you’d prefer to pay higher monthly or annual auto insurance premiums instead of a hefty out-of-pocket expense after a collision.
Of course, this bet might never pay off. Most cars never get into crashes serious enough to warrant collision claims.
And collision coverage isn’t the only option available to risk-averse drivers. A robust emergency fund can serve the same purpose.
Final Word
Do you want to save money on car insurance? Of course you do. Who doesn’t?
Adding collision coverage might not seem consistent with that goal, given that it’s virtually sure to make your policy more expensive.
But if you wreck an expensive car, your collision policy will more than pay for itself. So don’t write off collision coverage just because it adds to your total premium costs. Sometimes, paying more upfront pays off in the long run.
