As the term itself might have already tipped you off, collision insurance pays to repair or replace your car when it is damaged in a crash with another vehicle or a stationary object such as a tree or a lampost. Generally, collision insurance is an optional investment if your car is already paid off. If you finance or lease your car, however, the financing company might require this kind of insurance until the end of the contract.
Essential Terminology to Know
- Insurance: Arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium.
- Damages: a sum of money claimed or awarded in compensation for a loss or an injury
- Actual Cash Value: The market value of your car in its current condition (pre-accident).
- Deductible: What you pay out-of-pocket before collision insurance covers the rest. The higher your deductible, the lower your premium.
- Totaled: A car is considered ‘totaled’ when the cost to repair it is more than its actual cash value.
Damages It Insures (And Those It Doesn’t)
Covered Damages
- Collision with an object (e.g., a tree or a streetlight).
- Your car rolls over.
- Crash with another driver (where you are responsible).
- Another driver hits your car (if they can’t cover damage costs, and you don’t have uninsured/underinsured motorist property damage coverage).
- Running over potholes or into a curb.
- Hit-and-runs.
Not Covered Damages
- Events out of regular traffic
e.g.,
a. running into a deer
b. extreme weather
c. theft - Damage or injuries others sustained due to your driving.
- Medical bills for the injuries to you, your passengers, or the people in the other vehicle after the accident.
- Personal belongings inside your car.
- Normal wear and tear.
Collision Coverage, Deductibles, and Limits
The collision coverage limit is the maximum amount your policy will pay toward a covered claim (it is typically the actual cash value of your vehicle i.e. its value minus depreciation).
A deductible is the amount you pay before your coverage helps pay for your claim. Depending on your insurer, you may have a range to choose from — often $0, $500, or $1,000. Choosing a lower deductible increases your premium, and choosing a higher deductible can decrease your premium. The value of your car is an important factor to keep in mind when determining your deductible amount.
Note: You pay your deductible out of pocket toward car repairs as part of a covered claim. So, if you choose a $500 deductible and your car is somehow damaged in a covered accident, you would have to pay $500 as repair costs.
Depreciated value means you may not be able to replace your old vehicle with one of a newer make and model. You’d likely have to use some of your own money to do so. In this case, your insurer would cut you a check for the car’s depreciated value minus your deductible.
Reducing or Waiving the Collision Deductible
Remember that collision deductible applies even when somebody else is at fault for damage to your car. If the at-fault driver doesn’t have sufficient insurance to pay for the damage and you don’t have underinsured or uninsured motorist property damage coverage (UMPD), collision insurance would pay for the damage.
In such a scenario, it might seem unfair that you would have to pay for something that was caused by someone else. Thus, you could consider the following:
- Reducing or eliminating your insurance deductible or adding a collision deductible waiver to your policy: Typically, reducing or removing the deductible makes your insurance policy more expensive. This waives your deductible if an uninsured driver causes an accident and your collision coverage has to pay. This is only available in certain states, though.
- Adding “disappearing deductibles” to your policy: Some auto insurance companies will reduce your deductible by a certain amount — typically $100 — for each year you go without an accident or ticket. Details vary by company, but disappearing deductibles generally cost extra and may not end up being worth it if you aren’t ever in an accident.
Cost of Getting Collision Coverage
The average cost of collision insurance is $290 per year, according to the Insurance Information Institute. But your actual rate depends on several factors, like:
- Your driving history: if you have a clean driving record, you generally can expect rates that are lower than those offered to someone who has been involved in several accidents or is otherwise considered high-risk.
- Your car’s model and condition: if you have a car that would be especially expensive to repair, you will likely see higher rates than someone with an older, less expensive vehicle.
- The deductible: Lower deductibles typically lead to higher premiums. Pick a deductible that you would be comfortable covering if your car were to be damaged.
It is a good idea to compare coverage options in order to understand how your circumstances may affect your costs. As a result, you’ll be able to compare policies, choose one that’s within your price range and provides adequate coverage, and make an informed decision.
Procedure and Implementation of Collision Coverage
When you file a collision claim, you are responsible for paying your deductible, but your insurance company will cover the remaining cost of repairs up to the market value of your vehicle. Suppose you weren’t paying attention and slammed into a curb, critically damaging your car. Here is how collision insurance would work:
- Document the damage and call your insurer to file a claim.
- Compare your deductible to the tentative damage costs. If the damages amount to more than what your deductible covers, filing a claim is most likely worth it.
- If you request roadside assistance, your insurer will even pay to tow your car to its preferred repair shop. Your insurance company’s preferred garage is recommended because your insurer will guarantee the repairs for as long as you have the car, and it can also pay for the garage directly.
- Your insurance company will send an insurance adjuster to inspect your car and estimate initial repair costs. Accept the interest if you deem it appropriate.
- If you also pay for rental reimbursement coverage on your car insurance policy (an add-on that’s typically only available after purchasing comprehensive and collision insurance), your insurer covers the cost of a rental car while yours sits in the shop.
- You will be notified when your car is repaired and ready to be picked up. But before you can drive your car home, pay the auto repair shop the deductible amount to cover it.
Effect of Totalling
Your Car Was Totalled
Collision insurance will pay the actual cash value of your vehicle minus your deductible. You could end up spending thousands of dollars on repairs or a brand-new car if you don’t have collision insurance and something terrible happens to your vehicle.
Note: If your car is totaled and you have a loan that’s more than the value of your car, you’ll still have to pay the remaining balance on your loan, which can be thousands of dollars. If you have a newer vehicle, it’s a good idea to ask your insurer about gap insurance, which can help cover the difference and pay off the loan.
Your Car Was Not Totalled
Collision insurance pays to repair your car to its previous condition, minus your deductible.
When the Other Driver is at Fault
The other driver’s liability insurance will cover the costs of repairs to your vehicle if the accident was their fault. But in many states, the minimum liability car insurance limits are only $5,000 or $10,000.
Since the average cost of a new car is almost $50,000, a driver with only the state-required liability coverage would not have enough to pay for a newer car that was destroyed. If you are in an accident and the other driver’s liability limits aren’t enough to cover the damage to your car, your collision insurance would pay for the repairs.
Do You Really Need It?
Although generally option, collision insurance could be particularly useful if you:
- Finance or lease your car: This is because lenders take a risk every time they extend a car loan. Collision coverage helps them protect their investment if their car is damaged in an accident for the duration of the loan.
- Loan car yourself: If you don’t have collision coverage and are in an accident, you may be responsible for paying for repairs in addition to the remaining balance on your car loan.
- Cannot afford the repair costs: if you know that you are not financially strong enough to cover potential repairs after an accident, but you can afford the costs of collision insurance, investing in this coverage might be worth it.
- Own an expensive car: Similarly, if your car is expensive to repair, this type of coverage can shield you from a lot of the accident-related costs, assuming expenses are more than your policy deductible.
FAQs
Does the law require collision coverage?
Collision insurance is not required by law. However, if your car is not fully paid off, your lender or lessor may put it forward as a condition. Regardless, insuring your car against collision-related damages is always a good idea.
I have an old car. Do I still need collision coverage?
The age of your car does affect insurance policies. A 20-year-old car is not required by law to be insured any more than a brand-new one is. If your car is not paid off and/or the lender requires it, older cars may still need collision insurance.
If your car is paid off, consider how much value it has. Collision coverage pays for repairs up to the actual cash value of your car at the time of the accident. So the current value is vital in determining how much you can expect from your policy. Most cars lose value as they age and get more miles on them, but if yours stays in good shape, it will still be worth it to insure it.
Are rental car accidents covered?
Damage to your rented vehicle can be covered by collision insurance. However, insurance policies for rented cars have different requirements in different states. Make sure to ask your rental company about how insurance works for your rental.
Does collision insurance cover other drivers?
No, collision coverage only pays for damage to the policyholder’s car caused by an accident that is covered by the insurance. If the other car is damaged in an accident and you are found to be at blame, your liability insurance may pay for the repairs.
Does collision insurance cover hit-and-run accidents?
It depends on what kind of hit-and-run it is. If a driver hits your car while it’s parked, your collision policy may cover damages to your car. However, it would not apply to bodily injuries sustained as a result of a hit-and-run accident.
So, should you buy collision coverage?
Collision coverage is crucial for safeguarding your vehicle against the financial loss that results from physical damage. Accidents happen easily. Someone is always at fault when an accident occurs, and that someone might be you. Make sure you are prepared if that happens.
