Collision insurance pays to fix or replace your car if you hit another vehicle, a stationary object, or flip over — regardless of who caused the accident
Collision coverage is optional insurance you can add to your auto policy. It covers damage to your own vehicle from impact events: hitting another car, a telephone pole, a guardrail, or rolling your vehicle. The insurance company pays for repairs up to your car's actual cash value, minus your deductible — the amount you pay out of pocket before the insurance kicks in.
This is different from liability insurance, which is required by law in most states and pays for damage you cause to someone else's car or property. Collision insurance protects your own vehicle, and it is optional unless you are financing or leasing your car. If you have a loan or lease, your lender or leasing company typically requires you to carry collision coverage.
Key Takeaways
- Collision insurance covers damage to your car from hitting another vehicle or object, and you choose your deductible when you buy the policy.
- If you finance or lease your car, your lender or leasing company will require collision coverage as a condition of the loan or lease agreement.
- The insurance company pays the actual cash value of your car minus your deductible, so an older car may not be worth insuring if repairs would cost less than your premium.
- You file a claim with your insurance company after an accident, and they send an adjuster to assess the damage and approve repairs.
How collision insurance works after an accident
When you have an accident, you report it to your insurance company as soon as possible. Provide them with the date, time, location, and a description of what happened. If another vehicle was involved, exchange the driver's name, phone number, address, insurance company, and policy number. If there were witnesses, get their contact information too.
Your insurance company will assign an adjuster to inspect your vehicle and estimate the cost of repairs. The adjuster may send you to a specific repair shop, or you may be able to choose your own. Once the adjuster approves the repair estimate, the shop begins work. You pay your deductible to the repair shop, and your insurance company pays the rest directly to the shop.
If your car is damaged so severely that repair costs exceed the actual cash value of the vehicle, the insurance company declares it a total loss. They pay you the actual cash value minus your deductible, and you surrender the title to the car. The insurance company may then sell the damaged vehicle to a salvage company to recover some of their cost.
Choosing your deductible
Your deductible is the amount you agree to pay toward repairs before insurance coverage begins. Common deductible amounts are $250, $500, $1,000, and $2,500. A higher deductible means a lower monthly premium, and a lower deductible means a higher monthly premium.
The right deductible depends on how much you can afford to pay out of pocket if you have an accident. If you have an emergency fund and can cover a $1,000 deductible, choosing that amount will lower your monthly cost. If you have little savings and cannot afford a large unexpected expense, a $250 or $500 deductible protects you from a bigger financial hit, even though your monthly premium will be higher.
When you must carry collision insurance
If you are paying off a car loan, your lender will require collision insurance. The lender has a financial interest in the vehicle — if you total it, they want to know the damage will be paid for. The same applies if you are leasing: the leasing company requires collision coverage to protect their asset.
If you own your car outright with no loan, collision insurance is optional. You can choose to carry it or not. However, if you still owe money on the car, dropping collision coverage without your lender's permission violates your loan agreement and could result in the lender buying collision insurance on your behalf and charging you for it.
Deciding whether collision insurance makes financial sense
For a newer car with a loan or lease, collision insurance is usually worth the cost because the vehicle has significant value and repair costs can be very high. For an older car you own outright, the decision depends on the car's actual cash value and your monthly premium.
If your car is worth $3,000 and your collision insurance premium is $150 per month, you would pay $1,800 per year in premiums. If you had an accident and the repairs cost $2,500, your insurance would pay $2,000 (the $2,500 repair cost minus your $500 deductible). Over time, if you never have an accident, you lose money on the premium. Many people drop collision coverage once their car is paid off and has depreciated significantly in value.
A general guideline: if your annual collision premium is more than 10 percent of your car's actual cash value, the coverage may not be worth the cost. You can ask your insurance agent for a quote and do the math yourself based on your car's value and how long you plan to keep it.
What collision insurance does not cover
Collision insurance covers impact with another vehicle or object, but it does not cover other types of damage. Comprehensive insurance is a separate optional coverage that pays for theft, vandalism, weather damage, animal strikes, and glass breakage. If a tree falls on your car or a deer hits you, comprehensive insurance covers it, not collision.
Collision insurance also does not cover damage from normal wear and tear, maintenance issues, or mechanical failure. If your engine fails or your transmission breaks down, that is a repair you pay for yourself. Collision only covers sudden impact damage.
How collision insurance interacts with other coverage
If you cause an accident and are found at fault, your liability insurance pays for damage to the other person's vehicle and property. Your collision insurance then pays for damage to your own car, minus your deductible. You are responsible for your deductible; the insurance company does not waive it even if you are found at fault.
If the other driver is at fault and has insurance, their liability insurance should pay for your repairs. In that case, you would file a claim with their insurance company instead of your own, and you would not pay your deductible. However, if the other driver is uninsured or underinsured, your own uninsured motorist property damage coverage (if you have it) or your collision insurance would cover your repairs.
Frequently Asked Questions
Do I have to carry collision insurance if I own my car outright?
No. Collision insurance is optional if you own the car free and clear. However, if you have a loan or lease, your lender or leasing company requires it. Once you pay off your loan, you can choose to drop collision coverage if you want to lower your monthly premium.
What happens if I get in an accident and do not have collision insurance?
You pay for all repairs out of your own pocket. If the accident was the other driver's fault, you can file a claim with their liability insurance, but that process takes longer and may require legal action. Without collision insurance, you bear the full financial risk of an accident.
Can I change my deductible after I buy the policy?
Yes. You can contact your insurance company and request a different deductible. Lowering your deductible will increase your monthly premium, and raising it will decrease your premium. Changes usually take effect on your next billing date.
Does collision insurance cover rental cars?
Your personal collision policy typically does not cover rental cars. However, many rental car companies offer collision damage waivers at the rental counter, and some credit cards provide rental car coverage. Check your credit card benefits and ask the rental company about their options before you rent.
Will my insurance rates go up if I file a collision claim?
Possibly. Many insurance companies increase your premium after you file a claim, especially if you were found at fault. The amount of the increase varies by company and state. Some companies offer accident forgiveness programs that prevent a rate increase after your first accident, but you typically have to pay extra for that coverage.