Collision insurance covers damage to your own car from a crash, but it is not required by law in most states
Collision insurance pays to repair or replace your car if you hit another vehicle, a stationary object, or roll over — regardless of who caused the accident. It is different from liability insurance, which pays for damage you cause to someone else's property or injuries to other people. Liability is required by law in every state. Collision is not.
Whether you need collision depends on three things: how much your car is worth, how much you can afford to pay out of pocket if it is damaged, and whether a lender or lessor requires it. If your car is worth very little, the math often points toward skipping it. If you still owe money on the car, your lender will almost certainly require you to carry it.
Key Takeaways
- Collision insurance is optional in most states, but required by your lender or leasing company if you have a loan or lease on the vehicle.
- The cost of collision coverage — usually $500 to $1,500 per year depending on your deductible and car value — should be compared against what your car is actually worth.
- If your car is worth less than 10 times your annual collision premium, dropping it may save you money over time.
- Comprehensive insurance (which covers theft, weather, and vandalism) is often cheaper than collision and worth keeping even if you drop collision.
- If you own your car outright and can replace it without borrowing, you have the most flexibility to choose whether collision makes financial sense.
When your lender or lessor requires collision coverage
If you financed your car through a bank, credit union, or dealership, your loan agreement almost certainly requires you to carry collision insurance. The lender has a financial interest in the car — they own it until you pay off the loan — so they protect that interest by requiring you to insure it.
The same applies if you lease a car. The leasing company owns the vehicle and will require collision coverage as part of your lease agreement. You cannot legally drop collision while the lease is active, even if you wanted to.
Check your loan documents or lease agreement to confirm the requirement. If you are unsure, call your lender or leasing company directly. They can tell you the minimum coverage they require, including the deductible amount (usually $500 or $1,000).
How to calculate whether collision makes financial sense for an owned car
If you own your car outright with no loan, you have the choice to carry collision or not. The decision comes down to comparing the cost of the insurance against the value of the car and your ability to pay for repairs.
Start by finding your car's current market value using resources like Kelley Blue Book or NADA Guides. Then get a collision insurance quote from your current insurer — ask for quotes at different deductible levels, such as $500, $750, and $1,000. A higher deductible lowers your premium.
Next, do this calculation: divide your car's value by your annual collision premium. If the result is less than 10, collision is probably worth keeping. If it is 10 or higher, you are paying a large percentage of your car's value each year just to insure it. For example, a car worth $5,000 with a $600 annual collision premium is a 8-to-1 ratio — collision makes sense. A car worth $3,000 with the same $600 premium is a 5-to-1 ratio — you might be better off self-insuring and setting that $600 aside each year.
Also consider your emergency fund. If you could not afford to replace or repair your car without borrowing money, collision insurance protects you from that debt. If you have savings set aside, you have more flexibility to drop it.
The difference between collision and comprehensive coverage
Collision covers damage from crashes. Comprehensive covers everything else: theft, vandalism, weather (hail, flooding, wind), animal strikes, and falling objects. Many people keep comprehensive even when they drop collision, because comprehensive is usually cheaper and covers more common types of damage in many regions.
If you live in an area with frequent hail, heavy snow, or high theft rates, comprehensive becomes more valuable. If you live in a dry, low-crime area with good roads, the risk is lower. Check your insurance quote to see the separate cost of each coverage type, then decide based on what risks actually affect you.
What happens if you are in a crash without collision insurance
If you cause a crash and do not have collision insurance, your liability insurance will pay for damage to the other person's car and their medical bills (up to your policy limits). But damage to your own car is your responsibility. You will have to pay for repairs out of pocket, or the car will remain damaged.
If the other driver was at fault and has collision insurance, their insurance will pay for your repairs — but only if you file a claim against their policy, which can take weeks or months. If the other driver has no insurance or insufficient coverage, you have no way to recover the cost unless you sue them, which is expensive and often unsuccessful.
If you hit a parked car, a pole, or another object and have no collision insurance, you pay for all repairs yourself. There is no other party's insurance to claim against.
How collision deductibles work and what to choose
Your deductible is the amount you pay out of pocket when you file a collision claim. The insurance company pays the rest. Common deductible options are $250, $500, $750, and $1,000.
A lower deductible ($250 or $500) means a higher monthly premium but less money out of your pocket if you have a crash. A higher deductible ($750 or $1,000) means a lower monthly premium but more you have to pay when you file a claim. Choose the deductible you could actually afford to pay if you had a crash tomorrow.
If you are a cautious driver with a clean record and a solid emergency fund, a $1,000 deductible will lower your premium significantly. If you are a newer driver or live in an area with heavy traffic, a $500 deductible may give you better peace of mind without costing too much more.
When to drop collision and when to keep it
Drop collision if: your car is worth less than $5,000 to $7,000, you have an emergency fund that could cover repairs, you own the car outright with no loan, and the annual premium is more than 10 percent of the car's value. Older cars, high-mileage vehicles, and cars with existing damage are good candidates for dropping collision.
Keep collision if: you still owe money on the car (your lender requires it), your car is newer or worth more than $10,000, you cannot afford to replace the car if it is totaled, or you live in an area with heavy traffic or frequent accidents. Newer cars, financed vehicles, and cars you depend on for work are worth protecting.
Review your decision every year or two. As your car ages and loses value, the math may shift in favor of dropping collision. If you pay off your loan, you gain the option to drop it. If you move to a riskier area or your financial situation changes, you may want to add it back.
Frequently Asked Questions
What is the difference between collision and liability insurance?
Liability insurance pays for damage you cause to someone else's car or property, and is required by law in every state. Collision insurance pays for damage to your own car from a crash, and is optional unless your lender requires it. You need both if you have a loan on your car.
Can I drop collision if I still owe money on my car?
No. Your lender will require collision coverage as long as you have an outstanding loan balance. Once you pay off the loan, you can choose to drop it. Check your loan agreement or call your lender to confirm the requirement.
Will my insurance company drop me if I do not have collision?
No. You can carry liability and comprehensive insurance without collision. Your insurer will not cancel your policy for choosing not to add collision coverage. However, if you have a loan, your lender may require it even if your insurer does not.
What if someone else hits my car and I do not have collision insurance?
File a claim against the other driver's liability insurance. Their insurer will pay for your repairs if their driver was at fault. If the other driver has no insurance or you cannot identify them, you would need uninsured motorist coverage to recover the cost. Collision insurance is not needed in this scenario if the other party is insured.
Does collision insurance cover hitting a deer or pothole?
Hitting a deer is usually covered by comprehensive insurance, not collision, because it is considered a natural hazard. Damage from a pothole is typically not covered by either collision or comprehensive, because it is considered normal road wear. Check your policy or ask your insurer about what is covered in your specific situation.