Collision insurance pays to fix or replace your car if you hit another vehicle or object
Collision insurance covers damage to your own car when you're in an accident with another car, a tree, a guardrail, or any other object. Your insurance company pays for the repairs (or the car's value if it's totaled), minus your deductible — the amount you pay out of pocket before the insurance kicks in.
This is different from liability insurance, which pays for damage you cause to someone else's car or property. Collision covers your own vehicle. It's also different from comprehensive insurance, which covers theft, weather, and animal strikes — not accidents you cause.
Collision is optional in most states, but your lender or leasing company will require it if you're financing or leasing a car. If you own the car outright, you can choose whether to buy it.
Key Takeaways
- Collision insurance pays for damage to your car when you hit something, regardless of who caused the accident.
- You choose your deductible when you buy the policy — common amounts are $250, $500, $1,000, or $1,500 — and you pay that amount before insurance covers the rest.
- If you're financing or leasing a car, your lender will require collision coverage as a condition of the loan or lease.
- Collision does not cover damage from weather, theft, or hitting an animal — that's what comprehensive insurance is for.
- The cost of collision insurance depends on your car's age and value, your driving history, your location, and the deductible you choose.
How collision insurance works when you have an accident
When you're in an accident, you report it to your insurance company. You'll provide details about what happened, where, and when. The insurance company will assign an adjuster to inspect your car and estimate the repair cost.
If the repair cost is less than your car's current market value, the insurance company will pay the repair shop directly (or reimburse you if you pay first). You pay your deductible to the repair shop. If your car is totaled — meaning the repair cost exceeds 70 to 80 percent of the car's value, depending on your state — the insurance company pays you the car's current value minus your deductible, and you surrender the vehicle to them.
The insurance company does not care who caused the accident. Even if you were at fault, collision insurance still covers your car. This is why it's called "first-party" coverage — it protects you, not the other driver.
Deductibles and how they affect your premium
Your deductible is the amount you agree to pay toward repairs before insurance pays the rest. Common deductible amounts are $250, $500, $1,000, and $1,500. The higher your deductible, the lower your monthly or annual premium will be.
Choosing a deductible is a trade-off. A $250 deductible means a higher monthly cost but less money out of your pocket if you have an accident. A $1,000 deductible means a lower monthly cost but more money you have to pay if you need repairs. Most people choose $500 or $1,000 as a middle ground.
Think about what you can actually afford to pay if your car is damaged. If you have $500 in savings and choose a $1,000 deductible, you might not be able to pay it when you need repairs. On the other hand, if you never have accidents and want to lower your monthly payment, a higher deductible makes sense.
When your lender requires collision insurance
If you financed your car through a bank, credit union, or dealership, the lender owns a legal interest in the vehicle until you pay off the loan. They will require you to carry collision insurance to protect their investment. This requirement is written into your loan agreement.
The same applies if you lease a car. The leasing company owns the vehicle and will require collision coverage throughout the lease term. If you drop collision coverage while you still owe money on the car, your lender can add it to your loan and charge you for it — often at a higher rate than you would pay on your own.
Once you own the car outright (the loan is paid off or the lease ends), you can drop collision insurance if you choose. At that point, it becomes optional.
Collision versus comprehensive insurance
Collision and comprehensive are often sold together, but they cover different things. Collision covers accidents — you hit something or something hits you. Comprehensive covers everything else: theft, vandalism, weather (hail, flooding, wind), animal strikes, and falling objects.
If a tree falls on your parked car, that's comprehensive. If you hit a deer, that's comprehensive in most states (some states call it "other than collision"). If you swerve to avoid a deer and hit a telephone pole, that's collision. If someone breaks into your car and steals your radio, that's comprehensive. If you back into a parked car, that's collision.
Your lender may require comprehensive as well as collision, or only collision. Check your loan documents or call your lender to confirm what they require.
How your premium is calculated
Insurance companies use several factors to set your collision insurance rate. Your car's age and market value matter — a newer car or a more expensive car costs more to insure because repairs or replacement would cost more. A 15-year-old sedan will have a lower collision premium than a new luxury vehicle.
Your driving history also affects the rate. Drivers with accidents or violations on their record pay more. Your location matters too — urban areas with more traffic have higher collision rates than rural areas. Your age, gender, and marital status may factor in as well, depending on your state's laws.
The deductible you choose directly affects the premium. Raising your deductible from $500 to $1,000 typically lowers your premium by 15 to 30 percent, though the exact amount varies by insurer and location.
When collision insurance might not be worth the cost
If your car is very old or has low market value, the cost of collision insurance might be more than the car is worth. Insurance companies sometimes suggest dropping collision when a car's value falls below a certain threshold — often around $5,000 to $7,000, though this varies by insurer and your situation.
For example, if your car is worth $4,000 and your collision premium is $400 per year with a $1,000 deductible, you're paying 10 percent of the car's value annually for coverage. If you had an accident, you'd only receive $3,000 (the car's value minus your deductible). In this case, some people choose to drop collision and self-insure — meaning they save money each month and would pay out of pocket if they had an accident.
This decision depends on your financial situation. If you have savings to replace the car, dropping collision might make sense. If you couldn't afford to replace it, keeping collision is safer even if the premium seems high relative to the car's value.
Frequently Asked Questions
Does collision insurance cover accidents that are my fault?
Yes. Collision insurance covers your car regardless of who caused the accident. Even if you were completely at fault, your collision coverage will pay for repairs minus your deductible. This is why it's called first-party coverage — it protects you, not the other driver.
What happens if the other driver doesn't have insurance?
Your collision insurance will still cover your car's damage. You pay your deductible, and your insurance company pays for repairs. If you want to recover your deductible from the other driver, you would have to pursue them in small claims court or through your state's uninsured motorist fund — your insurance company won't do this for you.
Can I lower my collision premium without raising my deductible?
You can ask your insurance company about discounts. Many insurers offer discounts for bundling home and auto insurance, completing a defensive driving course, having safety features on your car, or maintaining a clean driving record. Some also offer discounts for low mileage or paying in full rather than monthly. The discounts available vary by company and state.
If my car is totaled, do I get the full value or the current market value?
You get the current market value of the car at the time of the accident, minus your deductible. This is usually less than what you paid for it, especially if the car is older. If you owe more on your loan than the car is worth, you'll still owe the difference to your lender — collision insurance doesn't cover that gap.
Do I need collision insurance if I have good liability coverage?
No. Liability insurance only covers damage you cause to someone else's car or property. It does not cover damage to your own vehicle. If you want your own car repaired after an accident you cause, you need collision insurance. Liability and collision are separate coverages that protect different things.