You Need To Know All About Collision Insurance?
What is Collision Insurance?
What is meant by on collision insurance? Collision insurance may seem like a simple thing, but it won’t pay for every bill that comes up because of a crash. Collision coverage pays to repair your own car if you collide with another vehicle or something else, such as a fence or lamppost.
It may also pay if another driver collides with your vehicle and does not have enough insurance to cover the damage.
Collision insurance is not required in any state, but most lenders will make you get it if you finance or lease a car. Here’s a breakdown of what collision car insurance will and will not cover, as well as how to determine whether it’s worth the money.
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Main Points
Collision coverage terms include:
A deductible reduces a claim payout. You choose your deductible when buying insurance. If you choose a high deductible, you’ll pay less for car insurance but more for claims. | |
The value of your car in its current condition, not the price at which you bought it or the trade-in value at a dealership, decreases in value over time, so the actual cash value of your car will be less (sometimes significantly less) than the purchase price. |
What Does Collision Insurance Cover?
Collision insurance covers:
- A collision you cause.
- Tree or mailbox collision.
If another driver hits your car without enough insurance and you don’t have uninsured/underinsured motorist property damage coverage,
Lenders require collision insurance because repairing or replacing a car is expensive. If your car is damaged but not totaled, collision insurance will pay to fix it, minus your deductible.
Collision insurance pays the actual cash value of your vehicle, minus your deductible. Without collision insurance, you could pay thousands for car repairs or a new car.
How Collision insurance works when the other driver is at fault
If another driver is at fault, their liability insurance pays for your car’s damage. First, file a claim with the at-fault driver’s insurance, assuming they have it.
New Hampshire and Virginia don’t require auto insurance.
In many states, the minimum auto liability insurance limits are $5,000 or $10,000. State-required property damage limits wouldn’t cover a newer vehicle if it were totaled.
Your collision insurance would pay to repair your car if the at-fault driver’s liability limits are too low.
If your car is totaled, collision insurance pays its value, minus your deductible. If your loan is more than your car’s value, you’ll still owe thousands of dollars.
If you have a newer vehicle, gap insurance can cover the difference and pay off the loan.
Comprehensive insurance covers non-crash damage like fire, hail, or theft. Accident insurance covers damage. Full coverage insurance includes collision, comprehensive, and liability.
How the collision insurance deductible works
Most collision insurance has a deductible, which is deducted from claim checks. Deductibles range from $500 to $1,500.
Say you swerved to avoid a squirrel but hit a lamppost instead and have a $1,000 collision deductible. Your insurance company would cover car repairs minus $1,000.
If the damage is less than your $1,000 deductible, you shouldn’t file a claim because your insurer won’t pay and may raise your rates.
Your insurer would deduct $1,000 from your car’s estimated value before the crash and send you a payment.
Reducing or waiving your collision deductible
Even if you’re not at fault, your collision deductible applies. If the at-fault driver doesn’t have enough insurance and you don’t have uninsured or underinsured motorist coverage, collision insurance pays for the damage.
If paying for someone else’s damage seems unfair, add a collision deductible waiver to your policy.
If an uninsured driver causes an accident and your collision coverage pays, this waives your deductible.
“Disappearing deductibles” reduce collision deductibles after an accident.
Some auto insurance companies reduce your deductible by $100 per year without an accident or ticket. It costs extra and may not be worth it if you don’t have an accident.
The cost of collision insurance
According to the National Association of Insurance Commissioners, the average annual cost of collision coverage in 2019 was $381.
Depending on the company, you might not be able to buy collision insurance without also buying comprehensive insurance, or vice versa.
This could be because of a loan or lease, or because your insurer requires one to buy the other.
Most of the time, collision insurance costs more than comprehensive insurance because it is more likely to be used. If you can cover the out-of-pocket costs, higher deductibles can lower your premium.
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Do you need collision insurance?
Like your car, collision coverage loses value because it never pays out more than the car’s value. If you don’t have a loan or lease requiring it, collision insurance loses value and costs more than it pays out.
Unsure when to drop collision insurance? Start with your car’s value and deductible to determine if it’s worth it. With a $1,000 collision deductible, collision coverage isn’t worth it for a $1,000 car.
Next, consider collision insurance. If it’s not on a recent bill, check your auto policy’s declarations page.
If the collision cost plus the deductible is more than your car’s value, you won’t see any benefit if your car is totaled.
- Subtract the deductible from the car’s value. This is the collision claim maximum. If you have this much cash, you could drop collision coverage and pay for your own car’s damage.
Subtract collision insurance for the policy’s duration, usually six months. This is the maximum value of your collision insurance, based on the cost of coverage.
- negative Overpaying for collision insurance.
- The coverage can still benefit you, but a total loss claim is only worth this much after the cost of coverage. You may decide to cancel and save on premiums.
- Keeping collision insurance is smart. If your car is totaled, the coverage will pay much more than you’ve paid for it.
Even if collision insurance is worth it now, recalculate as your car ages and when you get car insurance quotes.
Frequently asked questions
When should you drop collision insurance?
If your collision deductible and total coverage cost more than your car’s value, you can drop it. If your car’s value is equal to or less than the deductible, drop the coverage.
Do I need collision insurance on an old car?
No. Your car’s market value, less your collision deductible, is covered. Older cars have a low market value, so collision coverage won’t pay much, if anything. Before dropping coverage, research your car’s value.
Is collision insurance required by law?
No state requires collision insurance, but your lender may require it if you lease or finance your car. Even if you own your car outright, consider buying insurance. It could provide peace of mind if you drive an expensive car or can’t afford repairs after a crash.
