Say you park your car on a steep hill and forget to put on the emergency brake. Imagine your surprise when you come back later and find your car has rolled down the hill and straight into a tree. You’ve got car insurance, but will it cover something like this? You vaguely remember your insurance agent saying something about collision coverage, but what is collision and what does it cover?
We’ve got your back! We’ll walk you through everything you need to know about collision insurance and how it can help you keep out of financial car trouble.
What Is Collision Insurance?
Collision insurance is one of the main types of car insurance. It helps cover the cost of repairing or replacing your vehicle if you get in an accident. It’s not required by state law, but if you lease your vehicle or if it’s still under a loan, your lender may require you to have it. And if you own your vehicle outright (nice!), there’s a good chance you’ll still want collision coverage. We’ll explain why in a second.
What Does Collision Insurance Cover?
What does collision insurance cover? It’s simple: If your vehicle is damaged in an accident, like backing into a tree, hitting another vehicle, running into your own garage door (oops!), or basically hitting any object, collision insurance will help cover the cost of repairing or replacing your vehicle.
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Depending on your deductible (the amount you have to pay before your insurance policy kicks in) and the amount of coverage you purchased, collision insurance could save your rear end following an accident.
What Is Not Covered by Collision Insurance?
Collision coverage is not one giant Band-Aid to fix all your vehicle woes. Collision insurance won’t cover:
- Damage to someone else’s vehicle
- Damage caused by natural events, like hail or flooding
- Medical bills
- Hitting an animal (like a deer)
Remember, collision insurance covers damages to your vehicle, not someone else’s.
How Much Does Collision Insurance Cost?
- Your driving history. If you show that you have consistently been a safe driver, you’ll pay less for collision insurance.
- The value of your vehicle. What’s more expensive to repair or replace: a two-year-old Mercedes or a 10-year-old Honda Civic? Probably the Mercedes.
- The size of your deductible. The higher your deductible, the lower your collision insurance premium. (A premium is how much you pay for auto insurance.)
Let’s dig into deductibles a little further.
What Is a Collision Insurance Deductible?
Deductibles usually come in two amounts—$500 or $1,000. For example, Steve gets in a car accident and the repairs are going to cost $3,000.
If Steve has a $500 deductible, he’ll pay $500 for the repairs. His insurance will pay the remaining $2,500.
With a $1,000 deductible (which means he’ll be paying lower premiums), Steve will owe the first $1,000 and his insurer will cover the remaining $2,000 for repairs.
Something to keep in mind with collision insurance is that no matter what your deductible, coverage doesn’t include an endless bucket of money to put toward repairs or a replacement vehicle. You can’t wreck a Hyundai and upgrade to a BMW—sorry, folks! There are limits. Your car’s limit for collision insurance is based on the actual cash value (ACV) of your vehicle. ACV equals the value of the vehicle minus depreciation.
Before your head starts spinning like a car on black ice, know that we’re here to help you figure out if you need collision insurance.
Should You Drop Your Collision Insurance Coverage?
Don’t run out and drop your collision coverage just yet! There’s one really important question to keep in mind if you’re considering nixing collision. Can you afford to replace your car if you total it?
Remember, collision coverage only covers repairs or a replacement vehicle up to a certain limit, and it doesn’t cover damage to another driver’s vehicle. That would come under the liability part of your plan. (More on that in a minute.)
Whether you drive a just-off-the-lot car (please don’t buy a brand-spanking-new vehicle!) or something used, if you can’t afford to repair or replace the vehicle with cash, then you should hang onto your collision coverage.
Is Collision Insurance Worth It?
Nearly 3 out of 4 drivers (74%) get collision insurance.2 Like we said, if you can’t afford to repair or replace your car with cash, then keep collision insurance. This is one of those times when it’s better to be safe than sorry.
Collision coverage is also a great option for new drivers who don’t have as much experience on the road yet (yes, we’re talkin’ about you, teens).
Do I Need Collision Insurance for an Old Car?
If you’re driving an old car, you might be wondering if you could free up some money in your budget by dropping collision. You could also be asking this if your car is paid off and you don’t have a lender requiring collision.
The biggest factor is whether you have enough money in the bank to replace it if something happened. Just because your vehicle is paid off doesn’t mean you wouldn’t want help from an insurance company to replace it.
It also depends on how much your car is worth. If you only paid $500 for it, it’s probably not worth getting collision since you could just get another car in that price range if you needed to. But if you’re driving around a $10,000 minivan, and it’s your family’s only vehicle, it’d be best to get collision.
Collision vs. Comprehensive Coverage—How Do They Compare?
Now you might be wondering, when it comes to collision vs. comprehensive auto insurance, how do they compare? Collision insurance provides coverage if you run into anything from another car to your own mailbox. But collision won’t cover the other driver’s repairs or medical bills. Collision also won’t cover damage to your vehicle from natural events, like a tornado or landslide.
But comprehensive insurance is a different story! Comprehensive auto insurance covers just about any wild natural event or man-made disaster you can imagine. Did a squirrel chew through your gas line? Covered! A chipped or cracked windshield? Covered! Hit a giant armadillo and smashed up your front bumper? Covered!
Comprehensive is your catch-all coverage. It pays to repair or replace your car if it’s stolen or damaged in a natural disaster, in a collision with an animal or road debris, or by another person.
Collision vs. Liability Insurance—What’s the Difference?
So we’ve covered collision insurance vs. comprehensive insurance. What about liability insurance? How does that compare to collision? Liability insurance is what most people think of when they think of car insurance. It’s the granddaddy of coverage, and state law (other than New Hampshire and parts of Alaska) requires you to have it. So, yeah, it’s kind of a big deal!
Liability insurance covers medical costs and damages for the person whose car or property you hit during a collision. You need liability insurance, and you want other people to have liability insurance too. Liability insurance protects everyone on the road from each other. But unlike liability, collision insurance will help even when you’re at fault.
When you have collision, comprehensive and liability insurance, you have what’s called full coverage. That’s the sweet spot. And if you can afford a full coverage policy, you should get it.
What Happens if You Don’t Have Collision Coverage?
As much as we want to believe none of us will ever collide with anything, we all know accidents happen. So what happens if you don’t have collision coverage?
Well, unfortunately, it means you’re on the hook for however much it costs to repair or replace your vehicle. If you’re at fault, your liability coverage (the one you’re required to have) only covers the other driver’s expenses. So, again, if you can’t afford to repair or replace your own vehicle, don’t skip getting collision coverage!
Does Collision Cover the Other Car?
No, it doesn’t. As we saw, collision coverage doesn’t cover the costs of damage to another person’s vehicle, including their medical bills. You’ll need liability for that.
Does Collision Cover a Hit-and-Run Accident?
While we hate to be vague, it depends. Collision insurance might cover some of the damages in a hit-and-run if someone hits your vehicle when it’s parked. But it doesn’t cover bodily injury.
Does Collision Insurance Cover Theft or Vandalism?
Collision insurance won’t protect you against theft. That’s normally covered by your comprehensive coverage. The same thing applies to vandalism too. Collision won’t help if graffiti artists decide your car is their new canvas. That’s where comprehensive can usually help.
Does Collision Protect Against Rental Car Accidents?
Rental car insurance can be tricky business. In some instances, depending on your policy, if you get in an accident while driving a rental car, your collision coverage may give you some protection. But you should always check with your insurance company and the rental car company to be sure before you start driving it.
The Right Car Insurance Policy for You
It’s like some car insurance companies are purposefully trying to make getting car insurance as difficult as possible. That’s going to be a hard no for us. Getting the right car insurance policy, including collision coverage, should be simple and easy. And it is when you work with one of our Endorsed Local Providers (ELPs). They are RamseyTrusted and would love to help you find the best policy for your needs. The right plan not only protects you and your loved ones, but it can also save you money and help you reach your financial goals sooner!