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 that your car has rolled backward down the hill and straight into a tree. You’ve got car insurance, but will it cover something like this? You remember your car insurance agent saying something about collision coverage, but what is collision insurance and what does it cover? Well, one thing’s for sure, we’ve got you covered! We’re here to walk you through everything you need to know about collision insurance and coverage.
What Is Collision Insurance?
Collision insurance is a type of auto insurance coverage that helps cover the cost of repairing or replacing your vehicle if you get into an accident. This type of coverage isn’t 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? There’s a good chance you’ll still want to get collision coverage. We’ll tell you why next.
What Does Collision Insurance Cover?
There are all kinds of auto collisions. 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, or basically any object, collision insurance helps cover the cost of repairing or replacing your vehicle.
Do you have the right auto insurance coverage? You could be saving hundreds!
Depending on your deductible (the amount you have to pay before your auto insurance policy kicks in their coverage) and the amount of coverage you purchased when you built your policy, 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 another person’s vehicle
- Damage caused by natural events, like hail or flooding
- Medical bills
Remember, collision insurance covers damages to your vehicle, not someone else’s.
How Much Does Collision Insurance Cost?
On average, the cost of collision insurance runs about $378 per year.1 But what you’ll pay for it depends on a few things:
- 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 he has a $500 deductible, he will pay $500 for the repairs and his insurance will pay the remaining $2,500. If Steve has a $1,000 deductible (which means his premium will be lower than the $500 deductible option), then he will owe the first $1,000 on repairs and his auto insurance company will pay the remaining $2,000.
Now, 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, or 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 get the coverage you need. And depending on your situation, you may not even need collision insurance coverage.
Should You Drop Your Collision Insurance Coverage?
Please 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 coverage. 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 just 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 hang onto your collision coverage.
Is Collision Insurance Worth It?
Nearly 3 out of 4 drivers (74%) decide to get collision insurance.2 Like we mentioned before, if you can’t afford to repair or replace your car with cash, then keep collision insurance coverage on your policy. This is one of those places where it really is better to be safe than sorry.
What Is the Difference Between Collision and Comprehensive Insurance?
Collision vs. comprehensive auto insurance—what’s the difference? Collision insurance coverage, as we mentioned at the very beginning, provides coverage if you run into anything from another car to your own mailbox. If you hit another vehicle, collision insurance 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, that’s a different story! Comprehensive auto insurance covers just about any wild natural event or man-made disaster you can imagine. Squirrel chew through your gas line? Covered! Chipped or cracked windshield? Covered! Hit a deer 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.
What Is the Difference Between Collision and Liability Insurance?
OK, so we’ve covered collision insurance vs. comprehensive insurance, but what about liability auto insurance? Where does that fit into the mix? Liability insurance is what most people think of when they think of auto insurance. It’s the granddaddy of coverage, and state law (other than New Hampshire and Virginia) require you to have it. So, yeah, it’s kind of a big deal!
Liability insurance pays to cover medical costs and damages for the person whose car or property you hit during a collision. You want to have liability insurance. You want other people to have liability insurance. Liability insurance protects everyone on the road from each other.
When you have collision, comprehensive and liability insurance, you have what’s called full coverage. That’s the sweet spot.
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, that means you’re on the hook for all your repairs or if you have to replace your vehicle. If you’re at fault, your liability coverage (the one you must 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!
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 Ramsey’s trusted auto insurance providers. They 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!