June 1, 2019

What is Collision Insurance?

Read more about Car Insurance

How does collision coverage work? Find out how it differs from comprehensive and when you should drop the policy for your car.

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There are three main parts to an auto insurance policy:

  1. Liability: Covers the cost of other people's injuries and property damages that you are responsible for. The state requires you to carry this coverage.

  2. Comprehensive: Covers damages to your vehicle in almost any scenario other than a car and solid-object crash.

    Some of the most common comprehensive claims are:

    • Fire
    • Theft
    • Falling objects
    • Shattered windshields or windows
    • Hail or windstorms
    • Hitting an animal
    • Glass breakage

  3. Collision: Covers damages to your vehicle when your crash into another car or solid object (more on that below).

    Most auto insurance claims fall under the collision category since most accidents happen when one car hits another. That's why collision is almost always more expensive than comprehensive.

Insurance companies allow you to buy comprehensive coverage without collision coverage. But you cannot buy collision without also buying comprehensive.

What Does Collision Cover?

Collision insurance is a type of coverage you can add to an existing auto insurance policy.

It pays for damages to your car that happen as a result of:

  • Vehicle-to-vehicle car crashes
  • Hitting a telephone pole
  • Ramming into a building
  • Other types of "collisions"

The only type of incident that collision insurance does NOT cover is hitting an animal. That falls under comprehensive coverage.

There are a few things that ARE NOT covered by either comprehensive or collision. These include:

How Much Does Collision Cost?

Collision coverage is usually the most expensive part of an auto insurance policy. Remember, insurance companies are more likely to pay collision claims than other types.

The actual cost of collision coverage varies based on a number of factors, including:

  • Vehicle type (newer vehicles cost more)

  • Age of driver (younger drivers pay more)

  • Driving history (high-risk drivers with more accidents and violations pay more)

  • Credit score (better scores mean better rates)

  • Location (some high-risk areas may cost more)

It's not uncommon for people to pay several hundred dollars for each vehicle that has collision coverage.

For a low-risk driver who has never been in an accident and drives a car that's less than 5 years old, collision coverage will likely be in the $200 - $400 range, depending on the other factors.

For a high-risk teenage driver who is insuring a brand new truck, collision coverage by itself could be $2,000/year or more.

Is collision coverage required?
Carrying collision coverage is NOT necessary to satisfy any state's legal requirements for auto insurance.
However, if you've taken out a loan or a lease on a vehicle, the lender might require you to carry both comprehensive and collision coverage to satisfy the terms of the loan/lease.

This is similar to banks that require homeowner's insurance on a house that they have a mortgage on.

You Should Buy Collision Coverage IF…

You finance or lease a newer vehicle
You will likely be required to purchase both comprehensive and collision coverage if you loan or lease.

Your car is worth over $10,000
Even if the lender isn't requiring you to purchase collision, it's still a good idea to buy it with a new or expensive car.

A loss to your vehicle would put you out $10,000 or more, so it's worth it to pay the cost to insure it properly.

Your car is 5 - 10 years old
These vehicles are likely still worth over $5,000 on the market. The cost of collision will usually be less on these middle-aged vehicles. But their value is sufficiently high to protect them with Collision coverage.

You Can Skip Collision Coverage IF…

Your vehicle is worth less than $3,000
For low-value older vehicles, collision might not make sense. If the vehicle is totaled, you will likely purchase a newer one anyway.

If you opt to carry collision on older vehicles, some insurance companies will want proof that the car is in good shape (e.g., pictures).

Your vehicle is older
If you have a $500 deductible and collision coverage of $100/year for collision, then you're essentially "paying" $600 dollars for a car worth $2,000 - $3,000.

If you've gone 3 of 4 years of carrying collision on that vehicle without an accident, it probably makes sense to drop the coverage.

You're a "high-risk" driver
If you're a young driver or if you've had DUIs, multiple accidents and/or multiple violations, carrying collision coverage will likely cost well over $1,000/year.

That amount of money can be hard to come by, especially in addition to the cost of liability coverage.

Young or high-risk drivers should consider using an older vehicle for a few years to save money.

Not only will your overall insurance be less expensive, but you won't have to carry collision coverage, saving you thousands more.

You have access to several cars
If you wouldn't replace your car if it gets totaled, don't spend money on collision.

You would still lose the money you put into the vehicle. But you would have saved some on the collision premiums.

Won't the Other Person's Insurance Pay for My Damages?

If you live in an at-fault state and the other person is at fault, the other person's insurance WILL pay for damages to your car.

But what if you are at fault? Here are a few scenarios where your collision would pay for damages to your own vehicle:

At-fault Accidents
If you live in an at-fault state, whoever is at fault will pay for the other person's insurance.

But if YOU are at fault, your insurance policy will pay for the other person's damages. Your own policy will pay for the damages to your car only if you carry collision coverage.

When filing a claim under your own collision coverage, you will likely have a deductible. If you have $10,000 in damages to your car, but you have a $1,000 deductible, then the insurance company will pay you $9,000 for your damages.

Deductibles don't apply to the other person who was not at fault.

No-Fault States and No-Fault Accidents
If you're involved in an accident in a no-fault state, filing a claim with your own insurance company is the only way to get reimbursed for your damages.

Even if the accident is not your fault, you'll still need to file the claim with your own policy. This is where having collision coverage is especially important—you can't rely on the other person's insurance paying for your damages.

The process is usually much faster. You'll get your money with less paperwork, and you don't have to worry about proving that it's the other person's fault.

The downside? Your own claim will likely raise your rates more than if you waited for the "not-at-fault" classification.

Colliding with a Building or Telephone Pole
What if you crash into a telephone pole or the side of a building? Even if the accident is somehow not your fault, no one else's insurance policy will pay for your damages.

In these situations, your collision coverage would pay for the damages to your car.

Does Collision Cover Rental Cars?

If you're renting a car within the United States, U.S. territories, or Canada, then your collision coverage SHOULD extend to a rental car. You must carry collision coverage on your own vehicle for this to apply.

The insurance policy will state something like, "the company will cover a loss to a non-owned auto by providing the broadest coverage applicable to any of your covered autos." That paraphrased language just means that your insurance policy will cover any rented or non-owned car as long as you have the same coverage on your owned cars.

So if you have a $500 comprehensive deductible and a $1,000 collision deductible on your own car, then the same deductibles will apply to any rented or non-owned car.

Should I avoid the rental car's physical damage coverage?
Not necessarily. Even if you have coverage under your own policy, there are still advantages to purchasing the rental car company's coverage. The two main benefits are:

  • Usually there is no deductible with the rental car company.
  • There is also no paperwork. You simply return the car as is and you're done.

If you forego this option and use your own auto insurance, you will still have a deductible AND your own policy's rates will likely go up, just like it would under any other accident.

Bottom Line

Collision covers damage to your vehicle in accidents involving other cars or objects such as telephone poles or buildings. It can be a good, though expensive, coverage to buy.

After all, it's better to pay $500/year for collision insurance than the full cost of replacing a vehicle in the event of an accident.

Write to Andrew Flueckiger at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

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