COLLISION INSURANCE: Meaning & Coverages

collision insurance
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As simple as collision insurance may be, it will not cover every bill incurred as a result of a collision. Hence, you need to understand how collision auto insurance works and what it covers. Another thing of utmost concern is comprehensive vs collision insurance. These two terms are similar, but are they the same? Find out in this article.

What Is Collision Insurance?

Collision insurance is an auto insurance policy that pays to repair or replace your vehicle if it is damaged in an accident with another vehicle or object, such as a fence or a tree. When you collide with another vehicle or an object such as a lamppost or fence, collision coverage pays to repair the damage to your own automobile. It may also pay if another driver collides with your vehicle and does not have enough insurance to cover the damage.

What Does Collision Insurance Cover?

Collision insurance covers damage to your own vehicle caused by:

  • A collision caused by you and another driver.
  • A collision with an item, such as a tree or mailbox.
  • Flipping over of your automobile.

If another driver hits your car and they don’t have any or enough insurance to cover the damage charges, and you don’t have uninsured/underinsured motorist property damage coverage, you’re out of luck.

How Does Auto Collision Insurance Work When the Other Driver Is at Fault?

Because repairing or replacing a new car can be costly, lenders frequently require collision insurance. If your vehicle is damaged but not totaled, collision insurance will pay to fix it to its pre-accident condition, less your deductible. If your car is totaled, collision insurance will cover the actual cash value, less your deductible. Furthermore, if you don’t have collision insurance, you could end up paying thousands of dollars for car repairs or a new vehicle.

If you are in an accident and another driver is totally to blame, the damage to your car is covered by that driver’s liability auto insurance. Assuming the at-fault driver has this type of coverage, you would first file a claim with their insurance. Except for New Hampshire and Virginia, which do not require auto insurance, every state requires it.

However, in many states, the minimum liability auto insurance limits are minimal – $5,000 or $10,000. If a driver just has the state-mandated property damage limits, he or she will not have adequate coverage to pay for a newer vehicle if the vehicle is totaled. If you are in an accident and the at-fault driver’s liability limitations are insufficient, your collision insurance will kick in to cover the cost of repairing your vehicle.

In addition, if your automobile is totaled, auto collision insurance pays the value of your car at the moment of destruction, less your deductible. However, if your loan exceeds the value of your car, you will still be required to pay the remaining sum on your loan and this may be thousands of dollars. If you have a newer vehicle, ask your insurer about gap insurance. This can help cover the difference and pay off the loan.

How The Collision Insurance Deductible Works

Collision insurance is typically subject to a deductible, which is a specified sum deducted from any collision claim check. You can set your own deductible amount, which commonly varies between $500 and $1,500.

For example, suppose you swerved to avoid hitting a squirrel on the road and instead hit a lamppost, and you had a $1,000 collision deductible. Your insurance company would cover the cost of repairing your car, minus $1,000.

If the cost of the damage was less than your $1,000 deductible, you wouldn’t want to file a claim since your insurance would refuse to pay — and would certainly raise your rates as a result. If the impact wrecked the vehicle, your insurer would deduct $1,000 from the estimated value of the automobile prior to the crash and send you a check for that amount.

Lowering Or Eliminating Your Collision Deductible

Remember that your collision deductible applies even if you were not at fault. If the at-fault driver does not have enough insurance to cover the damage and you do not have underinsured or uninsured motorist property damage coverage, collision insurance will cover it.

If paying to repair damage caused by someone else seems unjust, you might want to consider adding a collision deductible waiver to your policy. This is only available in certain jurisdictions and waives your deductible if an uninsured motorist causes an accident and your collision coverage is required to pay.

Another approach to lessen your collision deductible burden after an accident is to add “disappearing deductibles” to your policy. Some auto insurance providers may reduce your deductible by a set amount — usually $100 — for each year you go without an accident or citation. Details vary by provider, but it usually costs more and isn’t worth it if you don’t wind up in an accident.

How Much Does Auto Collision Insurance Cost?

According to the National Association of Insurance Commissioners, the average yearly cost of collision coverage in the United States was around $381 in 2019, the most recent year for which data is available. Your own cost may be greater because this number incorporates reductions and may account for group insurance, which is normally less expensive than individual coverage purchased online.

You may not be able to purchase collision insurance without comprehensive coverage, or vice versa, depending on the company. This could be because you have an active loan or lease that requires both, or because your insurer wants you to buy one before you can buy the other.

Because collision claims are more common, collision insurance is much more expensive than comprehensive insurance. Higher deductibles can lower your rate if you can cover out-of-pocket expenses.

Do You Need Auto Collision Insurance?

Collision coverage, like your car, loses value over time because it will never pay out more than the vehicle’s value. It eventually loses its value if you don’t have a loan or lease that requires it, costing you more to have than it would reimburse you after a crash.

When should you drop collision insurance? Start with the value of your automobile and your deductible to determine whether it’s worth what you’re paying for it. It’s not worth paying for collision coverage on a vehicle valued at $1,000 or less if you have a $1,000 collision deductible.

Next, consider how much your collision insurance costs. If it isn’t on a current bill, check the declarations page of your auto policy, which is usually one of the first pages. If the cost of collision plus the deductible exceeds the worth of your car, you will not receive any compensation if your car is totaled, which is the worst-case situation for this policy.

How It Works

Subtract your collision deductible from the value of your vehicle. This is the maximum amount you could receive from a collision claim. If you can come up with this much out of pocket, you may reduce your coverage, knowing that you’d have to pay for your own car’s damage in the event of a collision.

Subtract the amount above from the cost of your collision insurance for the life of the policy, which is normally six months. This represents the maximum possible value of your collision insurance – the amount you’d receive if your automobile were totaled, considering the cost of coverage.

If the answer is:

  • Negative, you are paying more for collision insurance than it is worth.
  • Small but positive, the coverage can still help you, but a claim for a total loss would only be worth this much once you add in the cost of coverage. So you may decide to accept the risk of canceling it now in order to save money on premiums.
  • Large and positive, keeping collision insurance makes sense because it is large and favorable. If your car is totaled, the policy will pay a huge sum, far more than the cost of the coverage.

Furthermore, having collision insurance makes sense if you can’t come up with the sum from step one in an emergency. Remember that if your automobile was not totaled, the claim check would be less than the initial figure you calculated.

Even if you determine that collision insurance is worth it, for the time being, you should reassess the math as your automobile ages and whenever you seek car insurance quotes.

Collision vs Comprehensive Insurance

These two basic types of auto insurance work together to cover you if your vehicle is damaged. However, the types of damage they cover are vastly different. Let’s start with a breakdown of each:

Collision insurance protects your car in the case of a covered accident involving a collision with another vehicle. This could entail repairs or a complete replacement of your insured car.

Comprehensive auto insurance covers damage to your vehicle caused by non-collision-related occurrences such as theft, vandalism, or hail. 

Collision vs Comprehensive Insurance: What Is The Difference?

It all boils down to how your vehicle was damaged. Collision insurance will cover you if you collide with another vehicle or a stationary object such as a telephone pole (or if you roll over). Comprehensive insurance will cover you if your automobile is hit by an animal or a non-stationary object, such as a falling tree, or if it is destroyed by vandalism, fire, or a natural catastrophe.

Collision Insurance will cover you if:

  • Your car collides with an item, such as a tree.
  • Your vehicle collides with another.
  • Your automobile flips over.
  • Your vehicle has been damaged as a result of a pothole.

Comprehensive Insurance will cover you if:

  • A tree, for example, falls on your automobile.
  • Your vehicle is hit by an animal.
  • Your vehicle has been damaged as a result of a fire or natural calamity.
  • Your vehicle has been vandalized or stolen.

Collision vs Comprehensive Insurance: Which Is Better?

It depends on why you want to get auto insurance. Both cover your car insurance for different reasons:

The Essence of Comprehensive Insurance

Simply said, accidents occur. You can’t always control what happens to your car, no matter how cautious you are behind the wheel. When you have to park outside, a powerful storm can come out of nowhere. A deer jumps into your car when you’re driving down a dark country road. These situations are beyond your control, but you may prepare for them by obtaining comprehensive auto insurance.

The Essence Of Collision Insurance

Even when you’re calm and collected behind the wheel, you have no influence over the vehicles surrounding you. Even the most cautious drivers can be involved in a collision. As a result, every driver should have collision insurance on hand. Even if you’re in an accident with an uninsured driver, collision insurance will help cover repairs or replacement.

What You Should Consider

You may be asking if you need both forms of coverage. Consider the following factors to determine whether you require collision and comprehensive insurance:

#1. The Worth of Your Vehicle

The higher the worth of your car, the more expensive it is to repair or replace! Purchasing comprehensive and collision coverage might keep you from having to pay those charges out of your own pocket.

#2. The Possibility of an Accident

If you drive more, especially on congested roads, you may be more likely to be involved in an accident. If your risk is higher, you should make sure you get collision insurance.

#3. Your Current Financial Situation

Do you have enough savings to cover the expense of repairing or replacing your car on your own? If not, purchasing coverage is a must.

#4. Your Region

Some places are more dangerous than others! If there have been more complaints of vehicle damage caused by fallen branches or animals crossing the road in your neighborhood, obtaining comprehensive auto insurance coverage may be a good choice.

In Conclusion,

Anyone who owns a car should have collision insurance, as well as comprehensive insurance. A car owner who rarely drives or lives in an area with an extremely low risk of damage may be able to avoid an accident in some situations, but accidents happen even in the safest areas. 

Frequently Asked Questions

Is it worth it to get collision coverage?

Collision coverage, like your car, loses value over time because it will never pay out more than the vehicle’s value. Collision insurance eventually loses its value if you don’t have a loan or lease that requires it, costing you more to have than it would reimburse you after a crash.

Is comprehensive insurance same as collision?

Comprehensive insurance is different from collision insurance.

What is covered under collision coverage?

Collision coverage pays for repairs to your vehicle if it is hit by another vehicle. It may also contribute to the cost of repairs if you collide with another car or object.

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