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Reviewed by
Nick Fenske
Licensed Insurance Agent
Reviewed by
Nick Fenske
Licensed Insurance Agent
Table of Contents
Collision insurance is one type of insurance you can buy for your vehicles. It kicks in to cover damages that you might incur if your vehicle is involved in an accident.
For example, if you run into another vehicle in traffic, collision coverage helps pay for any repairs to your vehicle. The same is typically true if your vehicle is damaged in a run-in with an object like a traffic pole or a mailbox.
You may have heard people refer to comp and collision< before. Comp stands for comprehensive, which is another type of vehicle insurance. Understanding comprehensive vs. collision insurance is critical for knowing when your policy is likely to cover damages. Comprehensive auto insurance helps pay for damages caused by incidents that aren’t collisions. Say a windstorm knocks a tree over onto your car or a flash flood damages the vehicle. If you have comprehensive coverage in your policy, your insurance will pay for some or all of the damages.
Some auto insurance companies only offer comp and collision as a single product. Most don’t offer comprehensive coverage without collision coverage at all unless you won’t be driving the car. You might be able to buy comp coverage only for a collector’s car in storage, for example.
Collision insurance policies cover damages that occur in the following types of incidents:
Typically, your> collision policy only pays for damages if you were deemed at fault for the accident or another insured driver was not involved. It also only pays for damage to your car. Check out the table below to explore some examples. See when your collision policy would pay and when another payer might be expected to pay.
How much your auto insurer pays in the event of a collision depends on the details of your policy. The same is true for how much you might end up out of pocket. Every collision auto insurance policy has a deductible and a limit.
Deductible refers to the amount you have to pay before insurance coverage starts paying for expenses. Commonly, car insurance deductibles range from $250 to $1,000. Some insurance companies offer deductibles as high as $2,000. In unique cases, such as with collector’s cars or luxury vehicles, deductibles of up to $10,000 are common.
Many people are familiar with the concept of deductibles associated with health insurance. With health insurance, the deductible amount is how much you pay each calendar year before your insurance kicks in to cover expenses.
With car insurance, the deductible amount is applied to every incident. If your deductible is $500 and you hit a tree in February of a year, you’ll pay for the first $500 of any repairs. If you have a fender bender in April of the same year, you’re on the hook again for up to $500 of repair costs before your collision coverage kicks in. .
Insurance companies put a limit on how much they will pay under collision policies. Typically, the limit is equivalent to the current value of your car.
Imagine this scenario. You hit a tree with your car. The car is currently worth $15,000. The estimate for repairs after the accident is $17,000.
That’s more than your car is worth, and most insurance companies won’t pay that. Instead, the insurance company considers the vehicle totaled. The insurance company typically offers you fair market value in damages paid out under the collision policy.
If you still owe a lender, the insurance company pays off the loan (assuming it’s less than the fair market value). If you owe less than the value of your car, you receive a check for the difference. If you owe more than the value of your car, the lender may hold you responsible.
In cases where you own a car outright, the insurance company offers you the entire fair market value. In all scenarios, the insurance company becomes the owner of the car.
As of 2020, the average cost of collision insurance in a full-coverage policy ranged from around $1,080 to almost $1,350 per year. But average costs can be misleading when you’re dealing with car insurance.
The cost of your collision coverage premiums depends on a variety of factors that could include but aren’t limited to:
Other factors that can impact how much you pay for collision insurance include your marital status, your gender, and what insurance provider you use.
If you’re driving on public roads you at least need to have liability insurance. The exceptions are is in Florida and New Hampshire, which requires those without insurance or serious driving infractions to essentially self-insure to drive legally on public highways.
However, most states don’t require collision insurance. The law is more concerned with protecting other drivers., so you may be required to carry liability car insurance.
However, if you have a lien on your car, the lender probably requires you to carry collision coverage. This is to protect the bank’s investment. If you get into an accident and total the car, the insurance company will help pay it off.
Without insurance, you may have to scramble to buy a new car while still owing money on the old one. Banks realize the first debt obligation to get put on the back burner would be the one for the car that’s no longer worth anything or functional.
If you own your car outright, you don’t have to carry collision insurance. And many people save money by dropping this portion of their policy. But should you drop collision?
It’s a personal decision. Look at how much your car is worth and whether you could afford to replace it if you had to. If your car is worth $20,000, the cost of your collision premiums may be worth it. If your car is worth $2,000, you may not want to pay hundreds or even thousands a year to insure it.
In many cases, a decent collision auto plan is worth it for the peace of mind and financial stability it brings. And if you want to save money on your policy, you can opt for a higher deductible instead of no collision coverage at all.