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There are several types of car insurance that make up your policy. While it is tempting to get the minimum coverage to keep things simple, understanding the basics of insurance and what each coverage does lets you make informed decisions about your policy.
Collision insurance is a coverage type that isn’t always required but is important to understand so you know if you’d like to have it. It covers physical damage if your car is damaged in a crash and is adjacent to comprehensive insurance if you want your car protected from the widest range of possibilities.
If you’re asking, “do I need collision insurance?” get familiar with what it does and doesn’t cover so you can make that decision.
What is collision insurance?
Let’s start with a collision insurance definition: collision insurance is a type of auto insurance that covers damages to your car in an accident, when it hits another car or an object such as a light post or fence or when it’s in a single-car accident that involves rolling over. Although it is not required by state laws, your lender may require you to have it if you have a car loan.
- Collide: To come together with solid or direct impact
Note that the definition specifically states that a collision happens when there is movement — in this case, when the car is moving. Collision does not cover damage that happens when you’re not behind the wheel, such as hail damage, theft or vandalism. Those damages would be covered by comprehensive insurance, another type of optional coverage that is often purchased along with collision coverage.
Collision also does not cover damage to the other person’s car in a multi-car accident. If the accident is the other driver’s fault, it will be covered by their collision insurance, if they have it. If the accident is determined to be your fault, your property damage liability (which is mandatory in most states) will cover the damage.
What does collision insurance cover?
Collision insurance covers the physical damages to your car after a crash. Let’s say you’re driving on icy winter roads and your car swerves off the road and rolls over in a ditch. Without collision insurance, you’d be paying for repairs out of pocket. Your collision insurance will cover those costs, though, after you’ve paid the deductible.
Or, for another example, let’s say you’re hit by a car that isn’t insured. Driving without insurance is illegal, but it does happen. The Insurance Information Institute estimates that 13 percent of drivers in the U.S. drive uninsured. Once again, your collision insurance will cover the costs if you do not have optional uninsured/underinsured motorist coverage. You’d also rely on your collision insurance if the other driver’s insurance isn’t enough to cover the costs of damage to your car.
Finally, if you are in a multi-car accident, regardless of who is at fault, your collision insurance may cover the damages to your car. Of course, if the accident is the other driver’s fault, their insurance will cover your car’s repairs.
Does collision insurance have a deductible?
Collision insurance does have a deductible, which you will choose when you begin your policy. Common deductibles range from $250-1,000. Choose a deductible that is not beyond your ability to pay, so, for example, if you’d have a hard time pulling together a $1,000 deductible in the event of an accident, you might be more comfortable with $500.
On the other hand, the lower your deductible is, the higher your premium will be. So if you’d like to pay less each month when your premium comes due, a higher deductible will help.
Another factor to consider is the cost of repairs. The higher your deductible, the more likely it is that repairs will cost less than you’d be paying out — thus making it unnecessary for you to file a claim. Because there is always the chance that your premiums will go up after a claim, it makes sense to avoid filing a claim when possible.
For example, if you are in an accident that requires $750 worth of body work on your car and your deductible is $1,000, it makes no sense to file a claim. If your deductible was $250, though, you might want to make the claim for the additional $500 that it will cost you after you pay the deductible. The caveat, though, is that you may see a premium increase.
Should I get collision insurance?
Whether you should get collision insurance depends on several factors. First, if you have a car loan, your lender will probably require it to protect their investment in your car.
What if you own your car outright? Do you need collision insurance? The answer is, it depends. Cars devalue over time, starting with the moment you drive your car off the lot. If you’re driving a current-year car or one that is only a few years old, it has probably held on to much of its value. Older cars are worth considerably less.
A good way to find out what your car is worth is by checking out the Kelley Blue Book, which lists approximate values for used cars. If your car is worth an amount that is close in value to the deductible you would choose, it’s not worth it to carry collision insurance.
So, let’s say you’re trying to get as much use out of your 2010 Ford Focus as possible. It’s still running, after all, and doesn’t give you much trouble. Kelley Blue Book says it’s probably worth less than $1,500, however. If your deductible is $1,000, then at the maximum, you’d only be able to file a claim for $500 ($1,500 value minus $1,000 deductible). And remember, you would have been paying a premium for the collision insurance up until the accident.
In that case, the answer to “do I need collision insurance?” is probably no because the cost of the policy, combined with your high deductible, would end up costing more than you’d earn back if you made a claim.
To sum it up, collision insurance is optional, though your auto lender may require it. It covers damage to your car in an accident that happens when the car is moving. Whether it is a good thing to have is something that you can determine by considering the value of the car: the less your car is worth, the less important it is to have collision coverage.
Having said that, though, if your car is worth more than a few thousand dollars, paying for collision insurance coverage may save you a considerable amount of money if you are in an accident where your car is damaged but not totalled.