What Is Collision Coverage for Auto Insurance?

Fran
Fran Majidi
July 26, 2019

 

Collision is when there is impact with an object or vehicle. Collision is a forceful coming together of two objects or vehicles. In the case of car insurance, a collision can be the forceful impact between your car and another vehicle or between your car and another object like a tree, building or fence. Collision insurance covers your car if you have a collision with another car or object and you are at fault. Collision also covers your car if you roll over. Collision coverage is an add-on coverage that supplements the minimum requirements of car insurance.

How Much Does Collision Insurance Cover?
The collision coverage is typically the actual cash value of your car. For example, let’s say you are driving and get in a serious accident with your car and the car is totaled, you would be covered by collision insurance. Your insurance company would pay you the amount of the car’s depreciated value, minus your deductible.

How Much Does a Typical Accident Cost?
Accident costs vary. But car accidents cost the U.S. $230.6 billion every year, which is an average of $820 per person. But it is much more expensive if you wind up in the hospital for a week, which could cost you $100,000, or your $30,000 car gets totaled. If you do have an accident and if you have collision coverage, your car repairs will be reimbursed, minus the deductible you are responsible to pay.

If you are still financing your car, collision coverage is typically required by the lender. After you pay off your vehicle, collision coverage is optional and you can decide if you want to keep collision coverage for your vehicle. It is an important coverage to have for your car and it protects you in times of collision accidents. But as a car ages and its market value plummets, you may decide that collision coverage no longer makes financial sense for your vehicle.

What’s Not Covered by Collision Coverage?

As you’ll see, comprehensive insurance and medical payments cover different things than collision insurance coverage. 

 Damage that results from anything other than a collision is covered by comprehensive insurance coverage. Comprehensive insurance covers events such as theft, vandalism, fire and damages from weather including hailstorms and hurricanes. The limit on comprehensive coverage is the actual cash value of the car. 

Medical payments coverage helps pay medical costs in a car accident for you, your family and anyone else riding in your car at the time of the accident. Medical payments are not covered by collision insurance.  

Working with Deductibles
Collision auto insurance comes with a deductible. A deductible is the amount you need to pay before your auto insurance company begins to pay for damages to your car or losses. Deductibles range from $250 to $500 or $1,000. A lower deductible will give you a higher auto premium. And choosing a higher deductible will lower your auto premium.
Let’s say you choose a $500 deductible and your car is damaged in a covered collision. You’ll need to pay $500 toward repair costs for your vehicle.
Here’s a tip. Whatever the deductible amount you choose, place money for the deductible in a small emergency fund. That way the money will be there should you need to make an auto insurance claim.
What Collision Insurance Covers
In addition to a collision with another vehicle and collision with an object such as a fence or a tree, collision insurance covers single-car accidents that involve rolling and falling over.
Collision insurance also covers damage from potholes, poles and guardrails.
Collision insurance will cover another driver hitting your car if the other driver doesn’t have enough or any insurance to cover damage costs.
What Collision Insurance Doesn’t Cover
Collision insurance does not cover damage to your vehicle that is not related to driving. Collision insurance does not cover damage to another person’s vehicle and collision insurance doesn’t cover medical bills, whether they are yours or another person’s.
Do I Need Collision Insurance?
If you don’t have the money to pay for car repairs, having collision car insurance can get you out of a tight financial bind if you should be at fault in a car accident. And if your car is worth several thousands dollars or even more, you’ll want to maintain collision coverage. Here’s the main reason. What if you can’t afford to make major repairs to your car? It’s much cheaper to buy collision insurance.
You may be required to buy collision insurance if you don’t own your car yet. But even if the vehicle is paid off, you’ll want to consider adding collision to your policy for the reason mentioned. It is cheaper than paying for car repairs on your own.
But because the limit on collision coverage is the actual cash value of the car, you may not wish to continue the coverage when a car is older and its value has declined. If your car is worth $4,000 or less it is a good idea not to carry collision coverage any longer.
If you have force-placed insurance, you may be required to carry collision coverage. What is force-placed insurance? If you fail to get enough auto insurance, your auto lender may get car insurance to cover the vehicle. This force-placed insurance from your lender can be quite expensive.
How Much Does it Cost to Add on Collision Coverage?
The average cost of collision insurance is $380 to $600 per year. The average collision claim in an accident is over $3,000. So having collision insurance will save you more than $2,500 a year in potential damages. 
Let’s say I have been paying for collision coverage because I have been paying off my car loan. I finally made my last payment. Should I keep my collision coverage? The car is worth about $15,000. Because I don’t have a big savings and wouldn’t be able to pay off a big car repair bill, I am going to continue collision car insurance.
Let’s look at a different scenario. I have had my car for a number of years and it is now worth $1,000. Because the collision coverage limit is the car’s actual cash value, $1,000, it wouldn’t make financial sense to carry on with the coverage. Why pay $1,000 deductible for repairs on a car worth $1,000? So I am going to discontinue collision coverage on my $1,000 car.

 

Full coverage is collision insurance, comprehensive insurance and state-required liability insurance. There is a big difference in price between full coverage car insurance and choosing liability only. 

What Are Average Monthly Premium Costs for Having Collision Coverage?

Here are examples from a few states of monthly average costs for full coverage car insurance and liability only insurance. In Arizona, full coverage costs $117.68 per month and liability only coverage costs $65.97. In California, full coverage comes in at a cost of $164.11 and liability only coverage has a cost of $83.15. In Colorado, the cost of full coverage insurance is $148.16 and liability only insurance costs $65.83. In Florida, the full coverage cost is quite high, $226.28, and liability only is $134.20.

How Should You Set Your Deductible for Collision Coverage 

Choose a deductible that you can comfortably pay at the time of the collision car repair. Do you have $1,000 easily on hand that you would pay? What about $500 or $250? Would a deductible of $250 or $500 make more sense for your budget? Higher deductibles do have the advantage of lowering your car insurance premium. So if you are able to manage the cost of a higher deductible, such as $1,000, definitely consider it.
With a lower deductible, say $250, you’ll pay more for your car insurance premium but you’ll pay less, just $250, if you have the need for a collision repair. Decide what type of deductible works best for your family budget. With a high deductible, you could save on premium costs but pay more later if you should need collision repairs. Or with a low deductible, you could pay more on your premium costs but much less at the time of a collision repair.   

Comprehensive coverage has a limit or the maximum amount your policy will pay toward a covered claim. This limit on comprehensive insurance is typically the actual cash value.

How Does a Deductible Work with Collision Insurance?

Not sure how a deductible works with your collision insurance? Let’s look at some examples. 

Let’s say you have $500 deductible and you are the cause of a small, rear end accident. Before the $3,000 in collision repairs can begin on your car, you will need to pay $500 to your insurance company.  Now let’s say the same accident scenario takes place and you have $1,000 deductible. You would need to pay your insurance company $1,000 so that repairs may begin on your car.  

Here’s another scenario. Let’s say you caused an accident by running a red light. The damages are bigger, $8,000 in repairs are needed for your car, and you have a $1,000 deductible. Before the work can be done on your car, you’ll need to pay $1,000 to your insurance company. Imagine the same situation with a smaller deductible, $250. You would need to pay just $250 to your insurance company before repair work can begin on your car. 

Limits to Collision Coverage
Your collision insurance coverage has a limit, which is the maximum amount your policy will pay toward a covered claim. This limit is typically the actual cash value of your vehicle, which is your car’s value minus its depreciation. Let’s say your car is totaled in a covered collision. Your insurance company would cut you a check for your car’s depreciated value minus your deductible.
Dropping Collision Coverage
The maximum payout for collision coverage is limited by the value of the car. So if your older car has a low market value, it may not make financial sense to carry collision coverage any longer. So weigh the financial costs of keeping your older car covered with collision insurance.
For example, if you have $1,000 deductible it would not be worth paying for collision coverage on a vehicle that is worth less than $1,000. So eye the value of that older car carefully. Do what makes the most sense for your wallet.
Collision with Comprehensive Insurance
When you are financing a car, a lender may require you to get comprehensive coverage in addition to collision coverage. The two coverages work well together to give a range of good protections for covered vehicles.
Comprehensive auto insurance covers events that aren’t covered by collision coverage. These events include fire, theft, vandalism and damages from weather such as a hailstorm, a windstorm, a hurricane and a tornado. Like collision coverage, comprehensive auto insurance comes with a deductible.

Once the financing of your vehicle is complete, comprehensive and collision insurance become optional insurance coverages and drivers get to decide how much of the insurance coverages they wish to keep.

Consider the age and the value of the car when choosing deductibles and when deciding whether or not to keep collision coverage and comprehensive coverage for your newly financed car. As mentioned earlier, they work well together to give a good range of auto insurance coverages and they can be dropped later when the car ages and drops in market value.
Collision insurance pays for damages and loss caused by impact with another automobile, object or person if it’s your fault. It is subject to a deductible of your choosing. Like comprehensive coverage, the higher the deductible, the lower your premiums and vice versa. It, too, is not required by law but is usually required if you lease or finance a vehicle.

If you have a collision with another moving vehicle and it was your fault, your liability insurance covers the other driver, that driver’s vehicle and passengers while your collision coverage will cover you, your vehicle and your passengers. The same goes for hitting a parked car, utility pole or street sign. Your collision takes care of you.

Liability insurance will never take care of damages to you or your vehicle and passengers. It’s intended to cover your liability for harming the other party in terms of losses. 

Just as with comprehensive insurance, you can choose a deductible for your collision coverage. The deductible usually ranges between $250 and $1,000 for each accident. Keep in mind that your collision insurance will not pay out for damages until you have paid the deductible amount towards your losses first. Choose a deductible that you’ll be able to afford.

Where Can I Get the Best Rates for Collision Insurance or Full Coverage?

The best way to find the right coverage at the best prices is to shop around, but that may take days and comparing is tricky and confusing. Your best bet is to give your information to one source, SmartFinancial Insurance, which will compare rates with over 200 companies while you wait to see which offers you the best coverage at rock-bottom prices. 

Get a Free Auto Insurance Quote Online Now.

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