What Is Collision Insurance and How Does it Work?

If a car crash happens, you'll need enough car insurance to cover your vehicle's repairs, or you may end up paying for these expenses out of pocket. Collision insurance can pay to repair or replace your car after a collision-related accident, even if you're at-fault. Liability insurance alone will not cover your car's necessary repairs if you caused the accident, but it will cover damages to the other driver's car. If the other driver is at-fault, his/her liability coverage will cover the damages to your car. 

Collision is often bundled with comprehensive coverage and called full coverage insurance. While collision covers damages from an impact with another vehicle, an object or person, comprehensive insurance covers most damage that is not considered a collision.

See how adding collision coverage to your state minimum car insurance requirements may save you thousands of dollars.

What Is Collision Coverage?

Collision insurance helps pays to repair or replace a car when it collides with another vehicle, a pedestrian or a stationary object, like a post, tree or guardrail. You can file a collision claim after an accident, regardless of who is at fault.

You can file a collision claim after an accident, regardless of who is at fault.

Collision insurance is an optional coverage if you've finished paying off a car loan in full. However, it is mandatory coverage if you lease or finance your vehicle through a bank, lender, or car dealership.

What Does Collision Insurance Cover?

  • Single-car accidents involving only your car

  • Auto accidents with other vehicles (cars, trucks, motorcycles or RVs)

  • Collisions with stationary objects, such as guardrails, telephone poles, posts, guardrails, garages, mailboxes, houses, trees, etcetera

  • Vehicle overturns

  • Strikes with hazards on the road

  • Hit and run accidents on the highway or parking lot. (This coverage depends on the insurer. Uninsured and underinsured motorist insurance can also provide insurance coverage in these cases).

Some insurance companies provide extra perks in their collision insurance policies, such as medical coverage for injured pets.

What Isn’t Covered By Collision Insurance?

Collision and Comprehensive often are bought together but they are different. Collision insurance only pays for your vehicle damages. It won't cover accident-related destruction to another person's car or property. Liability insurance covers these damages.

Collision insurance doesn't cover the following:

  1. Vandalism
  2. Theft
  3. Floods
  4. Fire
  5. Hitting or being hit by an animal
  6. Natural disasters
  7. Storms
  8. Falling or flying objects
  9. Hail
  10. Medical expenses

Comprehensive insurance covers the first nine perils mentioned above. Personal Injury Protection (PIP) or Medical Payments (MedPay) may pay for your medical expenses.

How Much Is Collision Coverage?

The National Association of Insurance Commissioners found that the average cost for collision coverage is $363 per year, while comprehensive auto insurance coverage was $160. Broken up into monthly payments, it's not an expensive coverage to have.

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How Does Collision Insurance Work?

Insurers base your collision insurance premium on your car's actual cash value. After a covered accident, you must meet your policy's deductible before your insurer pays for the remaining cost of repairs. You can choose your deductible amount when you buy a policy. The higher the deductible, the lower your monthly premium.

What Is a Collision Deductible?

Insurance companies view deductibles as the financial risk that you assume if you're in an accident

  • Higher deductibles: You're taking on more financial risk in the form of a higher deductible. As a result, your carrier will lower your insurance premiums.

  • Lower deductibles: Paying a lower deductible means you will take on less financial risk. As a result, your insurer will charge you a higher insurance premium rate.

Deductibles range from $0 to o$2,000; however, most insurers offer $250, $500 and $1,000 deductibles.

If you get into a car accident that causes $4,000 worth of vehicle damages, and you have a $1,000 collision coverage deductible, you'll have to pay $1,000 towards repairs before your insurance carrier will step in to pay off the remaining $3,000 to the body shop.

Is Collision Coverage Necessary?

Although collision coverage can help you pay your repairs following an accident, it doesn't always make sense to carry this coverage. There are certain situations where you should pass on collision coverage.

  • You own an old car that has minimal value - Is your vehicle's actual cash value less than a few thousand dollars? If so, you should probably skip buying collision coverage, especially if you have a large deductible on the policy. For instance, if you're car is worth $2,000, and your deductible is $1,500, the most your insurer will pay for your claim is $500.

  • You don't drive your vehicle – Is your vehicle currently in a storage facility? If so, you may not need collision coverage. Consider comprehensive coverage, which protects you if someone steals your car, vandalizes it or breaks windows.

What Is a Collision Limit?

Collision car insurance limits are the maximum amounts that an insurance company will pay toward a covered claim. Insurers usually base your collision coverage on your vehicle's actual cash value minus depreciation.

For instance, what if you crash your truck and it's totaled? The auto insurance company would write a check for the current market value of your vehicle, minus your deductible. This amount may not be enough to pay off your loan to your lienholder, if you're financing or leasing the truck, unless you have New Car Replacement coverage or Guaranteed Asset Protection (Gap) insurance coverage, which would pay the remaining balance.

Compare Collision Coverage Rates, Save on Car Insurance

Collision coverage is only about $20 to $50 extra a month and could save you thousands of dollars worth of car repairs if you cause an accident. Compare car insurance rates for free using SmartFinancial's comparison tool. You can save up to 40 percent on a new car insurance policy. Just enter your zip code below to get started.

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