What Is Collision Insurance?

What does collision insurance cover?

This is coverage that is specifically designed to cover damage to your own vehicle resulting from collision-related incidents and applies regardless of who’s at fault. Here’s a look at the types of incidents that are covered:

• Single-car collision: If your car hits an object like a tree, guardrail or pole, collision will typically cover the damage to your vehicle – even if you're the only one involved in the incident.
• Accidents involving other vehicles: When you're involved in a collision with another vehicle, this coverage will help pay for the repair or replacement of your vehicle.
• Hit-and-run accidents: In situations where another driver flees the scene after an accident, collision coverage can help cover the costs of repairs to your vehicle, even if the responsible party is never found.

What isn’t covered by collision coverage?

Although collision provides extensive protection for your vehicle, it doesn’t cover everything. Below is an outline of what’s excluded from coverage:

• Non-collision-related damage: For losses resulting from theft, vandalism, or damage caused by a natural disaster or animal, you’ll need comprehensive coverage for those incidents.
• Damage to other vehicles or property: If you cause an accident that damages another person’s vehicle or property, this coverage won’t pay for the repairs. In that scenario, liability insurance would apply.
• Injuries to drivers or passengers: You won’t be covered for medical expenses or injuries sustained in an accident. For coverage related to medical bills, you would need personal injury protection (PIP) or medical payments (MedPay) coverage.

Do I need collision coverage?

Deciding whether to add collision to your auto insurance policy depends on several factors. Consider these key points when determining if this coverage is right for you:

Required for financed or leased vehicles

If you’ve financed or leased your vehicle, your lender or leasing company will likely require you to carry collision and comprehensive coverage. This is to protect their financial investment in the vehicle. 

Recommended for newer or higher-value vehicles

For newer cars or those with higher market value, this coverage is often a smart investment. The cost to repair or replace a new or expensive vehicle can be significant, and having this coverage can prevent you from paying out of pocket for major repairs.

Optional for older vehicles

Collision insurance may not be necessary for older cars with a lower market value. If the cost of repairing your car is close to or exceeds its actual cash value (ACV), it may not be worth the premium. In these cases, it’s a good idea to evaluate the cost of the insurance premiums and deductibles against the potential repair costs.

How collision coverage works

Understanding how this coverage works can help you make better decisions about your policy. Other factors to consider include deductibles, coverage limits and how a claim might play out.

• Choose a deductible: When you opt for collision, you'll be asked to choose a deductible. The deductible is the amount you’re responsible for paying out of pocket before your insurance company steps in to pay for the remainder of the repair costs.
  
  A higher deductible generally results in a lower premium, but it also means you’ll pay more if you need to file a claim. Conversely, a lower deductible may increase your premium but reduce your out-of-pocket expenses if you're in an accident.

• Coverage limit based on actual cash value: The amount your insurance company will pay out in the event of a claim is based on the vehicle's actual cash value (ACV). ACV is the depreciated value of your car at the time of the loss, factoring in age, mileage and condition. If your car is totaled, your insurance company will pay the ACV, minus your deductible.

Let’s say you’re involved in a collision with a guardrail that results in $5,000 worth of damage to your car. If you have a $1,000 deductible, the insurance company will pay you $4,000 for your repairs.