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What You Need to Know About Collision Insurance

Auto accident involving two cars on a city street

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The world of car insurance can be a complex one, especially if you’re just starting out on your adventure in car ownership. To get you and your car street-legal — unless you live in a state that doesn’t require it, such as New Hampshire — you’ll need to have liability insurance. But liability insurance is only there to pay for the damages caused to other people in any car accidents you might have in the future. To protect yourself more fully, you should consider collision insurance.

If you’re not sure about what collision insurance is or whether you need it, then you’ve come to the right place. Keep reading for a quick overview of collision insurance to help you decide if it’s right for you.

What Is Collision Insurance?

Collision insurance is a policy you can sign up for to protect your own vehicle if you get into a car crash. This type of insurance can help you pay for repairs to your vehicle after a collision.

Like most insurance plans, collision insurance typically has a deductible. Deductibles are the amount you have to pay before your insurance pays. For example, if you have an insurance plan with a $1,000 deductible and you get into a car accident that leaves you with a $5,000 repair bill, you would pay the $1,000 deductible and your insurance would ideally pay for the other $4,000. However, if you’re not at fault, you may not have to pay the deductible.

However, collision insurance is unique compared to some other forms of insurance in that its limit is based on the cash value of your vehicle. If the cost of repairing the damages to your car exceeds its cash value, it’s considered totaled. If this happens, you should get a check for the approximate cash value of your car, minus the deductible that you’ve agreed on with your insurance company if you’re at fault.

What Collision Insurance Covers

A benefit of collision insurance is that it protects you in the event you’re involved in a car accident with uninsured drivers who are at fault. Even if the other driver does have liability insurance, it may not be enough to cover the cost of replacing your vehicle. Collision insurance would help cover the rest of the cost of your car.

Collision insurance doesn’t cover every type of crash, but it does cover some key areas. Collision insurance will generally help you cover the cost of accidents involving other vehicles, such as cars, trucks, and motorcycles. If your vehicle rolls over or is involved in a hit-and-run, collision insurance has you covered.

This type of insurance can also help protect you if you have a collision with obstacles other than vehicles, including poles and guardrails. If you hit a pothole and it causes damage to your vehicle, you can use your collision insurance to cover the costs.

What Collision Insurance Doesn’t Cover

Though collision insurance protects you in multiple situations that involve your car getting damaged, it doesn’t protect you in all of them. Some situations where collision insurance does not kick in include hitting an animal, your vehicle being vandalized, medical bills that come as a result of getting into a collision, hail damage, and so forth. To cover yourself in these types of situations, you should look into comprehensive insurance.

Collision insurance also doesn’t help with damages that your vehicle causes to another vehicle or another piece of personal property.

How To Choose Collision Insurance

Generally, the higher your deductible (the more you pay if a collision happens), the lower your monthly payment for your collision insurance will be. That being said, the cost of collision insurance varies from company to company, so be sure to shop around to find a price that suits your wallet.

It’s important to keep in mind how much your car is worth when you’re considering collision insurance. If you drive an older model with a low resale value, collision insurance might not be a good option for you. You could end up paying more with your monthly or annual payment than your car is worth, just to have it declared totaled when a comparatively small repair cost exceeds your older car’s even smaller value.

This is why so many new models carry collision insurance instead of their older siblings. New cars are worth more and are thus larger investments that may need protecting. As your vehicle gets older, you might consider changing your deductible to make your insurance payments smaller. Eventually, it might be beneficial for you to remove your collision insurance entirely as your vehicle enters its twilight years.

The average annual cost of collision insurance is $290 per year. This yearly amount varies from company to company and from plan to plan. The more inclusive the plan, the more expensive your monthly or yearly payments are and vice versa.

Is Collision Insurance Right for Me?

Collision insurance is often an example of a “better to have it and not need it than need it and not have it” situation. Yes, collision insurance — like any insurance — is gambling on whether or not you’ll have a car accident in the future. The best-case scenario is that you’ll pay for your collision insurance and never have to use it. But if you do get into a car accident, you may be glad you gave yourself the extra level of financial protection by purchasing collision insurance.

You might someday find yourself in a situation where collision coverage is not optional. For instance, if you lease your vehicle, you will probably be required to get collision insurance for it. This is a way for the vehicle lender to get their money back if you can’t return the vehicle. For the same reason, you will likely be required to get collision insurance if you take out a loan to pay for your car.

But if you’re not obligated to take out a collision insurance policy, should you? Think about how new your vehicle is and how much it’s worth. Think about the financial situation you would be in if you totaled your vehicle and had to get a new one or had to pay to have your vehicle repaired. If you think you would be in dire straits in that situation, you may want to consider collision insurance.

FIXD Research Team

At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.

We’re here to help you simplify car care and save, so this post may contain affiliate links to help you do just that. If you click on a link and take action, we may earn a commission. However, the analysis and opinions expressed are our own.


About the Author

FIXD Research Team

FIXD Research Team

At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.

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