Collision Coverage: Is It Worth It for Your Car?

When you're involved in a car accident, the damage to your own vehicle can be a significant financial burden. This is where collision coverage comes into play. It's a key part of an auto insurance policy designed to pay for repairs or replacement of your car if it's damaged in a collision, regardless of who is at fault.

What Does Collision Coverage Actually Cover?

Collision insurance specifically covers damage to your insured vehicle when it collides with:

  • Another vehicle (another car, truck, motorcycle, etc.)
  • An object (such as a tree, pole, guardrail, fence, or building)
  • Or if your vehicle overturns (rolls over)

Key things to remember about collision coverage:

  • It covers your car: It doesn't cover damage to the other person's car (that's what your Property Damage Liability is for) or medical expenses (covered by Bodily Injury Liability, PIP, or MedPay).
  • Fault doesn't matter (usually): Whether you caused the accident or someone else did (and they're uninsured or underinsured), your collision coverage can step in to repair your car. If another insured driver is at fault, your insurer might seek reimbursement from their insurance company (a process called subrogation).
  • Deductible applies: You'll typically have to pay a deductible before your collision coverage kicks in. This is the amount you agree to pay out-of-pocket for repairs. Common deductible amounts range from $250 to $1,000 or more. A higher deductible usually means a lower premium.
  • Coverage limit: The maximum amount your insurance will pay is usually the actual cash value (ACV) of your vehicle at the time of the accident, minus your deductible. ACV accounts for depreciation, so it's what your car was worth just before it was damaged.

When is Collision Coverage Required or Recommended?

  • Required by Lenders/Lessors: If you have a loan on your car or if you're leasing it, your lender or leasing company will almost certainly require you to carry collision coverage (and often comprehensive coverage as well). This protects their financial interest in the vehicle until the loan is paid off or the lease term ends.
  • Recommended for Newer or More Valuable Cars: If your car is relatively new or holds significant value, collision coverage is generally a good idea. Without it, you'd be responsible for the full cost of repairs or replacement if you cause an accident or are hit by an uninsured driver.
  • Consider Your Financial Situation: Could you afford to repair or replace your car out-of-pocket if it were totaled or severely damaged? If not, collision coverage provides crucial financial protection.

When Might You Consider Dropping Collision Coverage?

As a car gets older and its value depreciates, there may come a point where the cost of collision coverage outweighs the potential benefit.

  • Low Actual Cash Value (ACV): If your car's ACV is very low (e.g., a few thousand dollars), and your collision premium plus your deductible is a significant portion of that value, it might not be cost-effective. For example, if your car is worth $3,000, you have a $1,000 deductible, and your annual collision premium is $400, you're paying $400 for a maximum potential payout of $2,000 ($3,000 ACV - $1,000 deductible). In this scenario, you might decide to self-insure (save the premium money and cover repairs yourself).
  • Sufficient Emergency Fund: If you have a healthy emergency fund that could comfortably cover the cost of repairing or replacing your car, you might feel comfortable dropping collision coverage on an older vehicle.

Rule of Thumb: Some people use the "10% rule." If the annual cost of collision coverage is more than 10% of your car's ACV minus the deductible, it might be time to consider dropping it. However, this is just a guideline, and your personal financial situation and risk tolerance are more important.

Collision vs. Comprehensive: What's the Difference?

It's easy to confuse collision with comprehensive coverage, but they cover different types of incidents.

  • Collision: Covers damage from your car hitting another car or object, or rolling over.
  • Comprehensive: Covers damage from non-collision events like theft, vandalism, fire, hail, flooding, falling objects (like a tree branch), or hitting an animal.
Read more: Comprehensive vs. Collision Insurance: Do You Need Both?

Making the Decision

Deciding whether to carry collision coverage involves weighing the cost of the premium against the value of your car and your ability to absorb repair or replacement costs.

  • If you have a loan or lease: You likely have no choice – it's required.
  • If you own your car outright:
    • Consider its ACV.
    • Factor in your deductible.
    • Evaluate the annual premium for collision.
    • Assess your personal financial safety net.

Protecting your vehicle is a key reason for having auto insurance. Collision coverage plays a vital role in that protection for many drivers.

Need to review your options? Compare auto insurance quotes with collision coverage today!