What is collision insurance?

If you own your car outright, collision coverage is optional. But it could be worth the expense — it can help you cover the potentially hefty cost of repairing or replacing your vehicle if you get into an accident.

If your car is damaged in an accident with another vehicle or after a collision with a stationary object — like a tree or telephone pole — collision insurance could help cover repairs or even the replacement of your car if it’s totaled. This type of insurance can also cover damage that results from a single-car accident, like a rollover.

Let’s take a deeper look at what collision insurance can cover and some things to consider if you’re trying to decide whether to buy this type of coverage.

• What does collision insurance cover?
• Do I need collision insurance?
• What’s the difference between collision and comprehensive insurance?

What does collision insurance cover?

Collision insurance can help you cover the cost to repair or replace your vehicle if it’s damaged in a …

• Collision with another vehicle
• Single-vehicle collision with a stationary object (it may also cover damage from driving over a pothole)
• Single-vehicle accident that involves rolling or falling over

Unlike liability insurance, which helps pay for damage to the other driver’s car if you cause an accident, collision insurance can cover damage to your vehicle — in the event of a covered accident — regardless of who’s at fault.

When you buy collision coverage, you can usually choose the deductible, which is the amount you pay out of pocket before your car insurance policy kicks in to cover the remaining cost — up to a limit. Common deductible amounts are $250, $500 or $1,000. Generally, a higher deductible will mean a lower insurance premium and vice versa.

The limit on collision coverage — the maximum amount your insurance policy will pay on an approved claim — depends on your policy. But it’s usually the current market value of your car, referred to as the actual cash value.

Let’s say you bought collision coverage with a $500 deductible. You get into an accident that causes considerable damage and file an insurance claim that’s approved by your auto insurance company. If your insurance company declares your car totaled, you’ll receive a check for the car’s value, minus your $500 deductible. But if your car could be repaired, you’d pay $500 out of pocket toward the cost of repairs, and your collision coverage would pay the rest, up to your coverage limit. 

Do I need collision insurance?

If you’re trying to decide whether to buy collision coverage, factors to consider include the value of your car, the cost of your insurance coverage and your overall financial situation.

If you’re trying to decide whether to buy collision coverage, here are two things to consider.

1. Whether you own your car

If you lease or finance your car, you likely have no choice. Auto finance companies usually require you to carry collision coverage if you still owe money on a vehicle or if you lease. But if you own your vehicle outright, collision insurance is usually optional.

2. Your car’s value

If your car is paid off and it’s a newer model that you hope to drive for a while, collision coverage could help you pay for major repairs related to a covered accident that you might not be able to cover out of pocket.

But if your car is older and its value has depreciated significantly, you might want to consider skipping this coverage, which would lower your auto insurance premium. To determine whether this makes sense for you, weigh the value of your vehicle against your collision coverage deductible and your annual cost of insurance coverage. If the deductible and cost of coverage are higher than your car’s actual cash value, collision insurance might not be ideal for you.

What’s the difference between collision and comprehensive insurance?

Collision insurance covers damage or replacement if your car is in an accident with another vehicle or object. Comprehensive insurance covers damage from non-collision events that might involve no drivers. These events can include theft, vandalism, fire, natural disasters — such as tornadoes or hailstorms — falling objects and damage done by animals.

Like collision insurance, comprehensive coverage can help cover the cost to repair or replace your vehicle. This type of coverage is also optional unless you’re leasing or financing your vehicle.

What’s next?

Depending on your vehicle’s value and financial situation, collision insurance could be a worthwhile investment that saves you money in repair costs down the road.

Be sure to shop around and compare car insurance quotes from different companies to find the insurance policy that best fits your needs. And if you already have auto insurance, shopping around each year can help you determine whether your current policy is still right for you.