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What Is Collision Car Insurance? Do I Need It?

Collision insurance covers damage if you hit a car or stationary object. Learn here if you need it.

Auto collision insurance is an add-on coverage that takes care of damage if you get into a crash with another car or an object, like a light post. It differs from comprehensive insurance, which covers damage not related to accidents, and liability insurance, which covers damage that you cause.

Collision insurance can safeguard against having to pay large bills for major car repairs out of pocket or buying a new car after a crash. However, it may not be worth it if you have an older car. This article covers:

How collision insurance works

Collision insurance is supplementary coverage for repairs to and replacement of your car after a crash that involves another car or objects like fences, trees and buildings. For example, if your car suffers a fender bender, collision insurance pays for the damage minus your deductible and up to your policy limit.

Collision insurance also covers your car if it rolls over, or if you're the victim of a hit-andrun. Some collision insurance policies also cover rental cars. The limits of your collision insurance can be found on the declaration page of your auto insurance policy.

While collision insurance has extensive coverage, it doesn't cover everything. Usual exclusions in a collision insurance policy are:

  • Natural disasters, such as floods, hurricanes and earthquakes.
  • Hitting an animal.
  • Fire and smoke damage.
  • Theft and vandalism.
  • Civil disturbance.
  • Broken glass.
  • Injury or personal property damage to others.
  • Falling trees, ice or snow.

These exclusions are typically covered by liability insurance or comprehensive auto insurance.

Collision insurance isn't required by state law. However, if you're financing or leasing a vehicle, your lender will probably require you to buy collision insurance in order to protect their investment.

Collision insurance vs. comprehensive insurance

Collision insurance and comprehensive insurance are often sold together as "full coverage". This can give the misconception that the two coverages are the same. In reality, collision and comprehensive protect against different perils.

Simply put, collision covers damage from other cars and static structures, while comprehensive covers non-accident-related damage and damage due to animals. Take this example: if you hit an animal while driving, comprehensive insurance would cover the damage. If you swerve and avoid the animal but hit a car as a result, collision insurance would cover the damage.

Some auto insurance providers allow you to buy collision insurance by itself, but it's more common for them to want you to buy it with comprehensive insurance as full coverage. As a reminder, most lenders require you to buy both coverages if you're financing a car through them.

Is collision insurance needed?

Collision insurance is necessary if you have a brand-new car and not a lot of funds to replace it. If you have an older car, you'll need to make some decisions as to whether or not collision insurance is a viable investment for you. Here are some factors to consider:

The value of your car

The dollar limit of a collision insurance policy's coverage is equal to the actual cash value (ACV) of your car. ACV is based on the current value of your car, not what you paid for it. This means that, in general, the older your car is, the less it's worth. In time, your claim limit could be inadequate to buy a new car in the event that your current one is totaled. If your car's ACV is that low, a collision insurance policy may not be in your best interest.

How often you drive

The more you're on the road, the greater your chance of being in an accident. If you have a long commute to work or if your car is an intrinsic part of your job, that puts you in a risky position from an insurer's point of view. If you drive a lot, collision insurance may be a very good buy.

Your bank account

Personal budget plays a key part in regards to whether or not you should buy collision insurance. The average cost of a new car is $37,851. If you don't have the funds on your own, you can find yourself out a lot of money if you don't have collision insurance after a major crash.

Other drivers

With the exception of New Hampshire, all states require drivers to carry liability insurance that covers the state's minimum insurance limits. If your car is damaged in a collision and the other driver is at fault, their liability insurance should cover the damage up to their policy limits.

But the problem is that state liability limits are usually low, and are rarely updated. If the other driver only has minimum liability insurance, your payout from it could be insufficient to repair or replace your car. If you have collision insurance, it will pay out up to your limit what the other driver's liability insurance does not.

You can buy uninsured/underinsured motorist insurance to protect yourself against other drivers who do not have insurance or who have insufficient coverage limits.

Should I drop my collision insurance?

The decision to drop collision insurance comes down to whether or not your car's ACV makes it worthwhile. If your car's current value runs lower than your collision insurance deductible, or its value is less than the policy premium, you may want to drop this coverage.

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