Auto Insurance

What Is Collision Insurance?

As the name suggests, collision insurance helps to pay for damages done to your car after a collision. Learn more about whether it’s a worthwhile coverage to add to your auto policy.

What Is Collision Insurance

With more than 228 million licensed drivers in the U.S., road accidents are common. The National Highway Traffic Safety Administration estimates that 5.25 million car crashes were reported to police nationwide in 2020. Damage from collisions can cost thousands of dollars to repair, so while collision insurance is optional, it may be worthwhile for those who drive often.

To better understand whether collision insurance is a good fit for you, learn more about what it covers, how it works, and when it might make sense to included it in a policy.

What is Collision Insurance?

Collision insurance is a type of car insurance that can help drivers pay to repair or replace their cars after an accident. This type of coverage is optional, but 75% of insured drivers choose to buy a policy

What Does Collision Insurance Cover?

As the name suggests, collision insurance covers damages to a car that result from a collision. The details of this coverage may vary depending on the insurer and the policy, but it generally includes damage from:

  • A collision that you caused. When you’re at fault for an accident, collision insurance may help you pay for damages to your car. For example, you might be deemed at fault for an accident if you were texting while driving or failed to stop at a red light and subsequently hit another car and lost your front bumper. Collision insurance could help cover the cost to repair your front bumper.
  • A collision with an object. Dents, scrapes, and other more serious damages could occur when you hit potholes, guard rails, fences, or other objects. Collision insurance may help cover the cost of repairs to your vehicle.
  • A collision with an underinsured or uninsured driver. Collision insurance may protect you if the other driver doesn’t have sufficient insurance. This may also include collisions caused by unidentified (hit-and-run) drivers.
  • A single-car collision. When you’re the sole driver involved in a crash, collision insurance may help pay for the damages. Some examples of single-car incidents include rolling or flipping your car.

What Does Collision Insurance Not Cover?

Collision insurance doesn’t cover some costs related to car accidents. While the details of these exclusions may vary from one policy to another, some examples of things that aren’t generally covered include:

  • Damage to someone else’s property. Collision insurance doesn’t cover damage to another driver’s car. It also doesn’t cover damage to objects, such as fences and mailboxes. Instead, coverage for this damage falls under the property damage liability portion of a car insurance policy.
  • Medical bills. Treatment of injuries to you, your passengers, or the riders in another car aren’t covered by collision insurance. These costs may be covered by the personal injury protection or bodily injury liability portions of a car insurance policy.
  • Collisions with an animal. The damage to a car from a collision with an animal, such as a deer, isn’t covered by collision insurance. Damage from contact with animals is covered by the comprehensive portion of a car insurance policy.

What’s the Difference Between Collision and Comprehensive Coverage?

While collision coverage can help drivers pay for damages that result from an accident, comprehensive insurance covers a variety of non-collision events. Comprehensive insurance may be bundled with collision insurance or sold separately, depending on the insurer.

Comprehensive coverage protects cars from events including:

  • Objects falling on a car
  • Theft of the car or parts of the car
  • Contact with animals
  • Natural disasters

Lenders generally require both collision and comprehensive insurance when drivers finance or lease a car, leading many policies to be bundled together. Drivers who own their vehicles outright may choose to buy one or both types of coverage, depending on their needs. 

How Does Collision Insurance Work?

You might be required to buy an insurance policy that includes collision coverage when you lease or finance a car. If you pay cash for the car, you could choose to get collision insurance at the time of purchase or add it to the policy later. 

Collision insurance policies may take time to take effect after they are purchased, though some insurers will provide protection as immediately as the day of purchase. Once the policy is active, it covers damage from the specific collision-related events listed in the policy. When a covered event occurs, drivers can contact their insurer to file a claim. For each claim, drivers should have as much documentation on the collision as possible, including time, date, and photos of the damage.

Once the claims process starts, the average time to be reimbursed for repairs could vary depending on the situation. In straightforward claims, where it’s simple to assess the damages and determine who’s at fault, the claim could be settled in under two weeks. With more complicated claims, drivers could wait longer for reimbursement.

Deductibles and Limits in Collision Insurance

Collision insurance policies feature two major components: deductibles and policy limits. A deductible is the amount of money an insured person is responsible for paying out of pocket, while a policy limit is the maximum amount an insurer may pay out for a claim.

You choose your deductible when you buy the policy or add on collision coverage, and options might include $250, $500, $1,000, or $2,000. For example, if you select a $1,000 deductible, that means you agree to pay $1,000 toward repair costs in the event of a collision before your insurer will step in to cover the remaining amount. 

A collision deductible waiver is an optional add-on for collision insurance. It waives the deductible if your car is damaged in a collision with an uninsured driver. However, the deductible waiver does not apply in other circumstances, including single-car collisions and those where you’re deemed at fault. This option may not be offered in certain spots states and also vary depending on the insurance company.

The policy limit for collision insurance — the maximum amount your insurer will pay for repairs — is generally the actual cash or fair market value of the vehicle. However, this is not always enough to purchase a replacement if the car is totaled. To protect against that possibility, drivers may want to consider replacement cost insurance. This optional coverage could help drivers replace their totaled car with a new car of the same make and model. However, this isn’t always available depending on the company and state laws.

How Your Coverage Amount Is Calculated If Your Car Is Totaled

Insurers may determine a car is totaled (a total loss) if it’s damaged beyond repair or if the cost of repairs exceeds the cost of the car. When a car is totaled, insurers may help cover the cost of a replacement, though the amount an insured driver can receive depends on the totaled car’s actual cash value or market value. 

Most insurers use either cash value or fair market value to determine a car’s worth. A car’s actual cash value and fair market value may differ. Cash value takes into account the cost of the vehicle minus depreciation. Fair market value is the amount that someone might reasonably pay to buy the same vehicle in the same condition as the one that was totaled. Some factors that contribute to a car’s value include:

  • Year. As cars age, the value depreciates. For example, a five-year-old vehicle is generally worth about 40% of its original purchase price.
  • Make. Car brands may depreciate at different speeds based on factors such as reliability and market demand.
  • Model. SUVs and pickup trucks tend to depreciate more slowly than sedans and hatchbacks, though this may vary by brand.
  • Condition. A car’s mileage and how well it’s been maintained may affect its value. 

However, keep in mind that this amount may not be enough to purchase an identical new replacement for your car.

How to File a Claim After a Collision

In situations where the cost of repairs isn’t much more than the deductible, you may decide to fix the car without filing a claim. In other scenarios, though, filing a claim can help make otherwise costly repairs more manageable. If you want to file a collision insurance claim, you would typically follow these steps:

  1. Contact the insurer. The claims process can vary depending on insurer, so ask your insurer directly about its process to ensure you have all the correct forms needed for reimbursement.
  2. Gather supporting information. Collect the documents you need to support your claim, such as photos of the accident scene or a copy of the police report.
  3. Open a claim. Call the insurer to open a claim.Some insurers also accept claims through a mobile app or their website for added convenience.
  4. Work with the claims adjuster. Adjusters are responsible for assessing collision damage and estimating the cost of repairs. 
  5. Make repairs. Choose an auto body shop and make repairs. 
  6. Receive reimbursement. Your insurer may pay the repair shop directly or send you a check for the amount you paid minus your deductible.

Should You Add Collision Insurance to Your Auto Policy?

If you lease or finance your car, your lender may require collision insurance. If you own your car outright, weigh the pros and cons of this insurance before deciding if a policy makes sense for you. 

Pros of Collision Insurance

Collision insurance can help you pay to repair or replace cars after an accident. While collision repair costs may vary depending on a car’s make and model and the extent of the damage, costs may add up quickly. 

For example, replacing a typical car bumper can cost more than $1,000. If a car’s suspension is damaged in an accident, replacing it could cost around $1,000 to $5,000 more. If you don’t have savings to cover collision repairs, you may see value in a collision insurance policy.

Cons of Collision Insurance

Nationwide, drivers paid an average of $381.43 per year for collision insurance in 2019.

When deciding if the costs of collision insurance are worthwhile, drivers may consider their lifestyles. You may decide against paying for collision insurance if:

  • You rarely drive your car.
  • You live in a low-traffic area with few collisions.
  • You drive an older car that’s depreciated in value.
  • You have savings to cover collision repair costs.