What is Collision Insurance and How Does It Work?

by Nikola Djurkovic
Collision Insurance Cover Photo

If you are looking for full coverage car insurance, collision insurance is among the first protection plans you’ll need. However, do you know exactly how it works and which companies offer the lowest prices?

We at Carsurance provide the full guide here. You will find the complete list of cheap and well-rated companies offering collision coverage. Furthermore, you’ll learn when you need the coverage, when to drop it, and what limits are sufficient for you.

What’s Auto Collision Insurance?

It’s an optional protection plan that insurance companies charge extra for which pays for the damage to your vehicle sustained in a covered accident. It’s not mandatory by law, but a car lender often requires it. It pays up to the actual cash value (ACV) of your vehicle. This means that you will be getting an amount equal to the price of your car on the used car market that’s the same make and model as yours. A collision protection plan always carries some deductible.

What Does Collision Cover?

In a car insurance policy, collision insurance covers damage to your car sustained in a crash with another vehicle, an inanimate object, and an accident where your car rolls or falls over. It doesn’t matter who was at fault for payment to trigger. It does not cover crashes with animals—that falls under comprehensive insurance. However, if you hit a tree or fence, your insurer will pay for the damages to your vehicle.

How Does Collision Insurance Work?

To make everything clear, let’s use an example. Imagine that you are driving a 2017 Mazda 6 worth $26,000 and you rear-end a 2015 Cadillac Escalade that’s worth $40,000, and both of the vehicles are declared totaled. Let’s say that your property damage liability limit is $50,000 and that your limit is $20,000 with your auto insurance collision plan, both with a $1,000 deductible (We are using this limit as an example. In reality the collision limit is almost always equal to the actual cash value of your car).

The total damage is $66,000: $26,000 for your car and $40,000 for the other driver’s vehicle. Out of that, your liability coverage limit will cover $40,000 minus the $1,000 deductible. Collision will pay only up to $19,000, which is your limit minus the deductible. This means you will pay $8,000 out of your pocket, and your premiums will certainly increase. However, your liability and collision coverages will save you the bank-breaking $58,000. That’s why it’s beneficial to carry sufficient insurance limits.

What Isn’t Covered by Collision Car Insurance?

This protection plan does not cover any of the following:

Damage to your vehicle that did not result from a driving accident These include theft, natural disasters, riots, and vandalism. Comprehensive coverage reimburses for these expenses.

Damage to other people’s property These include their vehicles, phones and tablets, mailboxes and fences, and similar items. This is covered under liability insurance.

Any medical billsCollision auto insurance doesn’t pay for either yours or another person’s medical bills. MedPay or PIP pay for the former, while the bodily injury portion of your liability coverage pays the latter.

Illustration of what's not covered by collision insuracneMoreover, you will not receive any payments for damage that exceeds your limit. If another driver was at fault, you can expect payment from their liability if they were adequately insured. And if you want to be sure you will get reimbursed no matter what the other driver’s limits are, uninsured/underinsured motorist coverage is the one to choose.

When Do You Need Collision Car Insurance?

If you bought your vehicle using a loan, chances are that both collision and comprehensive coverages were mandatory in the lease agreement. Some lenders even require GAP insurance. Furthermore, even if you purchased a new car and paid up front, it’s still smart to get this coverage because repairing or replacing it would be rather expensive.

If you have a car that’s not brand new and you don’t owe any money for it, it may be wise to drop your collision insurance coverage. The best way to check is to calculate how much you’ll be paying for it over a ten-year period and then confirm the value of your car using Kelley Blue Book guide. If the price of your vehicle is lower than the amount you’ll pay for collision coverage over the next ten years, consider dropping the coverage.

How Much Is the Cost of Collision Auto Insurance?

To find the most accurate prices for an insurance plan that includes collision coverage, we requested quotes from five different insurance companies for three different age categories in three large US cities. We found that adding collision can increase your premium anywhere from $17 to $263 monthly, depending on the insurer. See the table below for more details.

Prices of Liability + Collision Coverages vs Liability Only

Which Auto Insurance Companies Offer Collision Coverage?

All major US insurers provide this protection plan. It is one of the six basic coverages available, together with comprehensive, liability, medical payments, personal injury protection, and uninsured/underinsured motorist coverage.

The Cheapest Companies Offering Collision Coverage

If you are looking for full coverage, but you are working on a strict budget, we have fantastic news for you. You can buy automobile collision insurance from a variety of affordable and highly rated auto insurance companies. In general, we did not discover any link between the quality of the coverage offered and the prices of the insurer. Below you will find the monthly costs for a full protection plan from the least expensive car insurance companies in the US.

Premiums of the Cheap Companies That Offer Collision Insurance Coverage

The Benefits of Having Collision Coverage

The advantages of having this protection plan are reflected in what collision insurance covers. If you live in a state where accidents happen quite often, you will clearly benefit more from having collision coverage. The US states with the highest number of car crashes are Florida, Tennessee, and New Mexico. See the full list here.

Nonetheless, insurance companies base their rates on the statistics that predict the probability of an accident happening. That’s why their coverages will cost more in states where car crashes are more frequent.

Tips for Buying Collision Auto Insurance

As with all coverages, the quality and the costs depend significantly on the insurance company. That’s why, with a little bit of research, you can save plenty of money and still get an excellent service. The best place to start is by checking our insurance reviews. There you will find the rankings of all important US insurance companies based on financial strength, customer service, and other parameters.

Once you’ve read our reviews, you should make a shortlist of the companies that might be the best for you. Try to include at least five companies, and then request quotes with collision insurance included from all of them. Getting a single quote online lasts anywhere between 5 and 15 minutes, meaning the whole process shouldn’t take more than a couple of hours. And the difference in premiums may be up to several thousand dollars annually.

Even if you already have affordable auto insurance, if your state allows price optimization, it’s prudent to shop around. This way you’re showing to your insurer that you’ll switch to another company for a better deal. Once they know that, they’ll offer the most competitive prices to keep you.

What Is the Difference Between Collision and Comprehensive Insurance?

A comprehensive vs collision insurance comparison shows that these two provide completely different protection plans for your car. Comprehensive auto insurance repays the damage not related to road accidents, such as theft, vandalism, fire, and natural disasters. Collision pays for expenses resulting from a crash with another vehicle or object.

Neither of these coverages pays for any medical expenses or damage inflicted to a third party. They both pay the actual cash value up to the limit in your policy. Collision coverage always carries a deductible while comprehensive may or may not carry a deductible.

Conclusion

In most situations, it pays to add auto collision insurance to your policy. It provides you with the funds to replace or repair your car if it was damaged in a road accident, regardless of the fault.

If your vehicle’s value depreciated significantly, fixing it or buying another one may be more affordable. Furthermore, if your usual commute doesn’t involve a lot of traffic, the chances of getting into a collision are smaller. In these instances, you may want to drop this coverage.

Nonetheless, we would still advise the majority of the drivers to opt for full coverage, which includes both comprehensive and collision insurance with the limits near to the value of your vehicle. This way you can have some peace of mind no matter what happens. And if you shop around a little bit, you can find full coverage as cheap as liability-only from the more expensive insurers.

Frequently Asked Questions

What is the collision deductible in auto insurance?

According to the collision insurance definition, it is the amount that you are paying out of your pocket in a covered accident. For example, if the damage to your vehicle was $4,500 and your deductible is $1,000, you will get $3,500 from your insurance company.

Do I need collision coverage when renting a car?

If you already have it on your auto insurance policy, with sufficient limits, there’s no need to buy additional rental car collision insurance. However, if you don’t have it, adding a loss damage waiver (the equivalent of collision for rental vehicles) is a clever decision. Many rental companies will already bundle this coverage with their deals, but make sure you check the agreement to see if you have it included. See our rental auto insurance guide for more details.

When should you drop collision insurance coverage on your insurance?

You should consider dropping collision if the value of your vehicle is small enough that it does not justify paying the extra premium. Check if the total 10-year premium for collision is higher than the price of your car in the used car market. If it is, you might be better off without this coverage.

Why is auto collision insurance so expensive?

Insurance companies use statistics to determine their prices. If the chances of an expensive claim happening are high, they’ll need to maintain steep prices to secure their profits. Given that car accidents in the US are frequent, charging a substantial amount for collision is the only way to stay in business.

What is the basic difference between liability insurance and collision insurance?

Liability insurance pays for the property damage and bodily injuries you have caused to others in an at-fault accident. Collison covers the damage to your vehicle in a car crash, regardless of fault.

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