Do I Need Collision Insurance? September 2024

If you’re like most people, you want to pay the lowest price possible for most things you buy, and you don’t want to overspend on maintaining it, either. As such, it wouldn’t be a surprise to find yourself asking, “Do I need collision insurance?”

Understanding collision insurance and what it can do for you can go a long way toward helping you decide whether you need it. Here’s a closer look at collision insurance and some of the factors you might want to consider as you shop for it.

What Is Collision Insurance?

Collision insurance pays to repair or replace your car if it gets damaged when you hit someone, another driver hits you, or you collide with an object, such as a pole, guardrail, or building.

For example, you might be backing out of your driveway when another vehicle slams into the rear portion of your car. Or a basketball could fly out into your path, causing you to slam into a light pole as you swerve to avoid it.

If you have collision coverage, it can pay to repair or replace your car in situations regardless of who is at fault. It also can cover you if you’re in an accident where you don’t hit another vehicle or object, such as a rollover.

What Does Collision Insurance Cover?

Here’s a quick look at what collision insurance covers:

• Damage from collisions with cars, trucks, motorcycles, or other vehicles

• Damage from collisions with objects, such as a house, tree, pole, or guardrail

• Damage from your vehicle rolling over or falling from height

In these instances, a collision insurance policy can pay the cost of repairing or replacing your vehicle.

That said, collision insurance isn’t a catch-all for unexpected mishaps. Here’s what isn’t covered:

• Damage unrelated to driving, such as hail, flooding, or theft

• Damage to another driver’s vehicle

• Accident injuries and medical bills

Other types of auto insurance, such as liability insurance and comprehensive coverage, can step in to address the costs of these sorts of events.

Do I Need Collision Insurance?

Collision insurance isn’t required by law. It’s an optional form of coverage you can choose to take out to safeguard your financial well-being if you’re ever in an accident. If you finance or lease your vehicle, your lender or leaseholder may require you to carry it.

There’s no need to purchase collision insurance if you own your car outright. However, if you’re involved in a car accident without collision coverage, you may be solely responsible for paying to have your vehicle fixed or replaced.

How Does Collision Insurance Work?

When you buy collision insurance, it will come with a deductible, which is the amount you pay toward repairing accident damage before your insurance company chips in. Typical deductibles are $0, $250, $500, and $1,000.

The higher your deductible, the lower the cost of your monthly premium. The inverse is also true: the lower your deductible, the higher your premium. Of course, with a lower deductible, you’ll pay less out of pocket after an accident.

Most collision insurance policies also come with a limit on the amount the insurance company will pay out. This limit depends on the individual policy, but it’s typically around the market value of your vehicle (also known as the actual cash value), which is the value minus depreciation.

If you have an accident and your vehicle is totaled, your insurance company may send you a check for its market value minus the deductible. You might be able to replace your car with a comparable one or pay a little more out of pocket to buy a new vehicle.

How Much Does Collision Insurance Cost?

Most of the time, collision insurance is purchased alongside comprehensive insurance. How much you pay will depend on the value of your vehicle, your driving record, the state you live in, and the deductible you choose.

Data from the 2021 Auto Insurance Database Average Premium Supplement from the National Association of Insurance Commissioners shows that the national annual average for collision insurance was $377.31.

Other Things to Consider About Collision Insurance

No one could blame you for thinking about when to drop collision insurance. Given the average number of cars per household and the persistent elevation of prices across the market, it’s totally reasonable that you’d want to look for ways to cut costs. But deciding not to buy collision insurance on your car is a risk.

When weighing the pros and cons of collision coverage, consider the age and value of your car, the overall cost of your auto insurance, and your financial situation.

If you finance or lease your vehicle, your lender or leaseholder will likely require you to maintain collision coverage until the end of the term. At that point, your car might still be fairly new, and you might continue driving it for a few more years. Collision insurance might be worthwhile if it keeps you from emptying the bank to pay for accident damage.

If your vehicle is older, however, you might follow this rule of thumb for dropping collision insurance: compare the market value of your vehicle to your collision insurance deductible and the annual premium for that coverage. If the market value is less than the sum of the deductible and premium, consider dropping your collision insurance.

Find Collision Insurance Through ConsumerShield

Now that you understand the utility of collision insurance, you may be ready to talk to an insurance professional about getting coverage for your vehicle.

The experts at ConsumerShield can answer your questions about insurance and the relevant laws. Our mission is to empower consumers with information to guide decision-making. Contact us today to learn more.