Collision Insurance

Collision insurance costs $382 per year on average. The cost of collision insurance varies widely, however, based on vehicle value, deductible, driving history and ZIP code, among other factors.

Collision insurance, which is optional in every state, protects your car in the event of a collision with an object or another vehicle. Adding collision insurance will make your policy cost more than if you only had your state's required liability coverage. But collision insurance is still a good investment for many drivers.

Collision coverage is often bundled with comprehensive insurance, which covers expenses that are not from a collision, like theft or fire damage. Together, these two kinds of coverage are often called full coverage, although this term is not strictly defined.

It's important to note that the maximum amount you'll receive from your insurer for a collision claim is the value of your car when you crash it, not when you bought it. As a result, considering your car's value and your financial resources will help you decide when to drop collision insurance.

To see how much collision insurance costs for your specific circumstances, check out WalletHub's car insurance comparison tool. And be sure to always compare rates from multiple companies to get the best coverage for the lowest price.

The rule of thumb for dropping collision insurance is to drop it when a car's collision premium, plus the deductible, costs more than 10% of the car's current value. Some experts also advise dropping collision insurance when the vehicle is more than 10 years old. Since the average driver gets into an accident once every 10 years, these rules exist to keep drivers from paying more for insurance over time than they would get from filing a claim.

However, you should think of these rules as loose guidelines while also taking your individual circumstances into account. For instance, if you cannot afford to replace your car and you need it for transportation, dropping collision insurance could leave you stranded or in debt. Similarly, if you have a history of at-fault accidents, or a teenager is learning to drive using your car, you are particularly likely to need collision insurance. And to calculate your car's value, it's important to use a tool like Edmunds or Kelley Blue Book instead of the car's price when you bought it.

Additionally, not everyone is allowed to drop collision insurance. It's required for most financed or leased cars, since lenders and lessors want to make sure the car retains its value as collateral. In fact, if you drop required coverage on a financed car, you could end up paying for expensive force-placed insurance or even having the car repossessed.

An older rule recommended that drivers drop collision coverage on a six-year-old car or a car with 100,000 miles, but this is slightly outdated advice given the cost of car repairs today. A more expensive car might be worth plenty even after five years, or a car with 100,000 miles might be too costly for you to repair or replace with your savings. That's why it's important to consider your own financial circumstances before deciding whether or not to drop collision insurance.

A collision insurance deductible is the amount of money that a driver must pay out-of-pocket when filing a collision insurance claim. Collision insurance pays to repair or replace a car damaged in an accident, and a driver must pay their collision deductible before their insurance company will cover the remaining costs.

For example, say you are at-fault in an accident that causes $10,000 in damage and you have a collision deductible of $1,000. You are responsible for covering your $1,000 collision deductible out-of-pocket in order for your insurance company to pay the remaining $9,000.

Collision deductibles typically range from $100 to $1,000, and you select your deductible amount when you purchase your policy. The higher your deductible, the cheaper your premium will be. Although it's tempting to get a higher deductible in order to pay less upfront, you should only choose a deductible that you can afford to pay if your car is suddenly damaged in an accident.

A collision deductible waiver is a collision insurance add-on that waives the policyholder's deductible if their car is damaged in an accident caused by an uninsured driver. In general, collision damage waivers only apply to accidents where an identified driver without insurance is completely at-fault. A notable exception is California, where collision deductible waivers can be used in hit-and-run accidents. 

Collision deductible waivers are similar to uninsured motorist property damage (UMPD) insurance, so a waiver is usually redundant if you are already required by your state to have UMPD. In states where UMPD is optional or unavailable, collision deductible waivers can be a great alternative for the same type of coverage. However, keep in mind that you cannot purchase a collision deductible waiver without collision insurance.

The cost of a collision deductible waiver is usually less than $50 for your entire policy term. Although collision deductible waivers can only be used in a limited number of situations, their low cost means they are a good investment if you want to avoid any out-of-pocket expenses in the event that you're hit by an uninsured motorist.  

Finally, it should be noted that collision deductible waivers are different from collision damage waivers, which are sold by rental car companies to cover damage to their vehicles.

You should drop your collision insurance when your annual premium equals 10% of your car's value. If your collision insurance costs $100 total per year, for example, drop the coverage when your car is worth $1,000. At that point, your insurance payments are too close to your car's value to be worthwhile. Drivers can easily find a car's value with the online vehicle appraisal calculators from Edmunds or Kelly Blue Book.

The 10% rule for dropping collision insurance is not set in stone. But it's a good milestone to keep in mind because as the value of a vehicle falls over time, the value of its insurance coverage does too. And when you start paying a significant portion of your car's value in premiums each year, you're simply overpaying to offset the actual level of risk that remains – at least as far as collision damage to your own vehicle is concerned.

Collision insurance repairs or replaces your insured car if it's damaged, whether by another vehicle or an object like a tree or mailbox. This insurance covers up to the cash value of your car - which is where the 10% rule comes in. This rule most frequently applies to older cars or vehicles with a lot of mileage, as they are worth relatively low amounts. There are a few other situations where it might be a smart move to drop collision insurance, too.

When to drop collision insurance

When you rarely use your car

The more you drive, the higher your risk of being in an accident – so if you don't drive often, your risk is lower than average. That means you could be paying for collision insurance that you're unlikely to need.

When repairing a car would not have a big impact on your finances

Maybe you have an emergency fund that you could use to fix your vehicle. If you're willing to spend your savings on car repairs, then it's safe to drop collision insurance. However, people often prefer their emergency fund to be a safety net for when they leave their job, face health issues, or need home repairs. It all depends on what you're comfortable with personally and how much you have saved.

When you're paying 10% of your car's value in premiums annually

The cost of repairs goes down as your car gets older, so you don't want to overpay as your car loses value.

When NOT to drop collision insurance

Every state requires car insurance except for New Hampshire and Virginia. However, the law doesn't mandate collision insurance. The only legally-mandated car insurance is liability coverage, for damages to someone or something that you accidentally hit with your car. Although collision insurance is optional, it's well worth purchasing for many people.

If you're financing your car, collision insurance is usually required. Otherwise, you might be stuck with a repair bill equivalent to the value of your new vehicle! If you're leasing your car, the same logic applies – most lessors require drivers to carry collision insurance, too.

In summary, it's a smart money move to drop collision insurance when your car is old or has high mileage, but you should definitely think twice about doing so.

If you have no collision coverage, then you will be responsible for paying to repair or replace your car after an accident that you cause. When you're at fault in an accident, your liability insurance will only cover the other driver's expenses, not yours. Collision insurance is not usually needed if the other driver is at fault, since their liability insurance will pay for damage to your car.

Collision insurance can sometimes be helpful after accidents when fault isn't clear. If you have collision insurance, you can file a claim with your own insurance company while you wait for the insurance adjuster to make an official judgement of fault. Then, if the other driver is determined to be at fault, their insurer will reimburse yours.

Not having collision coverage can also make a claim difficult if you're hit by an uninsured or unidentified driver. Unless you carry uninsured/underinsured motorist coverage, your only option is to sue an uninsured driver. Still, you're unlikely to collect anything if you win, as a driver without car insurance is more likely to be unable to pay damages. And some states don't allow you to use uninsured/underinsured motorist coverage after a hit and run, which means you'll have to pay for the damage yourself.

It's generally a good idea to carry collision insurance if you can't afford to pay out of pocket for repairing or replacing your car. On the other hand, if you have the financial resources to repair or replace your car, you can usually consider dropping collision coverage if the cost exceeds 10% of your vehicle's value.

The difference between liability and collision insurance is who's covered. Liability insurance covers other people's property damage and injuries after accidents caused by the policyholder, while collision insurance pays for damage to the policyholder's own vehicle after an accident, regardless of fault.

Differences Between Liability and Collision Insurance

If you are not required to purchase collision coverage by a lender or lessor, you should still consider getting it in order to protect yourself financially after an accident. If you cause a wreck, your liability insurance alone will not cover any of your repair costs, leaving you to pay for them yourself. Even if you are not at fault in an accident, collision insurance can be used to pay for your repairs while you await a final determination of fault and a liability insurance settlement from the other driver.

When deciding whether or not to purchase liability-only insurance, consider the value of your car and your financial situation. A general rule of thumb is that you can think about dropping collision insurance if your premium is more than 10% of your car's value, but you shouldn't drop it if you can't afford to pay out of pocket for repairs after an accident.

You need collision insurance on an old car if the car is financed or leased. You should also keep collision insurance on an old car if you cannot afford to pay out of pocket to repair or replace the car after an accident.

A general rule of thumb is that you can think about dropping collision insurance if the premium exceeds 10% of your car's value, so it's possible that collision coverage might not be worth it on an old car that isn't worth much. But you should only consider this rule in the context of your own circumstances. If you depend on your car for everyday use and can't afford to pay for repairs, collision insurance could keep you out of a difficult situation if your vehicle is damaged in an accident.

To learn more about customizing your coverage, check out WalletHub's guide to deciding how much car insurance you need. 

If you total your car with no collision insurance, then your insurance will not reimburse you for the value of your vehicle. Collision insurance pays to repair or replace your car after an accident, so without it, you might have to pay out of pocket to replace the car.

If the accident is your fault and you don't have collision insurance, your best option is to sell the car in its current state. You will still be able to recover something through the salvage value, which is the amount of money that a salvage yard will pay for the parts and frame.

On the other hand, if the accident is not your fault, then the at-fault driver's property damage liability insurance will cover the cost of your loss, up to their policy limits. In this case, you will still be reimbursed for the value of your car even if you don't have collision insurance. However, if your car's value exceeds the at-fault driver's liability limits, you will have to file a claim using uninsured/underinsured motorist coverage, file a lawsuit against the driver, or cover the remaining costs yourself.

Collision insurance is not required by any state laws, but you will need to carry it if your car is leased or financed. In general, it's a good idea to carry collision insurance if you can't afford to replace your car and the annual cost of coverage is less than 10% of your vehicle's value.

Yes, you have to have comprehensive and collision coverage on a financed car. Most reputable lenders require comprehensive and collision insurance on financed cars to protect their investment if the car is damaged, stolen or totaled.

Comprehensive insurance pays for repairs or replacement if a car is damaged due to something besides a crash, such as theft, vandalism, or natural disasters. Collision coverage, on the other hand, pays to repair or replace a car that is harmed in an accident. Unlike liability insurance, comprehensive and collision are not required by any state laws.

When purchased in addition to the state minimum coverage, comprehensive and collision are usually referred to as full coverage. Full coverage insurance is generally more expensive than just purchasing the state minimum coverage, but you can save by shopping around for quotes and checking out WalletHub's guides to cheap car insurance and car insurance discounts.