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.

Collision Deductible 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 Deductible Amounts

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.

Yes, you need collision insurance if your car is leased or financed. Collision insurance is not required by any state laws, but most lessors and lenders require drivers to have it until the car is paid off. Even if you're not required to have collision insurance, you should still purchase it if you cannot afford to pay for damage to your vehicle after an accident.

Why You Need Collision Insurance

Collision insurance pays to repair or replace your car after an accident, regardless of who is at fault. If you cause an accident, collision coverage is the only way to have your repair costs covered by insurance. Even if you are not at fault for an accident, you can file a collision claim to pay for your repairs while you wait for a final determination of fault. Your insurance company will then recoup your costs from the other driver's liability insurance.

Factors to Consider When Deciding if You Need Collision Insurance

• Price of coverage
• Car value
• Likelihood of an at-fault accident
• Cost of repairs

When to Consider Dropping Collision Insurance

A general rule of thumb is that if your collision insurance premium is more than 10% of your car's value, you can consider dropping the coverage. However, this is just a general guideline. If you can't afford to pay out of pocket to repair or replace your car after an accident, then you should continue to carry collision insurance. You should also keep it if your car is particularly valuable or you live in a high-traffic area where you are more likely to get into an accident.

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 since, 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.

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.

Other Things to Consider Before Dropping Collision Insurance

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 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.

You need collision on an old car if you have an auto loan or lease. 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. 

Collision insurance is a type of car insurance coverage that pays to repair or replace your car if you're involved in an accident, regardless of who was at fault. Collision car insurance is never required by state law, but dealerships and banks usually require it for leased or financed cars. It only pays for damage to your own vehicle, and it does not include coverage for medical bills.  

What Collision Insurance Covers

• Collisions with other vehicles
• Collisions with objects like fences or trees
• Single-car accidents that involve rolling or falling over
• Damage caused by hitting an obstruction in the road, such as a pothole

Collision coverage costs an average of $382 per year. The cost of collision insurance varies based on your driving history, you car's value, and your deductible amount. For example, high-risk drivers with a history of claims tend to pay more for collision insurance because they are more likely to be involved in an accident. And if you choose a low deductible for your policy, you will pay more for coverage.

A good rule of thumb is that you should have collision insurance on your car until the cost exceeds 10% of the vehicle's value. However, even then, you should not drop collision insurance if you cannot afford to pay out of pocket to repair or replace your car after an accident that's your fault. To learn more, check out WalletHub's guide to collision insurance.

You need comprehensive and collision insurance if your vehicle is leased or financed. No state laws require drivers to carry comprehensive and collision insurance, but your lessor or lender will almost certainly require you to purchase both types of coverage. Even if you're not required to get collision and comprehensive insurance, you should still purchase them if you cannot afford to fix or replace your car after it is damaged.

Collision and comprehensive insurance cover vehicle repair and replacement, but in different situations. Collision coverage applies to damage caused by a car accident, while comprehensive insurance applies to damage caused by something other than a collision, such as vandalism or a natural disaster. When purchased together with liability insurance, collision and comprehensive insurance make up full coverage, which protects you financially if your car is unexpectedly damaged.

A general rule of thumb is that if the cost of comprehensive and collision insurance is more than 10% of your car's value, you can consider dropping them. However, before dropping full coverage insurance, you should consider your financial situation and how likely you are to file a claim. If you aren't in the financial position to pay out of pocket to repair or replace your car if it is suddenly damaged, then you should continue carrying comprehensive and collision insurance.

Collision insurance costs $382 per year on average. 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 insurance, which is optional in every state, protects your car in the event of a collision with an object or another vehicle. The cost of collision insurance varies widely, however, based on vehicle value, deductible, driving history and ZIP code, among other factors.

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.

If you have no collision insurance, your vehicle will have no coverage under your car insurance policy if you cause an accident. When you're at-fault for an accident and do not have collision insurance, you must pay out of pocket to repair or replace your own vehicle. Collision insurance usually is not 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.

It is usually better to have comprehensive insurance than collision insurance, if you need to choose between the two. Comprehensive coverage is inexpensive, can be purchased alone, and pays for damage due to events beyond your control, such as vandalism, theft, natural disasters or run-ins with animals.

On the other hand, drivers with a history of accidents or moving violations and drivers who live in high traffic areas should consider investing in collision insurance. Given that collision insurance cannot be purchased without comprehensive in​​surance, you'll get the benefit of both types of coverage.

Why You Should Get Both Comprehensive & Collision Coverage

If your car is leased or financed, your lender or lessor will likely require you to purchase comprehensive and collision insurance together. But even if you do have a choice, you should still consider purchasing both types of coverage.

Collision and comprehensive insurance are best bought together because they cover different situations. Collision coverage repairs or replaces your car when it's damaged in an accident, regardless of fault, while comprehensive insurance applies when your car is damaged by something other than an accident.

Ultimately, if you're still struggling to decide whether to purchase comprehensive or collision coverage, a good rule of thumb is to skip either type if the cost is more than 10% of your car's value. However, this is just a general guideline, and you should also consider whether you're in the financial position to repair or replace your car if it's damaged. 

To learn more, check out WalletHub's guide to collision and comprehensive insurance.

You need collision insurance after your car is paid off if you can't afford to repair or replace your car out of pocket in the event of an accident. In general, you're probably safe to drop collision coverage if 3 to 5 years of collision premiums would cost more than the value of the car. Collision insurance pays to repair or replace your car after a crash regardless of who was at fault.

How to Decide If You Need Collision Coverage on a Paid-Off Car

1. Determine your car's worth.

Several online tools, such as N.A.D.A. online guides or Kelley Blue Book, can provide the most up-to-date information. Craigslist, eBay Motors, and Auto Trader can also give you a sense of how much other owners think their cars are worth.

2. Check if you could afford to replace your car.

If you can't afford to replace your car, you should probably have collision insurance. Buying even a basic policy could end up protecting your car and finances.

3. See how much you would actually save by dropping collision insurance.

The cost of collision insurance is based largely on your driving history, the value of your vehicle, and the size of your deductible. You will most likely only save a few hundred dollars per year by not purchasing collision insurance.

However, if you have been in several accidents in the past, your insurance rates will probably be higher than average. Therefore, by dropping collision insurance and not paying those larger bills, you could potentially save much more.

4. Think about how much money you would risk without collision insurance, even if you could afford to replace your car.

In addition to the cost of replacing your car if it's totaled, consider the personal costs. For example, there's the disruption to your daily life and the stress caused by having to take money from—and potentially wipe out—a retirement, “rainy day,” or college fund.

5. Consider how likely is it that you will have to pay to repair or replace your car.

Although past performance is no guarantee of what will happen in the future, a history of auto accidents might indicate that you are at an increased risk.

Even if you are a careful driver with an accident-free record, consider the benefits of buying collision coverage in case another driver hits your car. In this scenario, collision coverage can quickly pay for repairs or replacement. This is particularly beneficial if the other driver's insurance company is contesting who was at fault or otherwise being difficult. Your insurance company will take over your claim and all the headaches that fight entails. It can also cover you if it turns out that the other driver is at fault but does not have adequate insurance. Such claims should not raise your insurance rates.

Example: Collision Car Insurance Decision Process

To help review the above decision process, let's use a specific example. Picture a 36-year-old single male who lives in Oakland, California. Let's call him Mark. He drives a 2008 Honda Accord LX Sedan in good condition with only the standard options and 100,000 miles on the odometer. According to Kelly Blue Book, Mark's car is worth about $7,500.

If Mark only has a few thousand dollars in savings, he should probably buy collision coverage. But if his emergency fund has $30,000, he should figure out how much dropping collision insurance would save him, how much he'd be risking by dropping it, and how likely he is to have to an accident.

Mark will have to pay about $480-$600 per year for collision coverage. That is, Mark will save 6-8% of the value of his car by not buying collision insurance. However, he is risking a quarter of his rainy-day fund if he has to replace his car.

Considering the high traffic in the Bay Area, Mark may decide that it's only a matter of time before he is in an accident. Due to the substantial risks to his finances, he may conclude that collision coverage is a wise investment.

To learn more, check out WalletHub's guide to collision insurance.