Collision Insurance

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.

Collision insurance is worth it if you would otherwise be unable to afford to replace your car after an accident or if you often drive in areas where the likelihood of an accident is high. Collision insurance can provide valuable coverage if you're at-fault for an accident, and it is often required for financed cars.

When Collision Insurance Is Worth It

• You cannot afford to repair or replace your car after an accident or would rather avoid spending your savings on it.
• You have a loan or lease and are required to have collision coverage.
• You have a history of at-fault accidents.
• You drive in accident-prone areas.

When Collision Insurance Is Not Worth It

If you have a lot of savings and could afford the repairs or replacement if your vehicle is damaged, you might be able to skip collision insurance. Additionally, once your annual collision premium is equal to 10% of your car's value, you're probably safe to drop the coverage, since you'll likely spend more in the long run than the repairs would cost.

Lastly, unless your loan or lease requires it, carrying collision insurance is not mandatory. If you have an older car or don't drive much, dropping collision coverage could help lower your premiums. 

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

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.

No, collision insurance is not required by law in any state, though you may need it if you lease or finance your car. Lenders and lessors usually require collision coverage to protect their investment in a vehicle that's not fully paid off.

Collision insurance pays for vehicle damage caused by hitting another vehicle, hitting a stationary object like a tree or fence, or rolling over. Although collision coverage is not required by law, it may be worth purchasing even if your vehicle is not financed because it can help in the event your vehicle is damaged, totaled, or stolen. This coverage is especially worthwhile if you can't afford the cost of repairing or replacing your car out of pocket.

Types of Car Insurance Commonly Required by Law

• Bodily injury liability insurance
• Property damage liability insurance
• Personal injury protection
• Medical payments coverage
• Uninsured/underinsured motorist coverage

You can also check out WalletHub's guide to collision insurance to learn more.  You can also reference the full list of minimum coverage requirements in your state.

Collision insurance pays for damage to your car after a crash with another vehicle, regardless of who is at fault. Collision coverage also applies if you hit a stationary object like a tree or mailbox, if you're in a single-car accident like a rollover, or if there's damage from road hazards like potholes.

What Collision Insurance Covers

Covered

• Hitting another vehicle
• Being hit by another vehicle
• Hitting an object like a mailbox
• Single-car accidents like rollovers
• Hitting a road obstruction like a pothole

Not Covered

• Damage to your vehicle unrelated to driving
• Damage to someone else's vehicle
• Medical bills for anyone involved in the collision
• Damage from animals
• Damage from floods or fires

Collision insurance is a bit different than other types of auto coverage because you won't need to select a limit. Instead, the most that collision insurance will pay is the actual cash value of your car—essentially what you could have sold the car for before the damage occurred. Further, you can file a collision claim and receive coverage regardless of who is at fault for the collision.

If you want to learn more about collision insurance and what it covers, 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.

An example of collision insurance is when your car insurance company pays for your vehicle repairs after you crash into another car or a stationary object like a tree. Another example of a situation covered by collision insurance is if you lose control of your car and it flips over. Collision insurance covers the actual cash value of your vehicle, minus your deductible, if it is damaged in an accident.

Collision Insurance Example 1: Your car is totaled.

Imagine that you cause an accident on the highway, your car is totaled in the crash, and your insurance company determines your car's actual cash value is $18,000. If you have collision insurance with a $500 deductible, your insurer will pay out the remining value of your car, or $17,500.

Collision Insurance Example 2: Your car is damaged.

Let's assume you run a stop sign and your brakes lock up, sending your car skidding into a telephone pole and causing damage totaling $4,000. With a $500 collision insurance deductible, your insurer will pay $3,500, usually directly to your mechanic.  

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

No, collision insurance is not the same as full coverage, but it is a key component of a full coverage policy, along with comprehensive coverage and any state-mandated types of insurance. Collision insurance covers damage to the policyholder's vehicle after accidents they are at fault for.

Collision Insurance vs. Full Coverage

Full coverage insurance is sort of a catch-all term, more often used by consumers than insurance companies themselves. Some people may use full coverage to refer to a policy that protects the policyholder financially from anything and everything in the event of an accident, while others would say full coverage is any policy that goes beyond the minimum coverage required by state law. Most often, however, full coverage is defined as the combination of collision insurance, comprehensive insurance and any required coverage. In any case, it's more than collision insurance alone.

To learn more, check out WalletHub's guides to collision insurance and full coverage insurance.  

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. 

There is only one type of collision insurance in most states, and it pays to repair or replace the policyholder's vehicle after a car accident. Collision insurance applies whether or not the policyholder was responsible for the crash, and it's usually required for leased or financed cars. 

Michigan is the only state with different types of collision insurance: limited, standard, and broad form. Limited collision insurance only pays to repair or replace the policyholder's car when another driver is at fault, while standard and broad form collision insurance apply regardless of who was at fault. A deductible is required for most collision insurance claims in Michigan, except when the policyholder has broad form collision coverage and was not at fault.

Types of Collision Insurance in Michigan  

Michigan car insurance companies offer special types of collision insurance because of the state's unique no-fault rules. In most no-fault states, no-fault laws only apply to injuries, not to vehicle damage. However, Michigan's no-fault rules extend to vehicle damage, so Michigan residents need to purchase collision insurance if they want coverage for car repairs after an accident.

To learn more, check out WalletHub's guide to Michigan car insurance requirements.