What is collision insurance and how does it work?

What happens if you’re in a car accident that results in significant repairs to your vehicle, or if you hit a patch of ice and skid into a bridge embankment and your car is totaled? If you have collision coverage in place, you’ll be financially protected from calamities like these.

Collision insurance covers damage to your vehicle, up to its pre-crash fair market value, caused by events such as striking another car or hitting a stationary object like a lamp post.

This guide can help you better understand how collision coverage works, what it covers and doesn’t, and how much it costs.

Key takeaways

• As the name implies, collision car insurance will cover you in the event that your vehicle collides with another car or with a stationary object like a building or street sign.
• The average annual cost for collision car insurance is $657 in the U.S.
• Collision insurance is optional for most drivers.

What is collision car insurance?

Unlike liability car insurance, which is mandatory in every state except New Hampshire, collision car insurance is optional for most drivers. If you have financed or leased your vehicle, however, your lender may require that you purchase collision insurance. 

Whereas liability insurance provides coverage for injuries and property damage you cause to others, collision insurance protects your vehicle from at-fault accidents with another vehicle or a stationary object like a tree, light pole, fence or structure like a home. It also covers damage from rollover accidents and potholes.

Collision insurance is often packaged with comprehensive car insurance, which protects your vehicle from non-collision events like fire, theft and vandalism. Both comprehensive and collision insurance provide coverage up to your vehicle’s current market value, also known as its actual cash value (ACV). 

Collision and comprehensive coverage both include a deductible, which is a fixed amount of money you must pay before your coverage kicks in. Deductibles can range from as little as nothing to $1,000 or more, depending on the policy and insurer.

If you have a liability-only car insurance policy, chances are you will be financially vulnerable if you get in an accident. That’s because liability insurance only covers injuries and property damage that you cause to others, up to your policy limits; it doesn’t apply to damage to your vehicle. What’s more, if you carry only the minimum amount of liability insurance required in your state, your coverage may not be sufficient if you’re in a major accident.

How does collision car insurance work?

Let’s say you’re driving and need to swerve out of the way of a fallen tree limb on the road. Doing so causes you to hit an oncoming car. No one is hurt, but both vehicles suffer damage that will cost thousands to fix. 

Without collision coverage on your policy, your liability insurance should cover the other driver’s repair bills and medical costs, if any. But you’d have to pay for your own car’s repairs fully out of pocket.

On the other hand, if you had collision coverage, even though you would be considered at fault in this accident, your carrier would cover the cost of the claim for your car after you pay your deductible.

“Collision coverage is like having a superhero for your car. It swoops in to pay for repairs after a collision, regardless of who is at fault,” says Angel Reyes, a Dallas-based personal injury attorney.

However, not everyone needs collision insurance.

“It may not be worth it to have collision coverage if you have an older vehicle with a low actual cash value and can afford to pay for the repairs out of pocket,” says Mark Friedlander, director of corporate communications for the Insurance Information Institute (Triple-I), an industry research and education organization.

“Also, if the cost of your deductible is close to your vehicle’s current market value, it wouldn’t make financial sense to maintain collision coverage.”

What does collision insurance cover?

If you add collision insurance to your auto policy, it will cover you financially for the following incidents, up to your policy limits and minus any deductible:

• Collisions with other vehicles
• Collisions with stationary objects
• Potholes and road debris
• Rollover accidents

What doesn’t collision insurance cover?

Collision insurance doesn’t cover the following:

• Damage to other people’s vehicles and property. Damage you cause is covered by your liability insurance, up to your coverage limits.
• Hitting an animal like a moose or deer. Incidents involving collisions with animals are covered by comprehensive insurance, minus your deductible.
• Normal wear and tear. Routine maintenance issues and related mechanical breakdowns are generally not covered by any part of your car insurance policy.
• Natural disasters like floods, earthquakes or hurricanes require comprehensive coverage.
• Theft and vandalism is also covered by comprehensive insurance, minus your deductible

“Furthermore, depending on your state, collision insurance may not cover damage caused by uninsured or underinsured drivers, including hit-and-run accidents,” Friedlander says. “In these scenarios, you need to purchase uninsured/underinsured coverage, which is mandatory in some states.”

How much does collision insurance cost?

Adding collision insurance to your liability auto insurance policy will cost an average of $687 per year, based on our analysis of insurance rates provided by CarInsurance.com

Drivers in Washington state pay the least on average, $402 annually. By contrast, Michigan motorists pay a whopping $1,752 per year for collision coverage; for drivers in California, the second most expensive state, the average rate is $975.

“Adding collision typically increases your premium by 10% to 20%, depending on factors like your vehicle’s value and your driving history,” says Paul Schneider, an independent insurance agent in Newberry, Florida. “Filing a collision claim will likely increase your premiums by 20% for a few years due to you being deemed a higher risk by your carrier.”

Frequently asked questions

Is collision car insurance mandatory?

Collision coverage is not required by law. However, if you lease or finance a car, your lender or lease provider will require you to have a full-coverage policy, which includes collision and comprehensive coverages. It may also require you to purchase gap insurance.

Even if it’s not mandatory, experts recommend having collision protection in place to financially safeguard you if you damage your car in an accident, suffer a rollover or sustain damage from potholes.

When should you drop collision insurance?

It may not make financial sense to keep collision coverage if your vehicle's market value is low compared to the cost of coverage and your deductible, or if your deductible is nearly as high as the vehicle’s value. It also makes sense to consider dropping it if you can afford minor repairs yourself, if the vehicle is old and prone to costly issues, if the insurance premium is too expensive, or if you prefer to handle potential damage expenses out of pocket.

Does a collision claim affect my car insurance?

If you file a collision claim, you can generally anticipate higher premiums, though this varies by insurer and location. Typically, your premium may increase by 20% for three to five years after an at-fault accident. However, if you have accident-forgiveness coverage, your insurer will waive the surcharge for your first at-fault accident.

Methodology

Editors collected rate information from auto insurance comparison site CarInsurance.com for single, 40-year-old male and female drivers of a 2023 Honda Accord LX with a good insurance score and no violations on their record for full coverage insurance policy with liability limits of 100/300/100 and a $500 comprehensive and collision deductible.

In addition, we also calculated rates for these hypothetical drivers, but with one or more of the following on their record: speeding ticket, at-fault accident, DUI/DWI, poor credit history, or a lapse in coverage.

We analyzed more than 53 million quotes, over 34,000 ZIP codes, and 170 insurance companies nationwide.

Note: 100/300/100 means up to $100,000 for the medical bills of those you injure, up to $300,000 per accident for bodily injury liability for all persons injured in one accident, and $100,000 to repair other drivers’ cars and property you damage.