Caleb Cook
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What Is Collision Coverage?

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collision coverage
Collision coverage can come in handy when you crash your own vehicle
Photo: W. Robert Howell via Creative Commons BY-SA 2.0

At its most basic level, auto insurance covers your liability for injuring another person or damaging their property in the event of a crash. But what about damage you cause to your own vehicle? That’s where collision coverage comes in.

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How collision coverage works

When you have collision coverage, your insurer will pay for damage to your ride when you’re at fault — whether you hit another vehicle, roll over, back into a mailbox, or cause any other kind of wreck. If your vehicle needs repairs, your insurer will foot the bill. If your vehicle gets totaled and repairs would cost more than it’s worth, your insurer will pay for a replacement based on the vehicle’s value at the time of the crash.

You can also use collision insurance if someone else causes an accident that you’re involved in. If that person’s insurer is being slow or difficult, or if the person is uninsured or underinsured, collision insurance can pay for the damage. Meanwhile, your insurer will seek reimbursement from the other driver’s insurance. Before choosing this course of action, verify with your insurance company that submitting the claim won’t raise your rates.  

When you opt for collision insurance, you’ll generally pay a monthly premium, plus a deductible when you make a claim. For example, if you have a $500 deductible, your insurer will pay for repair or replacement costs minus $500 — which is your responsibility to pay. If you were to incur damages under $500, those costs wouldn’t be covered and it wouldn’t make sense to file a claim.

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collision insurance
Collision coverage can help you pay for repairs if you wreck your vehicle

Is collision coverage required?

States do not require you to carry coverage to pay for damages to your own car, making collision insurance optional. However, if you have a loan or lease on your vehicle, your lienholder will probably require collision coverage. Otherwise, you’d be responsible for the outstanding loan amount if the vehicle was totaled. That could be financially ruinous for you and bad for the lienholder as well.

Even if you aren’t financing your vehicle, collision insurance may still be a good idea. Consider your driving habits and history. Are you accident-prone? Do you drive in crowded downtown areas? If you’re at higher risk for a crash, collision coverage could give you extra peace of mind.

To determine whether collision insurance makes financial sense for you, consider how much your vehicle is worth. If you can afford out-of-pocket repair or replacement, or if premium and deductible costs don’t exceed your vehicle’s value, you can probably skip collision coverage. But if your vehicle’s value is more than what you’re paying for collision insurance, the coverage is likely a worthwhile expense.