Do I Need Collision Insurance?

Quick Answer

Collision insurance covers repairing or replacing your car if you hit a vehicle or object, but it isn’t always worth it, especially if you own an older car.

Adult man driving his car with serious face expression

Is your car adequately protected if you get into an accident? Most states insist that drivers carry a certain amount of liability insurance. However, laws typically don't mandate collision insurance, which covers the expense of repairing or replacing your car after a collision. While collision insurance may not be required by law, leased or financed cars may need it, and there are other reasons it could be worth the cost.

What Is Collision Insurance?

Collision insurance pays the cost of repairing or replacing your vehicle if it's damaged by a collision with an object or another vehicle. Collision insurance is typically built into a standard auto insurance policy. Designed to cover you against a range of risks, standard car insurance also includes liability insurance, medical payments or personal injury protection (PIP) coverage, uninsured/underinsured motorist coverage and comprehensive coverage. However, you may be able to opt out of collision coverage, which could help lower your insurance premiums.

What Does Collision Insurance Cover?

Collision insurance covers damage to your vehicle caused by:

  • Colliding with another vehicle
  • Colliding with an object, such as a tree, building, guard rail or mailbox
  • Hitting a pothole
  • Flipping your car

What Doesn't Collision Insurance Cover?

There are also some things collision insurance doesn't cover, including:

  • Liability claims: If you're sued due to an accident, it's covered by liability insurance.
  • Medical expenses: PIP or medical expenses insurance covers these costs for yourself, your passengers or others injured in an accident.
  • Vehicle theft: Comprehensive insurance pays to replace a stolen car.
  • Damage to another driver's car: Collision insurance only covers repairing or replacing your car.
  • Damage to your car when you aren't driving: If your car is stolen, vandalized, damaged or destroyed by a natural disaster, or hit by a falling tree limb, your comprehensive insurance will kick in.
  • Wear and tear on the car: Collision insurance won't cover things like new tires, brake pads, hoses or other parts that wear out as the car gets older.
  • Mechanical breakdowns: Repairs when your car breaks down aren't covered by collision insurance.
  • Aftermarket vehicle modifications: Collision insurance usually won't pay to repair or replace aftermarket modifications to your car, such as custom wheels or enhanced engines. You may need a special policy rider to cover these costs.

Is Collision Insurance Required by Law?

States typically require drivers to carry a minimum amount of liability insurance, but they don't require collision insurance. However, if you lease or finance a car, the leasing company or lender typically requires you to carry collision insurance until the lease ends or the loan is paid off. The insurance protects their property (the vehicle). Once your car is paid off or your lease is over, whether or not to buy collision insurance is up to you.

How Much Collision Insurance Do I Need?

You can't choose how much collision coverage to buy. The amount of coverage is determined by your car's value; this ensures the policy can pay to replace the vehicle if it's totaled. Are you looking to cut the cost of car insurance premiums? One way to do so is by choosing a higher deductible. Your deductible is the amount you'll have to pay when you file a claim; the insurance pays the rest of the cost. You can typically choose deductibles ranging from $0 to $2,500; the higher your deductible, the lower your premiums.

How Much Does Collision Insurance Cost?

Nationwide, the average cost of collision insurance is $370.73 annually, according to the most recent data from the National Association of Insurance Commissioners (NAIC). However, collision insurance costs can vary widely depending on several factors, including:

  • Your location: Collision insurance costs an average of $501.64 per year in California, but just $244.82 in Wisconsin, the NAIC reports. That's because statistics show drivers are more likely to file collision claims in some cities than in others.
  • The kind of car you have: The more expensive a car is to repair or replace, the more collision coverage will cost.
  • The amount of coverage you have: As mentioned earlier, you can't choose your collision coverage limits. The good news: As your car gets older and its value declines, your collision insurance costs should drop, too.
  • Your driving record: A history of accidents or moving violations may suggest you're more likely to have collisions in the future.
  • Your annual mileage: The more time you spend on the road, the greater your chances of having an accident.

Is Collision Insurance Worth It?

If your car isn't leased and has no outstanding loan, you can choose to buy collision insurance or not. You may not need collision insurance if:

  • Your car is older and not worth much. An older vehicle won't yield much payout, even if it's totaled. For example, if you have a car worth $3,000 and a $500 deductible, insurance will pay just $2,500 if you total the car. Instead of buying collision insurance, you might be better off saving that money for a new car.
  • You can afford to repair or replace the car without an insurance payout. A hefty emergency fund or savings account could cover car repairs or a car down payment without the need for collision insurance.

On the other hand, collision insurance may be a good investment if:

  • You'd struggle to pay for car repairs after a collision. The cost of car repairs varies, but in 2021, the average collision insurance claim paid out $5,010, the Insurance Information Institute (III) reports. If you don't have an emergency fund that can cover these expenses, collision insurance can be a small price to pay for a financial cushion.
  • You don't have the money for a new vehicle. When the cost of repairing your car exceeds its worth, insurers may declare the vehicle a total loss and give you a check for its value (minus your deductible). Using the insurance payout to purchase a replacement car means you don't have to drain your savings account to do so. With monthly payments for some car loans topping $1,000, collision insurance can provide peace of mind. Even if your car is only worth a few thousand dollars, replacing it may cost more than you can spare.

The Bottom Line

Going without collision insurance can save you a few hundred dollars a year on car insurance. Is that savings worth the risk of footing the bill for car repairs or a new car yourself? Only you can decide. There are other ways to save on car insurance, such as comparing quotes from multiple insurance companies, shopping for insurance every year, looking for insurance discounts and raising your deductible.

Maintaining good credit may also help you save on car insurance. In some states, car insurance companies can check your credit-based insurance score when setting premium rates. A lower score could mean higher car insurance premiums. Although it's not exactly the same, your FICO® Score is generally a good indicator of your credit-based insurance score. Before you shop for car insurance, check your credit report and credit score. Taking steps to improve your credit score could cut your car insurance costs.