Collision coverage: what it pays, how the deductible works and when to keep it

What collision coverage pays for

Collision is the part of an auto insurance policy that fixes your own car after a crash. It pays whether you caused the accident or not, which is what separates it from claiming against someone else's liability insurance. Typical collision claims include:

• Hitting another car, whether you rear-end someone or they hit you.
• Hitting an object such as a tree, guardrail, pole, wall or curb.
• Damage from a pothole, which the Insurance Information Institute (Triple-I) lists as a collision loss.
• A rollover or a car flipping over, even with no other vehicle involved.
• A single-car crash, such as sliding off an icy road into a ditch.

The Texas Department of Insurance describes collision as paying to repair or replace your car after an accident, with a deductible but no dollar limit of its own. In practice the ceiling is the car's value. When repairs would cost more than the car is worth, the insurer declares it a total loss and pays its actual cash value, which is based on its market value, minus your deductible. The NAIC notes this happens quickly with older cars, because repair bills can exceed what the car is worth. Our guide to total loss claims explains how that value is set.

What collision does not cover

• Damage you cause to other people's cars or property, which your liability coverage pays.
• Theft, vandalism, fire, hail, flood, falling objects and hitting an animal. These fall under comprehensive coverage; the Triple-I places collisions with deer there too.
• Your own injuries or your passengers', which personal injury protection or medical payments can pay.
• A rental car while yours is in the shop, unless you add rental reimbursement.
• Mechanical breakdowns, worn-out parts and routine maintenance, which are not accident damage.

How the collision deductible works

The deductible is the part of each collision claim you pay yourself. The NAIC's shopping guide points out that you pay it every time you file a claim, even when you were not at fault. Collision usually has its own deductible, separate from the one on comprehensive.

Example: your car needs $4,000 of repairs after you slide into a guardrail.

If another driver caused the crash, you can use your own collision coverage to get the car fixed quickly. Your insurer may then try to recover what it paid from the other driver's insurer. The Triple-I explains that if that recovery succeeds, you also get your deductible back. You can instead claim directly against the at-fault driver's property damage liability, which New York's Department of Financial Services notes is still open to you even if you have no collision coverage.

California adds one more option. Its Department of Insurance lists a collision deductible waiver that pays your collision deductible when an at-fault uninsured driver damages your car. See our page on uninsured motorist coverage for how that fits with other uninsured driver protection.

Choosing a deductible

A higher deductible lowers your premium because you take on more of each claim. The Triple-I says deductibles are typically $500 or $1,000. In its examples, moving from $200 to $500 could reduce collision and comprehensive costs by 15% to 30%, and a $1,000 deductible can save 40% or more. The catch is that you need that amount on hand when something happens.

Some states shape the menu. New York's regulator says the deductible options generally offered run from $100 to $1,000, with $200 as the standard choice. In Massachusetts, collision and comprehensive come with a $500 deductible unless you have an excessive claims history. The deductible chooser and our guide to choosing a deductible go further.

When lenders and leasing companies require collision

State law does not make you buy collision, but your finance contract can. The Texas Department of Insurance says that if you still owe money on your car, your lender will require both collision and comprehensive coverage, and New Hampshire's insurance department says lenders generally require them on financed vehicles. The NAIC describes collision as optional unless a lender or lessor requires it.

Points to check before you change anything on a financed or leased car:

• Read the loan or lease contract for the coverages it requires and any limit it sets on your deductible.
• Dropping collision before the loan is paid off can conflict with that contract, so ask the lender first.
• Collision pays only the car's value. If you owe more than that, gap insurance covers the difference after a total loss, and the Triple-I notes it is generally required on a lease.
• Once the loan is paid off and the title is yours, the decision is entirely yours.

Is collision worth it on an older car? A break-even test

As a car ages, its value falls, so the most collision can ever pay you shrinks every year. The premium does not always fall as fast. That is why the NAIC suggests comparing the premium with what your car is worth, and why the Triple-I offers its rule of thumb: if the car is worth less than 10 times the premium, the coverage may not be cost effective.

A quick way to see the break-even point is to compare the largest possible payout (the car's value minus your deductible) with what you pay for collision each year.

Example: three hypothetical cars, each with a $1,000 deductible and a collision premium of $500 a year.

For example, on the $4,000 car you pay $500 a year to protect at most $3,000. If you went six years without a total loss, you would have paid as much in premiums as the coverage could ever return. On the $20,000 car, one serious crash in 38 years would come out ahead.

The arithmetic is only part of the decision. Questions that matter just as much:

• Could you repair or replace the car from savings if you wrecked it tomorrow?
• Do you depend on the car for work, so a long gap without one would hurt?
• How much do you drive, and in what traffic? More exposure means more chances to crash.
• Would you file a small claim at all? The NAIC suggests paying for repairs yourself when they are not much more than your deductible.

How to decide whether to keep collision coverage

1. Check whether a lender or lessor still requires it. If so, keep it until the loan is paid off.
2. Look up your car's current market value with a pricing guide or a dealer.
3. Ask your insurer how much of your premium is for collision alone.
4. Subtract your deductible from the car's value to get the most collision could pay.
5. Compare the yearly collision cost with that figure and with the Triple-I's 10-times rule.
6. Decide whether you could replace the car yourself. If not, keeping collision, perhaps with a higher deductible, may be the middle path.
7. Repeat the check at each renewal, since the car's value keeps falling. Our guide to reviewing your coverage has a fuller checklist.

Collision compared with other coverages

Collision, comprehensive and liability together are what people usually mean by full coverage car insurance.