Protecting your car: Do I need collision insurance?

Overview: Collision coverage is vital for protecting your vehicle. This coverage may help cover repair costs if your car sustains damage in a crash involving another vehicle or an object, such as a fence, regardless of who caused the incident. It’s important to understand what collision coverage includes and excludes, how deductibles and actual cash value (ACV) function and how to determine if this protection is the right decision for your vehicle and financial situation.

Auto insurance can be complicated, especially when you’re deciding whether you need collision coverage. This type of insurance is designed to protect your car in the event of a crash, covering damages regardless of who is at fault. Understanding what collision insurance covers, how it works and whether it’s right for your vehicle can make this decision easier. Let’s explore what you need to know about this coverage.

What are the main types of car insurance coverage?

Before diving into collision coverage, let’s review some of the common car insurance coverages:

• Liability coverage — typically required by law depending on the state, this coverage can help pay for damages or injuries you cause to others. It does not cover your own vehicle or injuries.
• Collision coverage — designed to protect your car, collision insurance pays for repairs or replacement if you’re involved in a crash, whether with another vehicle or an object like a pole or fence. This is often optional unless you are financing your car.
• Comprehensive coverage — this covers non-collision-related damages, such as theft, vandalism, natural disasters or hitting an animal. Like collision coverage, this is usually optional unless required by a lender.

What can collision coverage help pay for?

Collision coverage specifically helps repair or replace your car when it’s damaged in certain situations. Think of it as a layer of protection for incidents like crashes or impacts, whether caused by you or someone else.

Below is a breakdown of potential scenarios where collision coverage typically applies to your car:

Coverage specifics can vary by policy, so reviewing your policy details will help you understand exactly what is included.

Understanding costs: Deductible and premium

Collision coverage comes with two important financial aspects: the deductible and the premium.

• Deductible — this is the amount you pay out-of-pocket per accident for repairs before your insurance covers the rest. Deductible amounts can vary, often falling between $500 and $1,000. For example, if your deductible is $500 and repairs total $3,000, you’ll pay $500 and your insurer pays the remaining $2,500.
• Premium — this is the regular fee you pay (monthly, quarterly, bi-annually or annually) for coverage. Generally, choosing a higher deductible results in a lower premium and vice versa. Balancing your premium and deductible based on your budget is key.

A higher deductible often means you may have a lower premium and choosing a lower deductible often means a higher premium. Knowing these costs can help you evaluate whether collision coverage fits within your financial plan.

Do I need collision insurance?

Whether or not you need collision coverage depends on your car’s value, financial situation and whether you’re leasing or financing your vehicle. In most cases, collision insurance pays up to your car’s ACV at the time of the accident. ACV is determined by a car’s market value minus depreciation for wear and tear, age and mileage. It’s important to note that collision coverage will not pay for a brand-new replacement vehicle—it pays what your car was worth just before the accident.

This means understanding your car’s current value is crucial when deciding whether collision insurance is worth it.

• Leased or financed cars — if you lease or finance your car, your lender/lessor will likely require collision insurance as part of your agreement. This protects their financial interest in the vehicle, as repairs or replacement can be costly after a crash.
• Cars you own outright — if you own your car without a loan, collision insurance becomes optional. You’ll need to evaluate whether the coverage makes sense for your situation:
  • Assess your car’s value. Check online resources like Kelley Blue Book or the National Automobile Dealers Association (NADA) to determine your car’s current worth.
  • Understand your deductible. Can you comfortably afford to pay your deductible amount in the event of an accident? Choosing a higher or lower deductible can help you adjust your insurance premium.
  • Compare your premium. How much does adding collision coverage cost per year?
  • Consider repair costs. Without collision insurance, would you be able to pay for repairs or replace your car out-of-pocket?
• Newer or high-value cars — for newer or more expensive vehicles, collision coverage provides valuable protection because repair costs can quickly add up.
• Older or low-value cars — for older cars with little market value, it might be more cost-effective to skip collision coverage since the cost of the premium and deductible could exceed the car’s worth. However, keep in mind that if you choose not to carry collision insurance, you assume full responsibility for repairs or replacement after an accident.

Is collision coverage worth it?

The answer to whether collision coverage is worth it depends on your unique circumstances. Factors to weigh include your car’s value, your ability to afford non-covered repairs and the cost of coverage itself. Since accidents can happen at any time, having collision insurance could save you from significant financial stress, especially if your car is newer or more valuable.

Need help understanding your policy?

If you’re still wondering, “Do I need collision coverage?” or “What is a collision deductible?” talking to your insurance agent can be helpful. They can offer personalized advice based on your car, budget and driving habits, and explain how potholes and related damages might be covered under your auto insurance policy. Additionally, reviewing your specific policy documents will help clarify what’s included in collision coverage.

You can get an auto insurance quote now, or give us a few details and a State Farm® agent will reach out to you.