If you’re like most people you find vehicle insurance confusing. Different types of coverage, multiple add-ons, and various deductible choices all have an effect on your insurance rates but you’re not really sure how. Here’s a breakdown of one type of auto insurance you may need: collision.
What is Collision Insurance?
Collision insurance covers damages to your vehicle if you are in an accident. If you hit another car or an object such as a street sign or power pole your insurance company will pay for the repairs, up to an amount equal to the current value of your car. In some states, such as Michigan, there are three types of collision insurance: broad form limited, and standard. Here’s a chart from the state of Michigan that shows the different cost scenarios with each type of collision coverage:
| If your vehicle is damaged in an accident and you have this kind of collision coverage. | Nature of Accident | |
| No Collision Coverage | Your are MORE THAN 50% at fault (you hit a tree , a person, another vehicle, etc.) | Your are 50% OR LESS at fault (you are rear-ended, side-swiped, etc) |
| No Collision Coverage | Your insurance pays nothing. You are responsible for the cost of repairs to your car. | Your insurance pays nothing. You are responsible for the cost of repair to your car.* |
| Limited Collision Coverage | Your insurance pays nothing. You are responsible for the cost of repairs to your car. | Your insurance pays. If you have chosen a deductible, your insurance pays the cost of repairs over and above the deductible. You must pay the deductible. |
| Limited Collision Coverage | Your insurance pays nothing. You are responsible for the cost of repairs to your car. | Your insurance pays. If you have chosen a deductible, your insurance pays the cost of repairs over and above the deductible. You must pay the deductible. |
| Standard Collision Coverage | Your insurance pays, except the deductible that you have chosen. You must pay the deductible. | Your insurance pays, except the deductible that you have chosen. You must pay the deductible. |
| Broad Form Collision Coverage | Your insurance pays, except the deductible that you have chosen. You must pay the deductible. | Your insurance pays. You do not have to pay the deductible. |
What Does Collision Insurance Cover?
Keep in mind that collision insurance covers your vehicle, not the damage to another car or object. You’re insurance rate will be higher with collision added but it may be worth the cost.
Collision insurance is designed to take away the worry of having to repair or replace your car when you least expect it because the policy will pay for the damages. Note that if your car is totaled the replacement amount will be based on the current market value of the car (before the accident) and not the amount you paid for it. This means if you financed your vehicle the entire balance of the loan may not necessarily be covered due to interest and other fees in your loan contract.
Do I need Collision Insurance?
Collision insurance isn’t required to legally drive your car but may be required if your vehicle is currently financed. That means if you’re still making payments on the car the lender you financed the loan through will have included a clause in the loan agreement that states you must carry collision coverage. Because your insurance company will require the loan information when you purchase your policy the loan company will be notified if you don’t have collision coverage and may purchase coverage independently, adding it to your auto loan payment. Usually when this happens it’s at a much higher rate so if you have a loan on your vehicle you should add collision to your policy.
As a rule of thumb you should have collision coverage if you can’t afford to repair of replace your vehicle. That means if you don’t have enough money in your savings to buy another car then collision insurance is the safest plan, even if it makes your rates higher.
It’s also a good idea to have collision insurance if you have a higher accident risk factor for the person, area, or type of driving expected for the car. While teenaged drivers are the first thing that probably popped into your mind there are other reasons that you should consider that might cause an accident that would damage your car. Here are some examples:
High risk drivers such as those with previous accidents on their driving record
Distracted drivers
Areas prone to inclement weather
High mileage drivers
Areas with a high population of animals such as deer
In fact, teenaged drivers are tied for the number 10 spot when it comes to accident causes. Here are the other 10 reasons most likely to cause a vehicle accident:
Driving while Distracted
Distracted driving is the leading cause of car accidents. While texting is probably the first thing you think of when you hear “distracted” the fact of the matter is this has been the number one accident cause for decades. Eating, talking to a passenger or on the phone, and reaching for the radio to change the station are all examples of distracted driving so pay attention to the road when you’re behind the wheel!
Driving while Intoxicated
Drunk driving causes the most accident fatalities. Always have a designated driver who stays sober and if you can’t then call a taxi or friend to drive you home.
Speeding
Speeding is the third highest cause of accidents, so no matter how late you are pay attention to the speed limit. If you’re in an accident you’re going to miss that appointment anyway so don’t take the risk.
Reckless Driving
Driving aggressively, dodging in and out of lanes, and being careless can not only wreck your car it can take your life or the life of a passenger or pedestrian. Be calm behind the wheel and don’t take risks.
Rain
Rain reduces visibility and can make the road slippery. If the rain is heavy it can cause flooding or slick roads, so if you’re caught in a downpour and can’t see the road don’t hesitate to pull over and wait it out.
Running Red Lights
There’s a reason for that amber light: it tells you the light is about to turn to red. It may seem obvious but running red lights is the number six cause of accidents so don’t push your luck if you’re coming up to a light that’s about to change. Likewise, don’t take it for granted that the other vehicles are going to stop just because your light is green! Always look before you go through an intersection.
Night Driving
Driving at night is more dangerous than driving during the daylight hours just because it’s harder to see. Pay extra attention and if you’re driving in a rural area that doesn’t have streetlights it’s a good idea to slow down a bit and use your bright lights for extra visibility.
Vehicle Defects
The number eight slot goes to vehicle design defects, so if you get a recall notice for your car make sure you take care of the issue promptly. It’s also a good idea to have regular inspections performed on your car in case there’s a defect that hasn’t been reported to the manufacturer yet.
Driving too Close
Tailgating is never a good idea because you never know what the driver in front of you is about to do. Always stay a safe distance behind, and the faster you’re driving the further the distance should be.
Improper Turns or Wrong-way Driving
Pay attention to street signs so you don’t go the wrong way on a one-way street. Likewise, use your signals before you turn and don’t make a turn from the wrong lane. Make sure you yield the right-of-way properly when turning and pay extra attention if you’re in a strange area.
So you see, you have as much chance of getting in an accident by going the wrong way as you do if you put a new teenaged driver behind the wheel. That gives a new perspective on collision coverage, doesn’t it?
Deductible and Cost
If you decide you need collision but aren’t sure if you can afford the cost check with your insurance agent regarding the deductible and how it will affect your rate. A deductible is the amount you’ll have to pay out of pocket towards the damages incurred to your vehicle, and basically the lower the deductible, the higher the rate. For example, if you have a collision deductible of $500 your monthly rate will be higher than if your deductible is $1000. Keep in mind that you’ll need to have the cash to pay the deductible if there is an accident; if you have to go without a vehicle while saving up for your portion of the cost it may not be worth the amount you save monthly on a lower rate.
The cost of your collision policy will depend on where you live. According to the National Association of Insurance Commissioners (NAIC) here are the states with the most and least expensive vehicle insurance rates in 2014:
| Rank | Most expensive states | Average expenditure | Rank | Least expensive states | Average expenditure |
| 1 | New Jersey | $1,263.67 | 1 | Idaho | $571.94 |
| 2 | Michigan | 1,227.36 | 2 | Iowa | 585.71 |
| 3 | New York | 1,205.03 | 3 | South Dakota | 601.33 |
| 4 | Louisiana | 1,205.03 | 4 | Maine | 601.33 |
| 5 | District of Columbia | 1,192.45 | 5 | North Dakota | 630.24 |
| 6 | Florida | 1,140.84 | 6 | Indiana | 642.19 |
| 7 | Delaware | 1,125.74 | 7 | North Carolina | 643.84 |
| 8 | Rhode Island | 1,106.08 | 8 | Wisconsin | 646.48 |
| 9 | Massachusetts | 1,035.52 | 9 | Nebraska | 662.83 |
| 10 | Connecticut | 1,031.70 | 10 | Vermont | 665.17 |
Comprehensive vs Collision Car Insurance
Comprehensive insurance covers the other driver and property and is required by law in order to license your vehicle. Collision is an optional coverage unless, as previously noted, you have a loan on your vehicle or can’t afford to replace it in the event you’re in an accident. So the answer is yes, you need comprehensive and maybe you need collision, too.
According to the Insurance Information Institute (III) for vehicle model years 2014 to 2016 passenger cars and minivans had a slightly higher rate of accidents than SUVs and pickup trucks, with a combined average of 7.4 claims per 100 policies and the average cost of collision repair or replacement was $5,256 per vehicle. That means you have roughly a seven in 100 chance of being in an accident that causes damage to your vehicle, and you can expect it to cost over $5,000 in damages if it happens.
Sample Scenarios with and Without Collision Insurance
A child runs out into the street and you jerk the wheel. You miss the child but hit a electrical pole and dent the front end of your car. The body shop estimates the damages will cost $1500.
Without collision you have to pay the entire $1500 to have your vehicle repaired.
You have collision insurance with a deductible of $500, so you only have to pay the $500 and the other $1000 is paid by the insurance company.
You have collision coverage but chose a higher deductible of $1000 in order to have a lower monthly rate. You pay the $1000 deductible and the insurance company pays the $500 balance.
You hit a patch of ice and your new vehicle goes out of control going off the road and rolling over. The repair shop says the damages will cost $12,000 to repair.
You have no collision coverage and must now shop for a new car.
You have collision coverage so you pay the deductible and the insurance company pays the rest of the cost for repair.
You hit a deer while driving at high speed and your car is totaled. Your insurance company gives a current value of $15,000 on the vehicle and you still owe $11,000 on your car loan.
You dropped your collision coverage and the loan company didn’t find out: you still owe the loan company $11,000 and need a replacement vehicle.
You have collision coverage so the insurance company will pay off your loan. You have a $1000 deductible so you’re left with $4,000 to use as a down payment on a new car.
You back into a light pole when parking. Your repair estimate is $500 to replace your rear bumper.
You have no collision policy so you must pay the full amount of repairs.
You have collision coverage but the deductible is $1000 so you must pay for the repairs.
Keep in mind these scenarios are just that: as outlined previously you may have the option of purchasing broad collision coverage, in which case whether or not you are liable for a deductible depends on who was at fault in the accident. Make sure to ask your insurance agent to explain your options and how each option will affect your rate.
Conclusion
If you have a car loan then yes, you need collision coverage. You can lower the rate by choosing a higher deductible, but make sure you can pay that amount if you’re in an accident. You’ll be responsible for paying the deductible unless you have a broad collision coverage in which case you may not be required to pay the deductible if you were less than 50 percent at fault for the accident.
If you don’t have a loan on your vehicle consider all the factors before deciding you do or don’t need collision insurance. If you live in a high traffic area where there seems to be an accident every other day then collision insurance would be a wise choice. If there is a high deer population where you drive then you probably have a higher chance of hitting one and should consider collision coverage. Likewise, if you can’t afford to buy a replacement vehicle if you’re in an accident you should consider whether choosing the higher monthly rate that comes with a collision policy is the wiser choice when you look at the big picture.
Sources:
- https://www.michigan.gov/documents/cis_ofis_ip200_25081_7.pdf
- https://www.iii.org/fact-statistic/facts-statistics-auto-insurance