Car Insurance / Types of Car Insurance / Do you need collision coverage?
Reviewed by: Max Cho, Licensed Insurance Broker NPN 20377411
Types of Car Insurance: Minimum Required Insurance / Liability Coverage / Uninsured Motorist / Collision / Comprehensive / PIP / MedPay
Is collision coverage required?
No. Collision coverage is not legally required in any state.
Some lenders require you to have collision coverage, especially for leased vehicles. This is because technically the lender owns the vehicle and they want to recover as much of their loss as they can if a vehicle is totaled. The lenders assume you cannot pay what you owe on the totaled vehicle all at once.
If you need more coverage, because you owe more on your car than its current value, you should look into Gap insurance (sometimes called Loan/Lease Gap insurance).
Should I get collision coverage?
That depends. The main question to ask is whether you can afford to replace your car if it is totaled in a crash you cause or has a big repair bill.
Your collision coverage limit is typically the actual cash value of your vehicle (its value minus depreciation). You pay the deductible (of your choosing) when you make a claim for your collision coverage. The coverage does not include aftermarket additions like sound systems and trim unless you have special endorsements for these items (you pay extra for the endorsements in your premium).
While you don’t decide how much collision coverage you have, you do decide what your deductible is. Typically, the higher the deductible you elect, the lower the premium for this coverage will cost.
If you drive a beater because you’re frugal, you may want to skip these coverages, but remember whatever that coverage you have for your regular insurance policy is what the insurance company will pay when you crash a rental car !
Here are some things to consider: - If you have an inexpensive car and can cover the cost of replacing your vehicle, collision coverage is not a good deal.
- If you have an expensive or relatively new car, whether you owe money or not, you may not want to pay to replace it (even if you can), so you should at least consider collision coverage.
- If you make a claim against your collision insurance, the cost of your premium goes up. If you make a claim that you could have paid for yourself, you are choosing to increase your future insurance costs for 3-7 years.
How does collision coverage affect my premiums?
The table shown below illustrates how collision coverage impacts your monthly premium based on how much your car is currently worth (not what you paid for it) and excludes the value of any upgrades or after-market additions.
Here are some interesting things to take away from this data: - For cars valued less than $20k, collision coverage adds a significant expense (22-40%) and you should question whether you get any real value for that. With a $250 deductible, you’d pay $50 more each month — in one year that’s a $600 savings. If you’re a good driver, it’s unlikely you’ll need collision coverage (especially if you have UI/UIM).
- For cars valued between $40-60k, it is less expensive to have collision coverage with a high deductible than it is to not have it all. This makes collision coverage an excellent option.
- For cars valued over $60k, collision coverage is probably a good idea, just because the value of repairs or replacement is very high. There’s no real advantage to setting a very high deductible for cars over $100k, but some savings are to be had with a higher deductible for cars valued $60-100k.