Collision insurance is not required in any state, but it is typically required by lenders if you finance or lease a car. Here's a breakdown of what collision car insurance will and will not cover, as well as how to determine whether it's worth the money.

What does collision insurance cover?

Collision insurance covers damage to your own vehicle caused by:

• A crash you cause with another driver.
• A collision with an object such as a tree or mailbox.
• Your car rolling over.
• Another driver hitting your car, if they don’t have any or enough insurance to cover damage costs, and you don’t have uninsured/underinsured motorist property damage coverage.

Because repairing or replacing a new car can be costly, lenders frequently require collision insurance. If your vehicle is damaged but not totaled, collision insurance pays to repair it to its pre-accident condition, less your deductible. If your car is totaled, collision insurance will pay the actual cash value, less your deductible. If you don't have collision insurance, you could end up paying thousands of dollars for car repairs or a new vehicle.

How collision insurance works when the other driver is at fault

If you are in an accident and another driver is entirely to blame, the damage to your car is covered by that driver's liability car insurance. Assuming the at-fault driver has this type of coverage, you would first file a claim with their insurance. Except for New Hampshire and Virginia, which do not require auto insurance, every state requires it.

However, in many states, the minimum liability auto insurance limits are low — $5,000 or $10,000. If a driver only has the state-mandated property damage limits, he or she will not have enough coverage to pay for a newer vehicle if the vehicle is totaled. If you are in an accident and the at-fault driver's liability limits are insufficient, your collision insurance will kick in to cover the cost of repairing your vehicle.

While collision insurance covers collisions, comprehensive insurance covers non-collision damage to your vehicle, such as fire, hail, or theft. Full coverage insurance is typically defined as collision and comprehensive insurance combined with liability insurance.

How the collision insurance deductible works

Collision insurance is typically subject to a deductible, which is a set amount deducted from any collision claim check. You can set your own deductible amount, which typically ranges between $500 and $1,500.

For example, suppose you swerved to avoid hitting a squirrel in the road and instead hit a lamppost, and you have a $1,000 collision deductible. Your insurance company would cover the cost of repairing your car, minus $1,000.

If the cost of the damage was less than your $1,000 deductible, you wouldn't want to file a claim because your insurer would refuse to pay — and would likely raise your rates as a result. If the impact destroyed the vehicle, your insurer would deduct $1,000 from the estimated value of your car prior to the crash and send you a check for that amount.

Reducing or waiving your collision deductible

Remember that your collision deductible applies even if you were not at fault. If the at-fault driver does not have enough insurance to cover the damage and you do not have underinsured or uninsured motorist property damage coverage, collision insurance will cover it.

If paying to repair damage caused by someone else seems unfair, you might want to consider adding a collision deductible waiver to your policy. This is only available in certain states and waives your deductible if an uninsured driver causes an accident and your collision coverage is required to pay.

Another way to reduce your collision deductible burden after an accident is to add "disappearing deductibles" (also known as "disappearing deductibles") to your policy. Some auto insurance companies will reduce your deductible by a set amount — usually $100 — for each year you go without an accident or citation. Details vary by company, but it usually costs more and isn't worth it if you don't end up in an accident.

The cost of collision insurance

According to the National Association of Insurance Commissioners, the average annual cost of collision coverage in the United States was around $381 in 2019, the most recent year for which data is available. Your personal cost may be higher because this figure includes discounts and may account for group policies, which are typically less expensive than an individual policy purchased online.

You may not be able to purchase collision insurance without comprehensive coverage, or vice versa, depending on the company. This could be because you have an active loan or lease that requires both, or because your insurer requires you to buy one before you can buy the other.

Because collision claims are more common, collision insurance is much more expensive than comprehensive insurance. Higher deductibles can lower your premium if you can cover the out-of-pocket expenses.

Do you need collision insurance?

Collision coverage, like your car, loses value over time because it will never pay out more than the vehicle's value. Collision insurance eventually loses its value if you don't have a loan or lease that requires it, costing you more to have than it would pay you after a crash.

When should you drop collision insurance? Start with the value of your car and your deductible to determine whether it's worth what you're paying for it. It's not worth paying for collision coverage on a vehicle worth $1,000 or less if you have a $1,000 collision deductible.

Next, consider how much your collision insurance costs. If it isn't on a recent bill, check the declarations page of your auto policy, which is usually one of the first pages. If the cost of collision plus the deductible exceeds the value of your car, you will not receive any benefit if your car is totaled, which is the worst-case scenario for this coverage.

This is the math:

1. Subtract your collision deductible from the value of your vehicle. This is the maximum amount you could receive from a collision claim. If you can come up with this much out of pocket, you could reduce your coverage, knowing that you'd have to pay for your own car's damage in the event of a collision.
2. Subtract the amount above from the cost of your collision insurance for the duration of the policy, which is usually six months. This represents the maximum possible value of your collision insurance — the amount you'd receive if your car was totaled, taking into account the cost of coverage.

If the number is:

• Negative, you’re paying more for collision insurance than it’s worth.
• Small but positive, the coverage can still benefit you, but a claim for a total loss would only be worth this much, now that you’ve factored in the cost of coverage. So you might decide to take the risk of canceling it now and saving on premiums.
• Large and positive, keeping collision insurance makes sense. If your car is totaled, the coverage will pay a large sum, much more than the cost of the coverage.

Furthermore, keeping collision insurance makes sense if you can't come up with the amount from step one in an emergency. Remember that if your car was not totaled, the claim check would be less than the first figure you calculated.

Even if you decide that collision insurance is worth it for the time being, you should revisit the math as your car ages and whenever you get car insurance quotes.