You probably don’t think much about your car insurance. It gets automatically deducted from your account every month—just like that “free” streaming trial you forgot to cancel three years ago. But every once in a while—after you scrape your car against the wall of a cramped parking garage or when a renewal notice shows up in the mail—you pause and think:
Wait… what am I actually paying for?
If you’ve ever looked at your auto insurance policy and felt confused, you’re not alone. Collision coverage, in particular, is one of the most misunderstood parts of a car insurance policy. Let’s change that.
The main types of car insurance
If you’re willing to pay for it, there’s probably an insurance policy for it. From insuring your pet’s acupuncture treatments or your most precious body parts, the insurance industry has found a way to cover just about everything.
But when it comes to the basics—the ones that actually matter after a car accident—here’s what you need to know:
- Liability insurance: Required in most states. It covers the other driver’s damages if you cause an accident.
- Comprehensive coverage: Covers non-collision events like theft, vandalism, fire, weather damage, or hitting a deer.
- Collision coverage: Pays for damage to your own car after a collision—whether you hit another car, a pole, or a pothole.
- Uninsured/underinsured motorist coverage (UM/UIM): Protects you if you’re hit by someone without enough (or any) insurance.
Collision and comprehensive insurance are often bundled together as part of what people casually call “full coverage.” But they’re not required by law. The only time you’ll be forced to carry them is if you lease or finance your vehicle and the lender says so.
What collision coverage actually covers
Collision coverage helps pay to repair or replace your car when it’s damaged in a crash—regardless of who caused it. It typically applies to:
- Accidents involving another vehicle (even if you’re at fault)
- Crashes with stationary objects (like a guardrail, tree, or fence)
- Single-car accidents (like overcorrecting and slamming into a curb or utility pole)
- Hit-and-run incidents (depending on your insurer and state law)
If you file a collision claim, your insurance company will either pay for repairs—minus your deductible—or declare the vehicle a total loss and pay you its actual cash value.
Actual cash value is the market value of your car right before the crash, not what you paid for it and not what it would cost to replace it with a new one. Insurance companies determine actual cash value based on:
- Your vehicle’s make, model, and year
- Mileage at the time of the accident
- Overall condition (including wear and tear)
- Local market data for similar vehicles
- Installed features or upgrades (sometimes)
Want to estimate your car’s actual cash value? Tools like Kelley Blue Book or Edmunds can give you a ballpark figure. But don’t be surprised if your insurer comes in lower—especially if your car had pre-existing cosmetic or mechanical issues.
What collision coverage doesn’t cover
Here’s where many people get confused. Collision coverage does not cover:
- Medical bills for you or your passengers
- Damage to the other driver’s vehicle or property (that’s what liability insurance is for)
- Damage caused by theft, fire, vandalism, weather, or hitting an animal (that’s what comprehensive coverage is for)
- Normal wear and tear or mechanical breakdowns
Another important part of collision coverage that often gets overlooked is the deductible—the amount you’re responsible for paying out of pocket before your insurance kicks in. Most collision deductibles are set at $500 or $1,000, and this amount is subtracted from your payout when you file a claim.
Consider the following example:
Sam hits a concrete post in a parking garage. The damage to her car is estimated at $3,200. Sam’s collision deductible is $1,000. This means Sam’s insurance company will cover $2,200 of the repair costs, and she’ll have to pay the remaining $1,000. If the total repair bill was less than Sam’s deductible—say $800—she would have to pay the full amount.
Is collision coverage required?
Collision coverage sounds like the kind of thing that should come standard with every auto policy. After all, one of the biggest worries when you’re behind the wheel is damaging your own car.
But collision coverage isn’t required by law. It’s an optional add-on that you have to specifically include in your policy. That said, if you’re leasing or financing your vehicle, your lender will almost certainly require you to carry both collision and comprehensive coverage until the loan is paid off.
Once you own your car outright, you’re free to drop collision coverage. But should you?
Here’s how to think it through:
- Can you afford to repair or replace your car out of pocket? If not, it might make sense to keep collision coverage.
- How much is your car worth? If your vehicle is only worth a few thousand dollars and you have a high deductible, the payout from a collision claim might be minimal. In that case, saving the premium could be the wiser move.
- What’s your driving environment like? If you commute through heavy traffic or live in an area with a high risk of accidents, your chances of needing collision coverage are higher.
Collision coverage can be a financial lifesaver after an accident—but it’s not a catch-all. If you’re in a crash and expect your insurance to pay for medical bills, lost wages, or the other driver’s property damage, you could be in for a nasty surprise.
If you’ve been in a crash and are unsure about your insurance coverage—or if you’re fighting with the insurer over what’s covered—it’s worth speaking with an attorney.
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