Last Updated: April 2019
When you’re trying to save money on car insurance, declining collision coverage may seem like a good option. But you should give this decision some thought.
After a wreck, collision coverage could make life easier, even if you did not cause the accident.
For most drivers, the cost of collision coverage can turn into a good investment.
First Things First: What Does Collision Coverage Do?
Collision coverage is one of several elements within an auto insurance policy.
The coverage could help you in several ways.
To see how it works, let’s look at some examples.
In an At-Fault Wreck
Let’s say you got distracted and caused a wreck by pulling out in front of someone or failing to maintain your lane on the freeway. We’ll assume the collision damages your car along with the other driver’s car.
- With collision coverage: You could file a claim to get your insurance company’s help repairing or replacing your car. If you still owe money on the car, collision coverage can pay it off.
- Without collision coverage: You would use your policy’s liability coverage to repair the other driver’s car and pay bodily injury to the other driver and his or her passengers if necessary. But you’d have to pay out of pocket for your own repairs.
This is the most common use of collision coverage: to protect the value of your own car after an accident. Collision will also pay if you hit a tree, a pole, or a building.
In a Wreck You Didn’t Cause
Even if you didn’t cause the collision, you may have a use for your collision coverage. When someone else causes a wreck, you expect the other driver’s liability coverage to pay for your car’s damages.
However, not all auto insurance companies pay claims quickly.
If the other driver’s liability coverage isn’t coming through quickly enough and you need the car fixed right away, you could use your own collision coverage to pay for the repairs.
Then, when the other driver’s insurance company pays, you’d use the payout to reimburse your insurance company.
This scenario shouldn’t raise your premiums, because ultimately, the other driver’s insurance pays the claim.
Other Uses for Collision Coverage
Collision coverage has some other potential uses that aren’t as ideal:
- Hit-and-Run Wrecks: If the driver who damages your car doesn’t stick around to take responsibility, your collision coverage could pay. However, buying coverage specific to uninsured or underinsured motorists would work better.
- Non-Collision Damages: Your collision coverage could kick in if someone steals your car or if it’s damaged in a storm. Ideally, you should have comprehensive coverage for this purpose. If you don’t, and if your collision coverage has to pay, expect higher premiums in the future.
How Collision Coverage Fits Into the Bigger Picture
While versatile, collision coverage represents only a portion of your auto insurance protection. The other major components include:
- Liability: This coverage, required by almost all states, pays for the other driver’s vehicle damages if you cause a wreck. Liability will also pay medical expenses for the other driver and his or her passengers. Liability kicks in only if you cause a wreck. If someone else caused the wreck, the other driver’s liability coverage should pay for your damages.
- Comprehensive: This coverage protects your car’s value if it’s stolen or damaged by the weather or a fire. Like collision coverage, comprehensive protects the value of your car when some other driver is not responsible for the damage.
- Uninsured / Underinsured Motorist: Despite state laws, not all drivers carry enough liability insurance. Some drive without any coverage at all. If such a driver damages your car in a collision, you may have to pay for the repairs yourself. Uninsured/underinsured motorist coverage protects your car in these cases.
- MedPay: While your liability coverage will pay for the driver and passengers of other vehicles in a wreck you cause, you may need help paying your own health care bills. MedPay can help. This coverage should supplement your health insurance policy.
- Personal Injury Protection: This coverage works like MedPay except it can also cover other losses such as income loss after a wreck.
If you’re re-visiting your current auto policy to improve your coverage or cut costs, or if you’re shopping for new auto coverage, be sure to consider each element of your coverage individually. Every car and driver needs its own blend of these coverages.
Who Should Have Collision Coverage?
Most states require drivers to buy liability insurance coverage because liability protects other drivers on public roads if you cause a wreck.
States do not require you to buy collision coverage. Legally, you have the freedom to decline insurance protection for your own property.
Lenders Usually Require Collision
If you still owe money on your car, the car is the legal property of your lender. Your lender will probably require you to keep collision coverage in place.
Your lender doesn’t want you to damage the car without a way to pay for repairs. If you did, they couldn’t sell the car if you defaulted on the loan.
Even if your lender doesn’t require collision coverage, you’re better off keeping the coverage in place.
If you totaled the car, you’d still owe the remaining balance on your auto loan. Your collision coverage could pay off the car for you.
If the car is worth more than your insurance policy will pay, your lender may require you to purchase gap insurance as well.
Who Can Decline Collision Coverage?
Paying off your car gives you the freedom to decline your collision protection, but you still have the responsibility to make the best financial decision.
Declining collision makes the most sense financially when:
- You Can Replace the Car: If you could easily buy another car of equal value, you can self-insure your car. This plan works best with a car worth $1,000 to $2,000. Depending on your bank account, you may consider a $3,000 or a $5,000 car self-insurable.
- You Seldom Drive the Car: If you keep an extra car, or if you seldom drive your car because you prefer public transit or you work from home, you could justify declining collision coverage since odds are low you’d be in a wreck.
Who Should Keep Collision Coverage?
Even when you have a paid off car and a bank account healthy enough to replace the car, collision coverage can still save you money, especially if you’re a safe driver with lower insurance rates.
Here’s why: Insurance allows you to leverage cash you don’t possess. If you’re paying $500 a year in collision premiums, for example, that $500 gives you access to thousands of dollars you could use to replace or repair your car.
Even if you could afford to replace your car, you’d probably prefer to keep your money in the bank so it can grow and you can invest it in your future. Collision coverage gives you this freedom.
Other Ways to Save on Car Insurance
Declining collision coverage may not be your best avenue to auto insurance savings, but you could probably find other ways to save on car insurance:
- Bundled Discounts: Most insurers give discounts when you have more than one kind of policy.
- Safe Driver Discounts: Going a few years without a moving violation can give you access to lower rates with many leading auto insurers.
- Declining Extras: Unless you expect to use your insurance company’s roadside assistance program or other bonus features, you can save money by not opting in.
- Customizing Coverage: If you have great health insurance, you may not need your auto policy’s MedPay coverage.
- Raising Your Credit Score: In most states, auto insurers base rates in part on your credit score. Increasing your score can lower your rates.
- Low-Mileage Discounts: If you seldom drive, ask your insurance company for a low-mileage discount.
- Higher Deductibles: Raising your deductibles will usually lead to savings on your premiums. Be sure you can afford to pay the deductible, though.
Collision Coverage: Protection For Your Car, And For You
Within the larger context of your auto insurance, collision coverage provides the first line of defense for you after an at-fault wreck.
Liability coverage will maintain your legal responsibility to protect other drivers, but it won’t help you. Along with comprehensive coverage, collision protects the value of your car.
For this reason, collision coverage is too valuable to decline for most drivers.
Unless your car is old enough for you to easily replace, or unless your driving habits make a wreck highly unlikely, your premiums for collision coverage can be money well spent.