Collision Insurance: What It Covers and Who Needs It

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Collision insurance sounds pretty straightforward, but it won’t cover every bill after a crash. Collision coverage pays to repair your own car’s damage when you hit another vehicle or object such as a lamppost or fence. It may also pay if another driver hits your car and doesn’t have enough insurance to pay for the damage.

Collision insurance isn’t required coverage in any state, but lenders typically require it if you finance or lease a car. Here’s a little more about what collision car insurance will — and won’t — pay for, plus how to know if it’s worth the cost.

What collision insurance covers

Even though “collision insurance” sounds broad, it won’t cover every single collision you may experience. If you have it, this coverage will pay for damage to your own car from:

  • 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.

A driver with only state-required property damage limits may not have enough coverage to pay for damage they cause.

If you’re in a crash and another driver is entirely at fault, their property damage liability insurance pays for damage to your car. Assuming they have it, you’d make a claim to their insurance first. This coverage is mandatory in every state except New Hampshire, which doesn’t require auto insurance. However, in many states minimum limits are low — just $5,000 or $10,000. A driver with only state-required property damage limits wouldn’t have enough coverage to pay for a newer vehicle if totaled. Then, your collision insurance would kick in.

This is one reason lenders require collision and comprehensive coverage as long as you’re leasing or paying off a car: You could be underwater on an auto loan, on the hook for thousands of loaned dollars if your car was totaled shortly after buying it.

How the collision insurance deductible works

Usually, collision insurance is subject to a deductible, a set amount subtracted from any collision claim check, typically $500 to $1,500.

Never file a collision claim if the damage costs less than your deductible — your insurer won’t pay and may increase rates.

For example, say you swerved to avoid hitting a squirrel in the road and accidentally hit a lamppost instead, with a collision deductible of $1,000. Your insurance company would pay for the cost to repair the damage to your car, minus $1,000. If the cost of the damage was less than your $1,000 deductible, you wouldn’t want to make a claim because your insurer wouldn’t pay — and might increase your rates later for having a claim. If the vehicle was destroyed by the impact, your insurer would subtract $1,000 from your car’s value before the crash and send you a payment for that amount.

This deductible would also apply if your car was still driveable, but the damage would cost more to repair than the value of your car, and the insurer declares it totaled. You could still repair your car, but it would be recorded as salvaged on the title. Some insurers won’t cover salvaged cars or will charge more if they do.

» MORE: Compare car insurance rates

The cost of collision insurance

Depending on the company, you can’t buy collision insurance without comprehensive coverage, or vice versa. This might be because you have an active loan or lease that requires both, or because your insurer requires one to purchase the other. As far as price goes, collision insurance tends to cost a lot more than comprehensive insurance because collision claims are more common. See the combined cost for both in our comprehensive and collision insurance explainer.

Do you need collision insurance?

If you have a $1,000 collision deductible, it’s not worth paying for collision coverage on a vehicle worth $1,000 or less.

Much like your car, collision coverage becomes less valuable over time, because it will never pay out more than the vehicle’s value. If you don’t have a loan or lease requiring it, collision insurance eventually loses its worth, costing more to have than it would pay you after a crash.

To know whether collision insurance is worth what you’re paying for it, start with the value of your car and your deductible. If you have a $1,000 collision deductible, it’s not worth paying for collision coverage on a vehicle worth $1,000 or less.

» MORE: What’s my car worth? Find your car’s value

Next, it’s time to look at how much your collision insurance costs. If it isn’t on a recent bill, you can look on your auto policy’s declarations page, typically one of the first pages. If the cost of collision plus its deductible add up to more than your car’s value, it won’t benefit if your car is totaled, the worst-case scenario for this coverage.

This is the math:

  1. Subtract your collision deductible from your car’s value. This is the most you could get from a collision claim. If you can come up with this much out-of-pocket, you could cut the coverage, knowing you’d have to pay for your own car’s damage after a crash.
  2. Take the amount above and subtract the cost of your collision insurance for the duration of the policy, usually 6 months. This reflects the highest possible value of your collision insurance — the most you’d gain if your car was totaled, considering 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. The coverage would pay a large sum were your car totaled, and much more than you’ve paid for the coverage itself.

Additionally, if there’s no way you could come up with the amount from step one in an emergency, keeping collision insurance makes sense. Also keep in mind that if your car wasn’t totaled, the claim check would be for less than the first number you calculated.

Even if you decide collision insurance is worth it for your car now, revisit the math as your car ages and any time you get auto insurance quotes.

This article originally appeared on NerdWallet