Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Apr 12, 2022

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fender bender

Auto insurance policies can be broken down into two basic categories of coverage, liability and physical damage.

When you elect to purchase both types for one vehicle, it is referred to as full coverage.

Your liability coverage, which is the part that’s mandatory in almost every state, covers you when you injure others or damage their property (car) in an accident you cause.

[Full coverage vs. liability-only car insurance]

So liability car insurance is clearly a good thing if you cause an accident, but what about YOUR car?

Enter Collision Car Insurance

Well, there is also “collision coverage,” which is part of the optional physical damage portion of an auto insurance policy.

It is designed to pay for costs to repair your OWN vehicle if it’s damaged in a collision (accident) that you cause.

Nerd alert…the actual definition of a collision in your auto policy is: “The upset of a covered auto or a non-owned auto or its impact with another object or vehicle.”

Keep in mind that you do not necessarily have to collide with another car for collision coverage to take effect.

Running into a mailbox would also be considered a “collision event.”

Here’s a curveball for you. Colliding with an animal does not meet the definition of a collision as far as insurance goes.

Comprehensive coverage would come into play if you have an accident involving a deer for example.

[For more on that see: Collision vs. comprehensive coverage]

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When your collision coverage kicks in:

– Any time your car collides with another car and it’s your fault.

– You drive into the neighbor’s mailbox – your collision coverage will pay for your car’s damage, your property damage liability coverage will pay for the mailbox, since it’s someone else’s property.

– You lose control of your car and drive off the road causing it to overturn.

– You’re also covered in the event you damage one of your own cars with another car you own (the good news is only one deductible applies is this situation).

Tip: The other driver’s liability car insurance coverage will pay to fix your car if THEY cause the accident.

Do I Need Collision Coverage?

Not necessarily. Whether or not you insure your own property is really your choice.

However, if you are leasing your car or have an outstanding auto loan, you will be required to purchase this coverage.

The company that lends you money for your ride will expect to have it insured.

Their guess is that you may not continue to pay off your loan if your car is totaled and not repaired…and they’re probably correct.

Some auto lenders will even determine the deductible you must have. They might say you cannot have a deductible higher than $500 to ensure you are able to cough it up in the event of an accident.

Collision Coverage Isn’t Necessary If Your Car Is Paid Off, But…

Your car is paid off? Great news. The choice to purchase collision coverage is up to you.

But as a general rule, if your car is still in good condition and worth a few bucks, you may want collision coverage even if you are not required to purchase it.

Would you rather trade a small additional premium each year in case your car is damaged, or test your luck and potentially have to come up with the money to repair or replace your car out of pocket?

Conversely, if it’s an older car, collision insurance may be a complete waste of money.

We’re talking a complete junker that you don’t mind running into the ground.

Of course, you’ll need to put a lot of thought and consideration into that decision, as you could be without a car assuming you don’t have a backup.

Tip: You will have to choose a deductible for your collision coverage. This means you are responsible for a predetermined amount of damages that result from a collision claim.

The higher the deductible you choose, the lower the premium and vice versa.

Be sure to contact your insurer or independent agent if you are unsure about what type of car insurance you currently have, or if you want to change or increase your current coverage.