Collision Insurance
Collision insurance is a type of auto insurance coverage that pays for damage to your vehicle resulting from a collision with another vehicle or object, regardless of who is at fault. It covers scenarios such as crashing into another car, hitting a tree or pole, or rolling over.
While it does not cover damage caused by weather, vandalism, or theft (those fall under comprehensive insurance), collision insurance plays a vital role in protecting the value of a vehicle, especially newer or financed ones.
This coverage is especially relevant when purchasing or leasing a vehicle through a dealership, as many lenders or lease providers require collision insurance until the loan is paid off.
How Collision Insurance Works
Collision insurance comes into play after an accident where your vehicle sustains damage. After paying the deductible (a pre-agreed amount out of pocket), your insurer covers the cost of repairs or, in the case of a total loss, the actual cash value of the car at the time of the incident.
Covered scenarios include:
- You hit another vehicle and cause damage to your own car.
- Another driver hits you and is uninsured or underinsured.
- You collide with a stationary object like a guardrail or tree.
- Your car rolls over during an accident.
Collision insurance does not cover medical expenses, damage to the other driver’s car, or non-collision incidents like theft or hail damage. Those fall under separate coverage types, such as liability or comprehensive insurance.
Is Collision Insurance Required?
State laws typically do not require collision insurance; however, if you're financing or leasing a vehicle, the lender or leaseholder will almost always require it. This ensures that their financial interest in the car is protected until the agreement is fulfilled. Even without a legal or financial obligation, many drivers opt to carry collision insurance to protect against the high costs of repairs.
Collision Insurance vs. Comprehensive Insurance
These two coverage types are often confused, but they protect against very different risks:
Dealerships often recommend a bundled policy that includes both, especially for high-value vehicles or in areas with high traffic or unpredictable weather.
Deductibles and Limits
Collision insurance policies come with a deductible, which is the amount you pay before your insurance kicks in. Standard deductible amounts range from $250 to $1,000. A higher deductible typically results in a lower premium, but it also means incurring more out-of-pocket expenses in the event of a claim.
The insurer will cover up to the actual cash value (ACV) of the vehicle, which factors in depreciation. If the repair cost exceeds the ACV, the car may be declared a total loss, and a payout is issued instead of repairs.
Why Collision Insurance Matters to Dealerships
For dealerships, especially those selling or leasing new and certified pre-owned vehicles, collision insurance is a topic that frequently comes up during financing and insurance (F&I) discussions. Customers need to understand what protection they’re getting when they drive off the lot.
Dealership F&I managers often:
- Educate buyers on required coverage for financed vehicles.
- Help facilitate communication between the customer and their insurance provider.
- Offer insurance products or gap coverage to supplement standard collision insurance.
Ensuring customers understand the importance of this coverage builds trust and protects both the buyer and the dealership’s financial interests.
Who Should Consider Collision Insurance?
Collision insurance is a smart choice for:
- Drivers of newer or high-value vehicles.
- Anyone leasing or financing a vehicle.
- Urban drivers exposed to more frequent traffic and a higher risk of accidents.
- Drivers without a strong emergency fund to pay for major repairs out of pocket.
On the other hand, those with older vehicles near or below market value may opt to drop collision coverage, especially if the premium and deductible exceed the potential payout.
Understanding insurance coverage is crucial when guiding buyers through the process of vehicle ownership.
Automotive Training Network (ATN) offers expert F&I and sales training, equipping your dealership staff to effectively explain collision coverage, build trust, and close more deals.
Strengthen your team’s skills with ATN’s proven dealership training programs.