Reviewed by Daniel Mirkovic
Updated June 19, 2024 | Published November 2, 2023
Car insurance is there to protect your car (and you, of course). Vehicles face many risks while they’re on the road, but the most obvious is the risk of hitting (or being hit by) another vehicle.
That’s where collision coverage comes in.
While it’s optional in many provinces, collision coverage is a very important aspect of auto insurance. Keep reading to learn all about it, including what it covers and why you need it.
In car insurance, collision coverage protects your vehicle from damage it sustains when it collides with other vehicles, objects, or the ground. Collision coverage will cover the costs of repairing your vehicle following a collision, minus your collision deductible.
Collision coverage is usually optional. But, it’s required in Manitoba and Saskatchewan, and for any Canadian leasing or financing their vehicle.
While collision coverage will pay to repair your vehicle if it’s damaged in a collision, it will only do so to the degree that you’re at fault for the collision.
If you’re not at fault, the payment will come from elsewhere. In provinces that have a Direct Compensation Property Damage (DCPD) system, DCPD will cover your not-at-fault collision instead. Otherwise, the driver who caused the damage (or their insurance) will ultimately pay for the repairs.
If you’re partially at fault (say 50 percent), DCPD or the other driver will cover 50 percent of the repairs. Your own collision coverage will cover the remaining 50 percent.
It’s important to understand that collision coverage only applies to the insured vehicle. If you’re driving and you damage someone else’s car, your own collision coverage won’t pay to repair their vehicle—that’s what third-party liability coverage is for.
Under collision coverage, your policy will pay the full cost of repairing your vehicle minus your collision deductible. That assumes that the damage is covered, and that you’re 100 percent at fault.
However, there is a limit to the amount that the policy will pay for repairs. That limit is the actual cash value of your vehicle. Actual cash value is your vehicle’s replacement cost minus depreciation. Or, in plain terms: the approximate value you’d get if you sold your car on the open market right before the loss happened.
If the cost to repair collision damage is greater than the vehicle’s actual cash value, it’s known as a total loss or a write-off. In cases of total loss, the insurer won’t pay for repairs. Instead, they’ll offer a settlement based on the vehicle’s actual cash value (again, minus your deductible). The insurer then takes possession of the totaled vehicle as salvage.
Collision and comprehensive coverage are two similar coverages, in that they both insure the vehicle against physical damage. However, they insure totally different types of loss, with no overlap.
While collision coverage applies to damage sustained in a collision, comprehensive coverage applies to damage from almost any other source. Comprehensive coverage typically covers things like:
Comprehensive coverage is broad. If you opt for both collision and comprehensive, your vehicle will have protection against virtually all common sources of damage. To learn more about comprehensive coverage, visit our guide to comprehensive car insurance.
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Collision insurance is optional in most provinces. The only exceptions are Manitoba and Saskatchewan.
However, you will need collision insurance if you’re leasing or financing your vehicle. Since your lessor or lender has a financial interest in the vehicle, they want to ensure that it has adequate protection. Accordingly, they will require you to keep both collision and comprehensive coverage on the vehicle (or appropriate alternatives, like all perils coverage).
For everyone else, collision insurance isn’t mandatory—but that doesn’t mean you should automatically decline it.
When deciding if you need collision coverage, consider the following:
Ultimately, whether you need collision coverage is a financial decision. Like many forms of insurance, it’s a balancing act between risk and cost.
If you’ve declined collision coverage, and you find yourself involved in a collision, one of the following will happen:
When you buy collision coverage, you don’t need to choose a coverage limit. Your policy will cover the vehicle up to its actual cash value. Instead, you choose the deductible—the amount you pay when you make a claim before the policy covers the rest.
You should choose a deductible that’s low enough for you to afford in the event of a collision, as long as you can afford the premiums. Choosing a high deductible lowers your premiums, but you’ll have to pay more when you make a claim.
The cost of adding collision coverage to your policy varies based on your vehicle and your insurance provider.
However, it typically adds approximately 10 to 20 percent to the cost of your policy.
You can estimate whether collision coverage will be expensive by checking your vehicle’s risk rating; the collision risk factors that insurers use to calculate premiums are available online. Or, just get a car insurance quote, and compare the price of a policy with and without collision coverage. With Square One, you can get an unlimited number of quotes for different cars right online, possibly helping you to choose a car that fits your insurance budget.
A deductible is the amount of money you’ll have to cover when you make a claim.
In car insurance, many coverages have their own deductibles. Collision coverage is no exception. When you make a collision claim, you’ll pay the collision deductible before your insurer pays the remaining repair costs.
When you buy a car insurance policy, you’ll be able to choose your collision deductible from a range of options. Deductibles usually range between $500–$2,000, though higher and lower options are frequently available.
Despite the similar name, collision damage waivers aren’t related to collision coverage. A collision damage waiver (CDW) is a product you can buy directly from a car rental company when you rent a car.
When you buy a CDW, it means the rental company won’t hold you responsible for damage caused to the car while you’re renting it. CDWs do not include other important auto coverages like third-party liability, and often excludes damage to tires or glass.
Sometimes, your personal car insurance policy extends your coverage to rental vehicles, though you’ll typically have to add an endorsement to this effect. You can also often buy rental vehicle insurance from an insurer that’s more affordable and more effective than the rental company’s CDW. For example, in BC, you can buy rental car insurance from ICBC that covers both damage to the vehicle and third-party liability.
Many credit cards also offer coverage for rental vehicles if you pay for the rental entirely with the card. If you have such a credit card, you can decline the rental company’s waiver. Keep in mind, though, that you still won’t have liability coverage in this scenario, at least not beyond the legal minimum. With Square One, you can get an unlimited number of quotes for different cars right online, possibly helping you to choose a car that fits your insurance budget.
Want to learn more? Visit our Car insurance resource centre for dozens of helpful articles to guide you through the complexities of car insurance. Or, get an online quote in under 5 minutes and find out how affordable personalized car insurance can be.
About the expert: Daniel Mirkovic
A co-founder of Square One with 25 years of experience in the insurance industry, Daniel was previously vice president of the insurance and travel divisions at the British Columbia Automobile Association. Daniel has a bachelor of commerce and a Master of Business Administration (MBA) from the Sauder School of Business at the University of British Columbia. He holds a Canadian Accredited Insurance Broker (CAIB) designation and a general insurance license level 3 in BC, Alberta, Saskatchewan, Manitoba and Ontario.
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