Collision auto insurance pays to replace or repair a car involved in an accident. It covers damages received in a collision with another vehicle or an object, such as a tree or signpost.

Usually, if you finance or lease your vehicle, collision insurance is mandatory. If you don't owe any money on your car, collision coverage is optional.

What Does Collision Insurance Cover?

Collision insurance covers some items that may surprise you. It handles expenses related to repairs or replacement of your car when it's damaged by a covered incident, such as:

• A collision with another vehicle
• A collision with a mailbox, fence or other object
• A single-car accident where the vehicle falls or rolls over

What Collision Auto Insurance Doesn't Cover?

In general, collision insurance doesn't pay for the following:

• Damage not related to driving, such as hailstorms
• Damage to another driver's car
• Medical bills

How Much Does Collision Car Insurance Pay?

When you file a collision car insurance claim, there is a limit associated with your policy. This is the maximum your insurer will pay on a covered incident. Your collision coverage may be tied to the vehicle's actual cash value minus depreciation.

For instance, say your car is totaled during a covered event. Your insurance company would send you a check for the depreciated value of the vehicle minus your deductible. Remember that when you go car shopping, you may not find a car of the same make and model.

Reasons You May Want to Buy Collision Car Insurance

If you still owe your lender money for the car, or if you lease your car, collision insurance is probably mandatory. Lenders want to make sure that their investment is safe, and leasing companies want to make sure they can get the vehicle back at the end of the leasing term.

If you couldn't afford to replace or repair your vehicle out of pocket, then you should still consider getting collision auto insurance — even if your car is paid off.

Collision insurance auto insurance makes a great addition to your state-mandated coverage. It can prevent you from devastating financial losses.