The Liverpool singer, whose 1987 single Wonderful Life was a top 10 hit around the world, suffered head injuries in the crash in Ireland on 10 January, and was placed in an induced coma.
He died on Tuesday surrounded by his family in hospital, his publicist said.
His wife Camilla said she was "deeply grateful" to staff who cared for him.
The father-of-three, who was in intensive care at Cork University Hospital, "died peacefully" with his family at his side "who were singing him on his way", a statement said.
"Colin received the best possible care from the expert and highly professional staff there and we are deeply grateful for everything they did," his wife and three sons said in a statement.
Fellow Liverpool musician Pete Wylie of 80s band The Mighty Wah! paid tribute to his friend on Twitter, saying the news was "just so very sad".
"I want to send all the love I can muster to Colin's parents, brother & partner + to all who loved him, and who he loved too," he wrote.
"I could still sing the very first song Colin recorded with me in the WAH! studio. I remember it that clearly. And that voice!"
Born in Liverpool in 1962, Vearncombe had his first top 10 hit with the single Sweetest Smile in June 1987 when he was 25 years old.
His second hit song Wonderful Life, which he had previously released but only got to number 72 in the charts, made the top 10 in the UK, Switzerland, Germany, France, Austria, the Netherlands and Italy.
However, despite having found fame, Vearncombe later said "the pop star life" was not as he had imagined it.
"I was frustrated by how few of the people in the music world I respected. Maybe I just didn't go to the right clubs. I've never been a great schmoozer or networker and the idea of setting out to meet a certain type of people is anathema to me," he said.
"It was two years of disappointment - I didn't have any wild sex, I'm not a druggie, so I was just digging a hole for myself."
Wonderful Life has since been used in numerous advertisements and films, and has been covered by artists including Tina Cousins and  Katie Melua.
The album of the same name sold more than 1.5 million copies and peaked at number three.
Although he is best known for Wonderful Life and another 1980s single Sweetest Smile, Vearncombe released 15 albums under his own name.
Last year, he returned to his original stage name for a crowd-funded album, Blind Faith, which received positive reviews.
He has also published poetry and staged exhibitions of his paintings in south-west Ireland, where he lived in later life.
Hundreds of fans wrote messages of support on the musician's Facebook page following the crash.
His publicist said there would be a private funeral, as well as a memorial service for him in Liverpool "as we know there are many, many people who will want to celebrate Colin's life and work".

Notts folded on the eve of the Women's Super League One Spring Series season, prompting concern that players would be left without a club for the campaign.
Players told the BBC on Friday that the timing had left them "abandoned".
Four of England's squad for Euro 2017 - Carly Telford, Jo Potter, Laura Bassett and Jade Moore - played for Notts.
A Football Association statement on Thursday said: "The FA can confirm that it has given Notts County Ladies players the opportunity to move to new clubs within England with immediate effect.
"Following Notts County's decision last week to terminate its women's team, the FA has worked closely with the PFA and wider stakeholders to enable players to find new clubs as soon as possible.
"Players are now in a position to sign for new clubs in England. They may also move to leagues in other countries where the transfer window is open."
A statement from the Professional Footballers' Association on Friday had said: "We have also been in discussions with the FA and FAWSL to ensure that players can register with other clubs outside of the transfer window given the exceptional circumstances the players find themselves in due to no fault of their own."
What remains unclear is how many WSL clubs will have contingency within their budgets for the Spring Series to sign additional players.
Singer-songwriter Colin Vearncombe, who performed under the name Black, has died at the age of 53, two weeks after being injured in a car crash.
[NEXT_CONCEPT]
Notts County Ladies players will be allowed to sign for other sides after the club were liquidated, despite the English transfer window being closed.