Collaborative robots are more and more used in applications requiring robots and humans to work in proximity or direct contact. However, conventional collaborative robots powered by servo-geared actuators are intrinsically dangerous due to their high reflected inertia. Recent studies have shown that low inertia and high bandwidth (> 30 Hz) magnetorheological (MR) actuators have the potential to improve the safety of collaborative robots without reducing their force and speed capabilities. The main contribution of this paper is to provide a quantitative assessment of how MR actuators can contribute to reducing the impact forces with humans, and thus increase the safety of collaborative robots. Dynamic models, validated with simplified 1 DOF experiments, show that the safety level of collaborative robots can be increased by a factor up to 3 only by changing the conventional servo-geared actuator architectures for MR actuators with no other changes. The paper also presents a simple, reliable, and fast collision detection method based on joint angular velocity band-pass filtering, a method exploiting the unique low inertia and clean dynamics properties of MR actuators. Finally, an experimental comparison of representative collaborative robots demonstrates an impact force reduction of 10 times using MR actuators, fast collision detection, and passive foam padding.