Comprehensive and Collision

In most states, drivers are required to carry liability auto insurance. Collision coverage and comprehensive coverage, on the other hand, are typically optional.

You may be unclear as to why these forms of car insurance are optional and whether or not you should pay for them. As a general rule, more coverage is better coverage. However, in some cases, paying for collision or comprehensive car insurance may not be worth it.

What is Collision Coverage?

Collision coverage pays to repair OR replace your vehicle in the event that it crashes into another vehicle or object.

Unlike liability coverage, you don't get to choose a coverage limit. Rather, the coverage limit is equal to the Actual Cash Value (ACV) of your vehicle. In other words, the most that collision auto insurance will cover is the purchase price of your car minus appreciation and the deductible.

What is Comprehensive Coverage?

Comprehensive car insurance pays to repair OR replace your vehicle if it is damaged by certain events that are beyond your control and not caused by an accident. Random occurrences like fires and storms can cause damages to your vehicle not covered by liability auto insurance.

Comprehensive car insurance covers the cost to repair or replace your vehicle (up to its Actual Cash Value) for damages from occurrences like:

  • Theft.
  • Fire.
  • Vandalism.
  • Natural disasters.
  • Falling objects.
  • Hitting an animal.
Comprehensive Coverage Threats

Do You Need Collision and Comprehensive Coverage?

While state law may not require you to buy collision or comprehensive coverage, your leaseholder or lender might.

Most leaseholders and lenders will require you to purchase both types of insurance, and if you don't, they'll do it for you by adding the price onto the cost of your lease or loan. This is known as force-placed insurance and it can cost a lot more than if you'd purchased the coverage on your own.

If you own your car and have already paid it off, the decision to get additional insurance lies in your hands. While you may want to save money by forgoing collision and comprehensive coverage, consider some of the financial risks of doing so.

Let's say you get into a crash or a tree falls on your car; you'll need to pay for the repairs or replacement completely out of pocket. Currently, if you can't afford to repair or replace your car, it's likely better for you to get collision and comprehensive car insurance.

Even if you do have enough money set aside to fully replace or repair your car, you may find it beneficial to purchase the additional coverage anyway.

Did you know, having collision insurance means your car may get repaired or replaced more quickly if you're not at fault in a crash? This is especially true if the other driver lacks adequate insurance or their insurance company contests your claims.

Plus, paying out of pocket for the cost of repairing or replacing a vehicle could dip deep into your savings, causing you more stress in the long run. You may also discover that forgoing collision and comprehensive insurance only saves you a couple hundred dollars each year, especially if you're a relatively careful driver.

Understanding Deductibles

Collision and comprehensive insurance coverage only kick in after the deductible has been met. The deductible is the portion of a claim you are responsible for covering out of pocket. Deductibles typically range from $100 to $1,000 and the higher your deductible is the lower your premium payments will be.

When choosing a deductible, make sure you can easily afford to pay it if need be. If not, it's better to pay more for your premium and less for your deductible.

The Bottom Line on Collision and Comprehensive Coverage

According to the Insurance Information Institute, approximately 77 percent of U.S. drivers have comprehensive insurance, and approximately 72 percent of U.S. drivers have collision insurance. While many of these folks select their coverage because they are required to by their lease or loan company, many others do so to protect their financial best interests.

Remember, both types of coverage are designed to make it more affordable for you to cover the cost of replacing or repairing your car if it's totaled or damaged. When purchasing either type, crunch the numbers and get some quotes to ensure that you get the best deal.