What Are Collision And Comprehensive Car Insurance?

Car insurance for vehicle damage is usually offered in two parts: collision car insurance and comprehensive car insurance.

Each of these forms of coverage offer you slightly different types of protection against damage to your car. They are both subject to front-end co-payment in the form of a deductible.

Collision car insurance is designed to offer you coverage against damage to your vehicle as a result of colliding with another object such as a car, a post or a curb. Collision car insurance provides this coverage regardless of whose fault the accident was.

It is also worth noting that you do not necessarily have to collide with another vehicle to make a claim, as you would still be covered for example, if you collided with a ditch or pot hole and dented your car or bent your wheel.

With collision coverage you can take out deductibles of $100, $250, $500 or $1000 for personal auto policies.

Comprehensive Car Insurance

Comprehensive car insurance covers anything else not covered by collision car insurance. For example, it will cover you against theft, fire, vandalism, glass breakage, hitting large wild animals or damage as a result of severe weather such as wind or hail.

With comprehensive coverage you can purchase deductibles of $50, $100, $250, $500 or $1000. In the event that you need to make a claim, you will be paid up to the blue book value of your vehicle minus your deductible.

Note: In order to receive comprehensive coverage, what you make a claim for must be attached to your vehicle. So if you have a laptop that was stolen from your car seat for example, then this would not be covered with comprehensive coverage. In order to insure such an item, you would need to take out coverage with either renters or home owners insurance.

The following video provides a summary of what comp and collision insurance are for.

Insuring Your Vehicle

You can purchase either collision car insurance or comprehensive car insurance coverage, or both. Usually getting both of these policies is recommended, as this will provide you with an excellent level of protection against a variety of risks on the road and risks to your vehicle at an affordable price.

If you have a loan on your vehicle however, then you will be required to take out both collision and comprehensive coverage, and when these polices are combined, it is referred to as having full coverage. When buying either of the coverages, it is advisable to take as much risk as you can afford through higher deductibles.

This means that for smaller expenses you will probably not need to make a claim as when you have a high deductible you will pay for these expenses by yourself.

Once you get over the limit of your deductible however, that is when your insurance company will step in and cover the rest of the outstanding amount.

If you are a relatively safe driver, then having high deductible limits can be a great way to save you money on your policy, providing that is, you can afford to pay any expenses you incur below that deductible limit.

Because higher deductibles will also mean you making fewer claims on your insurance, this can also be a good way to keep your premiums down and thus make your policy much more affordable for you to maintain over the long-term.

Note: The most common deductible limit for each policy is $500, although $1000 limit deductibles are becoming more common. These limits are for personal auto policies, business auto policies generally have much higher deductible limits.

When purchasing car insurance for vehicle damage, bear the follow two points in mind:

1) Get A Discount For Taking Risks

If you take additional risk with your auto policy, such as by having higher deductible limits, then make sure that the insurance company gives you enough of a price discount for doing so.

If you do not receive a worthwhile discount for taking on this extra risk, then there is little point in raising your deductible.

2) Carry Higher Deductibles Even If You Can’t Afford It

If you are in a situation where you need higher liability insurance limits to protect future assets or income, for example you are a student who will soon be finishing medical school, then it is usually a good idea to carry higher deductibles even if you don’t currently have the money to cover them as this will allow you to afford the higher liability limits that you need.

Safeguarding Premium Rates

If you have had to make claims on your insurance before and your premiums are in danger of rising significantly if you make another claim, then it is recommended that you opt for very high deductible such as $1000.

It is very unlikely that you will file for a small claim as this will put you at risk of paying higher rates, so there is no point in paying for something that you are not going to use anyway. A high deductible will therefore help to safeguard you against rising premium costs, whilst also helping you to save money on your vehicle insurance in the process.

How To Choose Cost Effective Deductibles

On average, you are likely to make an insurance claim for damage to your vehicle once every four to years.

Taking this into consideration, most insurance advisers will advise their clients to opt for higher deductibles if the difference in deductibles can be recovered via premium savings within four to five years.

For example, the difference between increasing a collision coverage deductible from $250 to $500 is $250. Increasing the deductible has the effect of lowering the annual premiums from $500 to $400, thus giving a $100 annual premiums saving.

If you divide the $250 extra risk that you are taking by the $100 annual savings, you get 2.5 years. If no claim is made during this 2.5 year period, then you will make a $250 saving on your auto insurance costs.

If you can recover the costs of taking extra risk in less than four to five years, it is generally advisable to choose higher deductibles as you will end up saving money overall.

If you are not sure about what auto insurance deductibles are, the following video provides a quick review of the most important points.

When Should You Drop Collision & Comprehensive Coverage?

Ultimately, the value of your car will determine whether or not you should keep collision and/or comprehensive car insurance coverage.

To decide whether your vehicle’s value has fallen enough to warrant dropping these coverages, use the same principle previously discussed of assessing your risk and payback period. This can be calculated as follows:

The difference in deductibles
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The difference in annual premiums

In addition to this, you must also factor in the extra risk you are taking. In this case, it is the full value of your vehicle less anything you get for scrapping it at a junkyard.

For example, if your car has a junk value of $300 and it would cost $2500 to replace your automobile with a new one, then the overall or net risk to you is $2200.

If you divide your net risk by the cost of the collision and/or comprehensive premium, you will be able to determine how long it will take you to recover your risk.

If this payback period is 5 years or greater, you are better off dropping your collision and comprehensive car insurance coverage.