Guide to Comprehensive Auto Insurance

What is Comprehensive Insurance?

Comprehensive insurance isn’t as extensive as the name may suggest—it doesn’t protect you from all forms of damage on your vehicle. But despite being optional in some states, the Insurance Information Institute claims that about four out of five drivers choose to obtain this coverage—probably because lenders and car leases require it.

Comprehensive insurance, also known as “other than collision” coverage covers the cost of damages to your car arising from events that are beyond your control. It covers damages caused by:

• Fire
• Theft of some car parts or the entire vehicle
• Natural disasters like floods, earthquakes, and hurricanes
• Riots and vandalism
• Fallen objects like trees, branches, or ice
• Contact with animals

Comprehensive insurance is supplementary coverage, so you’ll want to pair it with collision or liability coverage for maximum protection.

Whether you’re reviewing your current policy or shopping for a new cover, the sages behind MoneyWizard will walk you through the decision process. Start with our guide to learn what comprehensive insurance protects, how it compares/differs from collision coverage, how deductibles apply to the coverage, and when you should consider dropping your coverage. Let’s dive in!

What is the Difference Between Collision and Comprehensive Insurance?

Collision and comprehensive insurance are often used interchangeably—but they cover different events. As mentioned earlier, comprehensive insurance protects your vehicle from damages caused by other things apart from an accident, such as vandalism or falling objects. On the other hand, collision insurance pays for damages to your own vehicle after you hit another car or object.

Therefore, the primary difference between collision and comprehensive insurance lies in the damage they cover. The rule of thumb to remember is that collision insurance covers your car when you’re involved in an accident with another vehicle or hit an object while comprehensive covers against events that are beyond your control.

Remember, neither collision nor comprehensive insurance pay for damages to someone else’s vehicle—liability insurance should pay for such costs. The cost of your collision and comprehensive insurance is largely determined by your car’s actual cash value.

As different as they are, collision and comprehensive insurance share a few similarities, including:

• Both types of car insurance are not mandated under state laws.
• Both collision and comprehensive insurance protect against damages to your own vehicle
• Your car’s actual cash value serves as the coverage limit for both types of insurance
• Both types of insurance have a deductible that you’re responsible for before your insurer makes a payout on your claim.
• Insurance carriers will typically offer collision and comprehensive insurance as a single package—but you can also purchase them separately.

Comprehensive insurance can be added to an auto policy without collision listed, but the reverse doesn’t apply. If you’re purchasing collision coverage, your insurance provider may require you to add comprehensive insurance as well.

How Much Does Comprehensive Insurance Cost?

Comprehensive insurance rates vary since the amount you’ll pay for a policy will depend on various factors—from where you park your car to your driving record. While all insurance companies don’t use the same parameters, here’s a list of factors that commonly determine the bottom line of your comprehensive insurance policy.

• Your location. Due to the higher rates of accidents, theft, and vandalism in urban areas, you can expect to pay a higher premium than a driver who’s based in the outskirts or rural areas. Where you park your vehicle (in a secure garage or on the street) and the availability of anti-theft features in your car may impact your insurance rates as well. Besides, different states typically regulate insurance companies differently—so premiums will vary from state to state.
• Type of car. Some cars are more popular with car thieves. Certain vehicles also cost more to repair than others. You may pay a higher premium if your car is one of these. And since your comprehensive insurance coverage is often calculated based on the actual cash value, your car’s value will also weigh in on your comprehensive insurance costs. Older, less valuable cars typically have lower premiums than newer cars.
• Your driving record. You’ll enjoy lower comprehensive insurance rates if you portray a better driving record. Serious traffic infractions or past accidents will raise your insurance premium. You may also pay a higher premium if you’re a new driver without a solid insurance track record.
• Your claims history. This is another influential factor and insurers will thoroughly analyze it before giving a policy. Insurers will consider you a higher risk if you have a history of prior insurance claims—so they’ll charge you more.
• Your personal demographics. To assess how risky you’re to insure, providers will factor in your age, gender, and marital status. Married people typically pay lower premiums compared to their single counterparts. Also, mature drivers generally have fewer accidents than younger, less experienced drivers. You’ll pay more for comprehensive insurance if you’re a young driver.

Gender also impacts your insurance rates. Statistically, women are involved in fewer accidents and less driver-under-influence (DUI) violations. With all other aspects equal, women typically pay lower premiums than male drivers.

• Your credit. In most states, auto insurers use a special variation of your credit score—your credit-based insurance score—to measure your insurance risk. This statistical tool helps insurance companies predict your likelihood of filing a claim and the approximate cost of the claim.
• The deductible amount. Choosing a low deductible means you’ll have lower out-of-pocket costs when you file a claim. Unfortunately, the lower deductible will translate to a higher premium. Raising your deductible will help you enjoy lower insurance rates.
• Coverage gaps. Insurance companies will heavily penalize any insurance gaps. Coverage gaps in your insurance history may be considered untrustworthy, so your insurer will charge you more. Before switching to a new carrier, ensure the start of your new policy and the end of the current one is synchronized.

According to the Insurance Information Institute, the national average annual cost of comprehensive insurance is about $159.72. Insurance companies have their own way of calculating premiums, so you’ll want to use their online insurance cost calculators to get an estimate of how much you might pay.

What’s the Deal with Deductibles?

The insurance deductible is a crucial aspect of your insurance contract—understanding its role is an essential part of getting the most out of your policy. By definition, a deductible is the amount of money you’re responsible for paying toward a covered loss. You’ll typically pay this money out-of-pocket before your insurer pays out your claim. When you’re involved in a car accident, your deductible amount is subtracted from the claim payment.

Deductibles typically range from $500 to $2,000 and are a way through which risks are shared between the insurer and policyholder, and can be either a percentage of the total amount of insurance on your policy or a specific dollar amount. The terms of your insurance coverage will typically stipulate the deductible amount—which you’ll find on the declarations page of your auto insurance policy.

But how do deductibles work? Let’s put it into context.

With auto insurance, the specific deductible amount will come off the top of your insurer’s claim payment. For instance, if your policy fine print states a $1,000 deductible and—after an accident—your insurer determines that your insured loss is worth $15,000, you’ll receive a claims check for $14,000. So, you’ll pay your $1,000 deductible and your insurer will cover the remaining $14,000.

With auto insurance, your deductible applies every time you file a claim. This is unlike health insurance where you must meet a specific annual deductible.

Your deductible may be an unpleasant out-of-pocket cost, but raising it can help you save money on your policy. For instance, increasing the dollar deductible from $500 to $1,000 on your car insurance can reduce your comprehensive coverage premium rates. Going to a $2,000 deductible will even save you more. The logic is that, when you choose a higher deductible, there’s a lower risk covered by your insurance company—hence the lower premiums.

Remember that in the event of loss, you are solely responsible for the deductible—so choose an amount you’re comfortable with.

Is Comprehensive Car Insurance Worth It?

As optional as comprehensive car insurance may be in all U.S. states, it may be mandatory when you finance a car purchase or lease one. Failing to meet the lessor’s or lender’s requirements result in a repossession or a costly force-placed insurance.

And while it isn’t legally required, comprehensive insurance is worth it if the premium you’ll pay is only a small percentage of your car’s actual value. Comprehensive insurance may also be a worthy option if you can’t afford to repair or replace your vehicle without insurance help. According to the Insurance Information Institute, you should carry comprehensive insurance if your car is worth more than 10 times your annual premium.

Some factors that will help you decide whether comprehensive auto insurance is worth it include:

• The age, value, and mileage of your car
• The risk of vandalism, theft, and natural disasters in your area
• Your ability to cover a replacement or repairs on the vehicle out-of-pocket
• The cost of insurance premiums

When Should You Consider Dropping Comprehensive Coverage?

In some cases, paying premiums for physical damage coverage may not be worth it. Here are instances that justify dropping comprehensive coverage:

• You’re covered on another policy. It makes sense to drop your insurance coverage if a family member includes your vehicle on their policy, which includes comprehensive insurance. However, your car must be garaged at the family member’s residence to be covered on their policy.
• Your vehicle’s value is low. You should consider dropping comprehensive coverage if your vehicle’s actual value is low, typically less than 10 times your annual premium. Factor in your deductible amount and the potential payout on a covered loss may not be worth the cost of your premiums.
• You can pay for damages out-of-pocket. If your car is fairly old, the cost of repairing or replacing it may not be as high as that of a new car. As a result, it makes sense to drop comprehensive coverage and pay for any damages since the expense isn’t as high.

Conclusion

While state laws don’t mandate comprehensive insurance, it can be an inexpensive way to protect yourself from the unexpected expense of replacing or repairing a damaged vehicle—not forgetting the broad coverage the policy offers.

Remember, auto insurance rates are greatly individualized, so it’s essential that you do some comparison shopping. One carrier may treat you better than another in relation to price. Don’t forget to consider ways to save money while still staying protected. Your insurance provider may give you discounts you were unaware of, including military discounts, anti-theft device discounts, or bundled policy discounts.

Your policy rests there patiently waiting for a claim—and when this happens—you want to know that your insurance policy is structured well to protect your finances. Why not start with a few online quotes today?