Even though some types of automobile insurance aren't required by law, you may still want coverage to protect your vehicle. Comprehensive and collision insurance policies do just that.
Describes collision and comprehensive auto insurance policies
Explains insurance deductibles and how they work
Lists other automobile insurance policy extras
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Collision insurance coverage pays for damage caused to your vehicle in an automobile accident, when you are "at fault". A standard collision automobile insurance policy will pay for any repairs up to the fair market value of your car.
Sidebar It is important to remember that this value can be significantly lower than the cost of replacing your vehicle (or your loan balance.) If your car is financed or leased, you will need gap insurance to reimburse you for the difference between what you owe and what the car is worth.
Collision coverage usually also comes with an insurance deductible. It's the amount of money you pay toward repairs before your collision insurance kicks in. The higher the deductible you're willing to pay, the less the collision policy will cost.
Collision insurance coverage is not required by law in any state. However, if you're driving a car purchased from a dealership or financed through a lender, you may be required by the dealership or lender to carry collision insurance. (And just to be sure, you should get gap insurance.)
Comprehensive Automobile Insurance
Comprehensive is very similar to collision insurance, the main difference being that comprehensive covers damage caused to your vehicle caused by any unknown party or "act of God".
Vandalism, flood, hurricane, theft, and fire are all events usually covered by comprehensive automobile insurance. (But make sure to read your comprehensive insurance policy for exact coverage details.)
Like collision automobile insurance, comprehensive coverage will pay up to the fair market value of your car (less your insurance deductible.) And although it's not legally required by any state, you will probably need it if your car is financed.
Hot tip: Your collision and comprehensive automobile insurance policies are two places where it can be pretty easy to cut costs. Read our guide to choosing car insurance for money saving strategies!
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Automobile Insurance Endorsements
Automobile insurance endorsement is just a fancy term for any of those policy extras like towing insurance, auto glass insurance, daily rental insurance, and emergency roadside insurance.
These policies are never required by any state, but many drivers value the security and convenience they provide.
Here's what you get for your money:
auto towing insurance pays for (you guessed it) towing your car anytime you need it
auto glass insurance gives you a lower deductible (or no deductible) when it comes to repairing any broken window on your car.
daily rental insurance covers the cost of a rental car while your car is being repaired because of a covered event. (So you'll usually need both comprehensive and collision insurance to qualify.)
emergency roadside assistance covers repairs done on the spot. Changing a flat roadside may be covered, but you'll have to pay for any repairs at the garage. This policy is often combined with auto towing coverage, and called roadside emergency towing insurance.
In some states, medical payments coverage and uninsured/ underinsured motorists coverages are voluntary coverages. In others, they're mandatory. Find your state requirements here.
Next: Understanding the auto insurance policy document.
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Comprehensive insurance covers damage to your car from incidents other than collisions. This normally includes coverage for:
Glass damage (such as a broken windshield)
Damage sustained from hitting an animal or bird
Damage from falling objects or missiles
Severe weather damage
To file a hail damage claim, hurricane damage claim or tornado damage claim for your car, you must have comprehensive coverage.
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You need to obtain not only comprehensive but also collision coverage to have physical damage or "full coverage" on your car. Collision will cover you if your car hits, or is hit by, another vehicle or object. Some insurance companies will not offer you comprehensive coverage unless you also carry collision coverage as part of your car insurance policy.
When obtaining a quote for comprehensive coverage, you will need to choose a deductible amount. A deductible is the portion of a claim that you’re responsible for paying before your insurance benefits start to pay out.
The value of the car, your driving record, the deductible you choose and repair costs determine the cost of comprehensive coverage, but it is usually very affordable. The average annual cost nationwide for comprehensive coverage is just $134, according to the Insurance Information Institute. That's not much to pay to ensure you get the actual cash value (ACV) for your car, minus the deductible, if your car is totaled. ACV is how much your car is worth on the market before it sustained damages.
Comprehensive claims will not raise your rates unless you file multiple claims in a short period.
Is comprehensive coverage mandatory?
Comprehensive insurance is not legally required by any state. Most states require property damage liability so that your insurer will pay (up to your limits) if you damage other people’s vehicles or property, but states do not require that you carry coverage to pay for damages to your own car.
However, if you have a loan or lease on your vehicle, then your lienholder can (and usually will) require that you carry this coverage and may mandate the specific deductible amount you have to select.
If want to lower your insurance premium by raising your deductible while your car is still financed, be sure to check with your lienholder to see if they will allow a higher deductible than what you are currently carrying.
What is the recommended deductible?
Usually, you can choose for your comprehensive deductible an amount anywhere from $100 to $2,500 (deductible choices vary according to state laws and insurance company guidelines). Most car owners choose a deductible of between $250 and $1,000.
The higher the deductible the less expensive your premium will be, because the insurer is taking less risk of paying out for claims.
Take your own finances into account when choosing a deductible. Saving money on your premium is nice, but do you have the ability to take on a larger out-of-pocket expense when making a claim? For example, if you set your deductible at $1,000 and your car sustains damages totaling $1,800, you will pay $1,000 and your insurance company will pay $800.
Deductibles are normally due per incident, so you will have to pay your deductible amount out every time you make a comprehensive claim. The exception being if you live in a state where laws require the deducible to be waived for windshield claims.
What happens if I don’t have comprehensive coverage?
Without comprehensive coverage, you cannot make a car insurance claim if your vehicle receives damage that is considered “other than collision” damage by your insurer. This leaves you personally responsible to pay for the repairs, unless there is someone else found liable for the damages (such as a vandal or car thief) that is known and available for you to go after for the repair costs.
With a newer, high valued car, you will usually want this added protection for your vehicle, whether you have financed it or not. If your car is stolen soon after you buy it, you don’t want to be out the full cost of a replacement vehicle.
If you have an older car with a low value (without a lease or loan on it), you may not want to pay for this coverage since if the car is damaged, or totaled, the low insurance compensation amount may not be worth the premium paid out.
Knowing how much your vehicle is worth can help you decide if comprehensive coverage is worth the extra cost. Find out the current value of your car by using appraisal tools offered on sites such as Kelley Blue Book (KBB), NADAguides, and Edmunds.
How do you know what types you need? Is it required by your state? Are there ways to save money and still have the right amount of coverage? Below we detail 5 types of coverages and provide a few scenarios where you would benefit from having a non-required coverage added to your policy along with some tips to save some money depending on your vehicle and budget.
1. Liability Insurance
Liability insurance covers you in the event you are in a covered car accident and it is determined the accident is a result of your actions. Liability insurance will cover the cost of repairing any property damaged by an accident as well as the medical bills from resulting injuries. Most states have a minimum requirement for the amount of liability insurance coverage that drivers must have. If you can afford it, however, it is usually a good idea to have liability insurance that is above your state's minimum liability coverage requirement, as it will provide extra protection in the event you are found at fault for an accident, as you are responsible for any claims that exceed your coverage's upper limit. You wouldn't want to run the risk of having to pay a large amount of money because your policy limit has been exceeded.
2. Collision Coverage
If there is a covered accident, collision coverage will pay for the repairs to your car. If your car is totaled (where the cost to repair it exceeds the value of the vehicle) in an accident, collision coverage will pay the value of your car. .
If your car is older, it may not be worth carrying collision coverage on it, depending on the value. On the other hand, if you have a more expensive car or one that is relatively new, collision insurance can help get you back to where you were before any damage to your car. Note: If you have a lienholder, this coverage is required.
3. Comprehensive Coverage
What if something happens to your car that is unrelated to a covered accident - weather damage, you hit a deer, your car is stolen - will your insurance company cover the loss? Liability insurance and collision coverage cover accidents, but not these situations. These situations are covered by Comprehensive (other than Collision) coverage.
Comprehensive coverage is one of those things that is great to have if it fits in your budget. Anti-theft and tracking devices on cars can make this coverage slightly more affordable, but carrying this type of insurance can be costly, and may not be necessary, especially if your car is easily replaceable. Note: If you have a lienholder, this coverage is required.
4. Personal Injury Protection
While Comprehensive coverage may be something you don’t need to purchase, Personal Injury Protection (PIP) is something you should. The costs associated from an accident can quickly add up, and in order to cover those costs Personal Injury Protection is available. With this coverage, your medical bills along with those of your passengers will be paid, no matter who is at fault for an accident. Note: This coverage is not available in all states.
5. Uninsured /Underinsured Motorist Protection
While state laws mandate that all drivers should be insured, this is unfortunately not always the case. Another issue that can arise is that while a driver may have liability insurance, many states have relatively low minimum coverage requirements that may not be enough to cover all of the expenses of an accident. So, if someone is legally responsible for damages related to an accident, you won't receive any payment if they do not have coverage or you will receive less than you need to cover the cost of damages if your damages exceed their coverage amount. This is the type of situation where Uninsured and Underinsured Motorist Protection would help with expenses.
Saving tip: It's usually relatively inexpensive to add uninsured/underinsured motorist protection to your car insurance policy, especially considering the amount of protection it offers.
This information in this newsletter is a summary only. It does not include all terms and conditions and exclusions of the services described. Please refer to the actual policy for complete details of coverage and exclusions. Coverage may not be available in all jurisdictions and is subject to underwriting review and approval.