Personal Finance Library
Image default

Comprehensive Insurance Explained

Getting a car – especially your first one – is a major life milestone. But in tandem with your car purchase, you’ll need to buy insurance coverage to protect your investment. As you’re shopping for car insurance, it’s important to understand the terms of your coverage and what kinds of insurance are available to you. In many cases, if you don’t own the car outright – you’re either financing it or leasing it, for instance – you’ll be required to carry certain types of insurance. One insurance option you’ll come across as you evaluate your options is comprehensive car insurance. You can think of comprehensive coverage as protection from “bad luck” since it covers almost everything but regular collisions. 

Below, we’ll take a deep dive into comprehensive insurance, what it covers, and how to decide if you need it. Keep reading for a full explanation or jump to a section below that answers your query.

What Is Comprehensive Car Insurance?

Comprehensive insurance covers damage to your car in situations other than a collision. So, if your car gets graffitied, broken into, hit by a deer, or destroyed by a hurricane, the costs to repair your vehicle would be covered, minus your deductible.

State laws require liability insurance for all drivers, but both comprehensive and collision insurance are optional for drivers who own their vehicles outright. If your car is a lease or an auto lender is financing it, you might be required to carry comprehensive insurance as a condition of the lease or loan. 

In a broad sense, comprehensive insurance serves as a way to fill in the gaps in your auto insurance policy. For example, a policy might include collision insurance and liability coverage, which means you don’t have to pay out-of-pocket for someone else’s medical bills or car repairs after you pay your deductible. But if you choose to go without comprehensive insurance, you’ll be stuck with the bill if hail destroys your windshield or vandals break into your car. Comprehensive coverage covers “non-collision” damage, which we’ll break down below.

What Does Comprehensive Insurance Cover?

Comprehensive insurance terms differ on a policy by policy basis. With that said, car owners could file for a comprehensive insurance claim in the event of damage from the following:

  • Vandalism or theft-related damage
  • Earthquakes and other natural disasters
  • Striking an animal (like a deer crossing the highway at the wrong time)
  • Fire or explosions
  • Falling objects like rocks or tree limbs
  • Storm damage (hail, flooding, lightning, etc.)

In some states, comprehensive insurance might cover glass damage that occurs to your windshield. 

Damage to another person’s car from a collision, damage to your own car from an accident, and medical expenses aren’t covered by comprehensive insurance. These hypothetical costs are absorbed by collision insurance and liability insurance. 

How Comprehensive Insurance Works

When you purchase comprehensive car insurance, you’ll choose a deductible. Your deductible is the sum you’re responsible for paying out of pocket toward a claim. Deductibles can be anywhere from $250 to $1,500. Let’s imagine you chose a $500 deductible, and you had the misfortune of leaving your car out of the garage during a hailstorm. The damage to fix your car is $2,000. You would pay your $500 deductible, and the auto insurance company would cover the remaining $1,500.

The coverage comprehensive insurance provides is not limitless. There’s a maximum amount your insurer will pay toward a claim, which is usually the actual cash value of your car. So, in the event that your car is totaled, and the repair is more than the car is worth, your car insurance would pay out the depreciated value of your car, minus your comprehensive car insurance deductible.

When you’re choosing your deductible, it’s essential to remember that a higher deductible typically results in a lower premium so you can save money upfront. The drawback with a higher deductible is that you’ll pay more of your own money when you make a claim. And on the flip side, a lower deductible means your premium will increase.

Your deductible choice isn’t the only factor that will affect car insurance premiums. The price you pay for your insurance can be influenced by where you live, your gender, your age, your driving record, years of driving experience, and even your marital status. 

The cost of comprehensive insurance varies state by state but averages out to around $134 a year. According to the National Association of Insurance Commissioners (NAIC), 78% of insured drivers purchase comprehensive coverage plus liability insurance, and 74% buy collision coverage plus liability.

Comprehensive Insurance vs. Collision Insurance

Comprehensive insurance, liability insurance, and collision insurance are the three basic parts of a full coverage auto insurance policy. Let’s break them down, side by side. 

  • Liability insurance covers injuries and property damage of another party in a collision but doesn’t cover damage to your own car. Many states require drivers to have a minimum level of liability insurance, but you can buy more than the state’s required amount.
  • Collision insurance covers repairs or replacement of your car after single-car accidents or a collision with an object or another car. Like comprehensive insurance, collision coverage usually provides coverage up to the car’s actual value.
  • Comprehensive insurance covers non-collision damages from break-ins, natural disasters, and other similar events. 

Collision coverage is typically more expensive because collisions are often more prevalent than comprehensive claims that occur from rarer events. Comprehensive coverage is worthwhile to have if you want to protect your financial interests. It’s especially important to consider carrying comprehensive insurance if any of the following conditions apply to you:

  • If you live in a high-crime area and want to be protected from break-ins. 
  • If you live in an area prone to extreme weather like hail or flooding without a protected place to store or park your car.
  • If your car is new and has a high market value.
  • If you live in a rural area with frequent animal collisions.

When Should I Drop Comprehensive Insurance?

If you finance your car or if it’s under the terms of a lease, comprehensive insurance is probably mandatory. Comprehensive insurance helps protect the lending institution since your car serves as collateral for the loan. When you pay off your car or own it outright, you’ll be able to choose whether you want to drop your comprehensive insurance.

To determine if it makes sense for you to carry comprehensive insurance, you can crunch a few numbers. First, you’ll need to subtract your comprehensive deductible from the amount your car is worth. Then, take that number and subtract the cost of your comprehensive insurance coverage for the policy period (usually six months). 

If you get a negative number, you’re likely paying more for the coverage than it’s worth. If it’s a small number, the insurance can still help in the event of a claim, but your check would be small. And if you see a larger number that you wouldn’t be able to pay for in an emergency, it makes sense to keep the comprehensive coverage.

For car owners with an older car, carrying comprehensive insurance might not be worth the additional expense. The Insurance Information Institute suggests multiplying your premium by 10 and comparing it to your car’s worth. If it’s worth less than that amount, your coverage might not be cost-efficient. To estimate the value of your car, you can use resources like Kelley’s Blue Book

When it’s time to renew your car insurance, you can always switch up your choices and evaluate if your coverage meets your current needs. 

Takeaways: Choosing the Right Car Insurance Coverage

Although comprehensive insurance might not be the right choice for everyone, it’s a purchasing decision that can provide peace-of-mind in the event of bad luck. Comprehensive coverage may help protect you from gaps in your liability and collision insurance. Instead of needing to fix damage from a fallen tree branch on your own, you can rely on your comprehensive car insurance for repairs, without causing you undue financial stress. 

Before deciding on a particular auto policy, make sure that you do your due diligence and shop around. By comparing auto insurance quotes, you can find a policy complementary to your specific needs. And, it’s important to regularly review your insurance terms and conditions. As you buy more cars or your cars depreciate in value, you might find that your insurance needs and preferences change over time. Don’t be afraid to re-evaluate your choices.

Related posts

How Robocalls Work: The Emerging Tech You Need to Know About to Protect Your Finances

Nogwaya Charles

How to Get Student Loans Forgiven: Your Guide to Programs and Tips

Nogwaya Charles

Money Moves to Make in Your 20s, 30s, and 40s

Nogwaya Charles