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Car insurance premiums are taking an increasingly large chunk out of household budgets.
Auto insurance now costs an average of $1,245 a year in the U.S., according to AAA data, for a medium-sized sedan. That refers to full-coverage auto insurance. The bare minimum coverage you need to drive in most states is liability insurance, but most drivers have more than that.
“Every state has its own laws when it comes to insurance,” says Laura Adams, a personal finance and insurance expert. But, she warns, “in a lot of cases, the liability limits that the states require are not enough. They’re very low, and they’re just meant to make sure that every driver has at least some amount of liability insurance.” In Florida, for example, the minimum liability coverage is just $10,000.
That’s where other, optional insurance can come into play, such as collision insurance and comprehensive insurance. States don’t require collision and comprehensive coverage, but nearly four out of five drivers get it, according to the Insurance Information Institute. If you have a car loan or lease, collision and comprehensive insurance are usually required to protect the lender or leasing company, says Adams.
“Liability protects you as a person and your finances, whereas the comprehensive and collision portion protects the cost to repair or replace your car,” says Adams. “It’s common for people to have all three.”
To get a better understanding of comprehensive and collision insurance, here’s what they cover, how they work, and how much they cost.
What Is Comprehensive Insurance?
Comprehensive insurance covers damage to your car that’s not the result of a collision. It refers to things that generally happen outside of your control, like theft, vandalism, and animal-related damage.
“Things that have nothing to do with a collision are going to be covered under comprehensive,” says Adams. So it may make more sense to have comprehensive insurance if you live in an area that’s prone to natural disasters. For example, fires in northern California in October 2017 destroyed an estimated 4,000 cars, according to the state’s Department of Motor Vehicles.
Examples of When You Could Make a Comprehensive Claim
- Your car is vandalized.
- There’s a natural disaster that damages your car.
- You hit an animal on the road and your car is damaged.
- A tree falls on your car.
- A riot that results in damage or destruction of your car.
What Is Collision Insurance?
Think of collision insurance as the opposite of comprehensive. It covers your car when it collides with another car or object.
“If another car hits you and you have a $5,000 repair cost, your collision insurance is going to pay to get those repairs done up to the limit that you’re paying for on your insurance,” says Adams.
Examples of When You Could Make a Collision Claim
- You hit another car, or another car hits yours, in an accident.
- You swerve on the road to avoid an animal and hit a guardrail.
- You hit a pole.
Comprehensive vs Collision Insurance
It’s easy to get comprehensive and collision insurance mixed up.
The difference comes down to what caused the damage to your car. Collision insurance helps pay to repair your car if it’s damaged in a wreck with another vehicle or object, such as a pole or a fence. It’s typically used when the damage is the result of driving the vehicle.
Comprehensive helps cover damage that is not the result of driving the car, such as theft, weather-related incidents, or vandalism.
Something to keep in mind: collision and comprehensive car insurance are usually sold together as a package, but they can be purchased separately. A policy with liability, collision, and comprehensive coverage is often referred to as “full coverage” car insurance.
Here’s a breakdown of the similarities and differences between comprehensive insurance and collision insurance.
|Is There a Deductible?||Yes||Yes|
|What Is The Coverage Limit?||Up to the actual cash value of the car||Up to the actual cash value of the car|
|Is It Required or Optional?||Optional||Optional|
|-Colliding with another vehicle|
-Colliding with an object
-Single-car rollover accidents
|What’s Not Covered?||-Damage to your car from a wreck |
-Damage to another person’s car from a wreck
-Any medical bills after an accident
-Legal fees or lost income
|-Damage to your car not related to driving (i.e. hail or theft)|
-Any medical bills after an accident
-Legal fees or lost income
How Much Will Comprehensive and Collision Insurance Cost?
Expect the cost of comprehensive and collision insurance to be a few hundred dollars per year, but with a wide range depending on where you live, your driving record, and other personal factors like your age, marital status and credit score.
Adams says there are over 100 factors that determine your auto insurance rate, and every auto insurer has its own method to determine pricing.
“There’s a lot of surprising demographic factors that they look at, and they also look at factors about your car,” Adams says. The make, model, and year all play a part, “the idea being that newer cars tend to be safer,” she says, adding that “some cars are more expensive to insure, such as luxury or hybrid vehicles.”
Nationally, the average cost for collision coverage is $363 per year, while comprehensive insurance costs on average $160, according to the latest data from the National Association of Insurance Commissioners. For the average cost of collision and comprehensive insurance in your state, refer to the chart below.
|State||Average Annual Collision Premium (Annually)||Average Annual Comprehensive Premium (Annually)|
|District of Columbia||$497.81||$224.28|
Factors to Consider Before Buying Comprehensive and Collision Insurance
Although it’s common for drivers to have both comprehensive and collision insurance, they don’t always make sense for every driver to have.
With a car loan or a car lease, you’re likely required to have comprehensive and collision coverage until the car is paid off. That’s so lenders can protect their investments against any potential damages. Roughly 85% of new cars are financed with a loan or lease, whereas only 55% of used cars are, according to Experian data from 2019.
“For many people who are going for an auto loan or lease, there are going to be some limits that you do have to comply with,” says Adams.
However, once your car loan is paid off, collision and comprehensive becomes optional. If your car isn’t very valuable and you have enough savings to buy a new car if something were to happen, you may not want to bother with collision and comprehensive coverage.
Kyle Schmitt, vice president and managing director of insurance intelligence at J.D. Power, typically recommends collision insurance, but says the decision to keep or drop it ultimately depends on your car and your financial situation. “If your car is not very high value, it’s definitely a question to consider. If you have the funds to repair your own vehicle, you could consider dropping it,” he says.
Without those additional types of coverage, your total car insurance payments can go down by several hundred dollars each year. And while your car’s value and your budget play a vital role in the decision-making process, it also comes down to peace of mind.
If you’re debating whether you should buy comprehensive or collision coverage, or both, here are a few factors to consider.
The Car’s Value and Age
It makes sense to carry a full range of auto insurance protection when you buy a new or slightly used car, but you can save money by reducing coverage as the car ages.
“If you have a new vehicle or a newer vehicle, I think all three coverages (liability, collision, and comprehensive) are very necessary. A lot of that is driven by repair costs on the vehicle,” says Schmitt, “but there’s no hard-and-fast rule for collision and comprehensive; it depends on your vehicle, your personal situation, your driving habits.”
Cars tend to depreciate quickly in value, and as the value of your car decreases, you may find some coverages like comprehensive and collision are no longer necessary.
If you’re wondering whether comprehensive and collision coverage is a cost-effective option for you, here’s a good rule of thumb to follow, from the Insurance Information Institute: take the amount you’d pay in one year for comprehensive and collision coverage, and multiply that number by 10.
If your car is worth less than that number, then comprehensive and collision coverage might not make sense for you. You’re essentially comparing the cost of your premiums against what you are likely to get back from your insurance if your car is damaged.
Remember, the insurer will only reimburse the actual cash value of the car minus the deductible, not the price you see at the dealership.
For example, if your car is worth $4,000 and your comprehensive and collision premiums cost more than $400 a year, then it may be time to drop the coverage.
If you don’t know how much your car is worth, you can find out through Kelley Blue Book, generally considered the standard reference for new and used cars. Make sure to assess the value of your car from the insurer’s perspective, rather than your own.
If you’re still unsure after doing the math or have any specific questions, it never hurts to talk to your agent about whether it makes sense to include these coverages on your car insurance policy.
“Typically, auto insurance companies help you understand how much coverage you need, based on the model, make, and year of your car,” says Adams.
Weighing the Deductible
You’ll need to weigh in advance the potential payout of any collision or comprehensive claim relative to your monthly premiums and deductible. Both comprehensive and collision have deductibles, which is the amount you owe before your insurance kicks in for expenses. You get to choose your deductible amount at the start of your policy.
“I would typically recommend that the more available cash you have, then the higher deductible probably makes sense. If you have less cash, then a lower deductible probably makes sense,” says Schmitt.
For example, say you have a $1,000 deductible for collision insurance and you get into an accident with another car. Your repairs may cost $3,000, but you’ll only be required to pay your deductible, which is $1,000, and your insurance will cover the rest.
Another example: if your car gets totaled and it’s valued at $10,000, but your deductible is $2,000, you’ll receive $8,000 from your insurer.
“The higher your deductible, the lower your premium is going to be. So if you carry a $1,000 deductible, then your premiums are going to be a lot lower. But can you at any point cover $1,000?,” Schmitt says.
An alternative is choosing a much lower deductible, but you’ll pay more in premiums every month. “It’s a balance between your personal finance situation, your risk, and the value of your vehicle on how much deductible you really want to cover,” he says.
It’s always good to review your auto insurance coverage at least once a year, and assess how much it’s eating into your budget. If your finances have changed significantly from a year earlier, it could make sense to keep one type of coverage and not the other, or increase your deductibles, or even get rid of optional coverage altogether. It comes down to your personal financial situation and figuring out the difference between your annual premium and immediate cash needs.
If you’re weighing whether to keep or drop comprehensive and collision, make sure to ask yourself this: can you afford to repair or replace your car if it were stolen or damaged?
If you can’t afford to pay for car repairs out of pocket, then keeping your comprehensive coverage and collision coverage may be a good investment. It’s also important to assess your driving habits and risk appetite. Do you consider yourself a safe driver? What’s the risk of you getting in an accident where you live? These are questions you should ask yourself before making a decision.
“It’s up to you to get comprehensive and collision insurance,” says Adams, “but if you don’t have enough savings to pay for a potential accident, it’s definitely a good thing to have. That’s the reason you would have insurance; it’s to protect you from that risk.”