Car Buying

Car Insurance: Do You Need Collision and Comprehensive Coverage?

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author photo by Russ Heaps April 2016

By law, not all forms of car insurance are required. If you own your car outright -- meaning that you are not making loan or lease payments, and you have the title -- you enjoy some leeway in picking and choosing the coverage that you want.

Liability is the insurance that most states require you to carry in order to register a car. It covers injuries and damages to other parties and their property. Its cost represents the lion's share of the average car insurance premium.

Although there are other types of coverage, such as uninsured motorist, towing and car rental, that might be baked into your insurance, the larger slices of your premium pie are the two Cs of car insurance: collision and comprehensive.

If you own your car and hold its title, the thought of reducing your premium by dropping one or both of the Cs may have crossed your mind. However, there is more than simply saving a little money on the premium to consider when thinking of dropping one or both of these types of insurance.

Collision Versus Comprehensive Insurance

Collision insurance pays for repairs to your car when it comes in contact with another vehicle or stationary object, such as a guardrail, tree or light pole. Usually collision insurance kicks in for incidents for which you are at fault; although, in the cases of damage caused by an uninsured or hit-and-run motorist, your collision insurance would pick up the slack.

Comprehensive insurance is a bit misleading because it doesn't cover every sort of damage to your car, as the term implies. Instead, it pays for damage to your car that's not caused by the actions of a driver: either you or someone driving another vehicle. Damage from a mudslide, rock slide or hail storm would all be covered by comprehensive insurance.

If you drove into a tree, that would be covered by collision insurance; if a tree fell on your car, that would be covered by comprehensive insurance. Although a lender will insist you carry both Cs, you are free to drop one or both if you own your car.

That Dirty Deductible

Unlike liability coverage, both collision and comprehensive coverages have a deductible, which is the amount of a claim that you will pay out of your own pocket, leaving your insurance provider to pay the balance. If the deductible is $500, and you file a collision or comprehensive claim for $2,000, you will pay the first $500, and your insurance provider will pick up the remaining $1,500.

When Does Dropping Collision and Comprehensive Make Sense?

If you do own your car, you only have to carry state-required liability insurance. So why not just drop the collision and comprehensive, and save some money, right? Maybe.

The key to this decision is knowing the market or book value of your car. The older your car, the less it's worth and the more likely your insurance company will total it out if you file a claim. This means that they will junk your car, paying you its market value minus your deductible.

You must also know how much of your insurance premium goes to pay for each type of coverage and do some math. If you can comfortably afford to lose your car's cash value, or equity, in the case of a complete loss, you might decide those collision and comprehensive premiums would serve you better going into savings, or helping you pay off bills. However, if you are on a tight budget and would need your car's equity as a down payment on a replacement car, you might not want to roll the dice by dropping coverage.

What It Means to You

Let's face it, car insurance is one of those things that we pay for that we hope we'll never have to use. If you can't afford to take care of collision repairs to your car or replace it without whatever its cash value might be, it's probably smart to continue paying those collision and comprehensive premiums.

This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
Car Insurance: Do You Need Collision and Comprehensive Coverage? - Autotrader