It is common to purchase comprehensive insurance and a collision policy that covers the damage to your vehicle if you are at fault in an accident. Given the additional cost, you may wonder if it is worth it to buy comprehensive insurance.
It is reasonable to ask whether comprehensive insurance is worth the added cost, especially when purchased along with collision coverage.
Comprehensive insurance coverage is designed to protect your car from a wide range of unexpected events, excluding accidents. This policy can cover you if your car gets stolen, vandalized, or damaged in any covered event except a collision. In addition, it also covers damages caused by unforeseen circumstances such as an earthquake, collision with an animal, falling object, explosion, fire, flood, lightning, or hail. Most comprehensive policies also cover glass repair expenses.
Do I Need Comprehensive Coverage?
The NerdWallet finance blog points out that although comprehensive coverage is not mandatory by states or insurance companies, you may be required to have it if your vehicle is leased or financed. According to WalletHub, if you have fully paid for your car, you should consider purchasing comprehensive coverage if:
The cost of coverage is only a fraction of the car's value, you park or drive your car in a dangerous area, you cannot afford to repair or replace your car if it is damaged, you live in an area with a high risk of extreme weather, you have a driver under 25 years of age on your policy, or you do not have a large emergency fund that you can use to replace or repair your car if needed.
Traditionally, comprehensive coverage was dropped after six years or 100,000 miles for older cars, but modern cars last longer and are more expensive to repair. Therefore, most experts now advise keeping comprehensive insurance on your car if 10% of the car's market value minus the deductible exceeds the premium cost.
Insuramatch provides a formula to determine whether you should keep comprehensive coverage for your vehicle:
- Find the six-month premium cost of your comprehensive policy on your monthly bill, the insurance company web portal, or your policy declaration page.
- Subtract the deductible amount from the value of your car. If you are unsure, check a source such as Kelley Blue Book to obtain an estimate of your vehicle's value based on make, model, mileage, condition, and special features.
- Subtract your six-month comprehensive coverage premium amount from the answer you get in step 2.
- If the result is negative, it is financially sensible to drop your comprehensive policy. If the result is a large positive number, maintain the comprehensive coverage. For a low positive number, you can choose to keep this type of policy or save the money and prepare to replace or repair your car out of pocket if necessary.
How Much Does Comprehensive Coverage Cost?
According to NerdWallet, the average cost of a comprehensive auto policy in the United States is $160 per year. Keep in mind that most insurance companies require you to purchase both comprehensive and collision coverage, and not just one of them.
When you purchase a comprehensive policy, you will need to select a deductible amount. Most insurers offer deductibles ranging from around $500 to $1500, which represents the amount you will need to pay when you file a claim. If your claim is approved, the insurance company will send you a check for the amount of your claim minus the deductible.
If the damage to your car costs near to or more than its value, the insurer will declare it as a total loss. You can either accept the payout from your insurance company minus the deductible, or choose to repair the car yourself. In the latter case, your car will be considered a salvage vehicle and may be ineligible for coverage from most insurance providers.
You can lower the cost of your premium for comprehensive coverage by opting for a higher deductible. However, you must be able to pay that amount to repair your car if you have to make a claim.
If your car is stolen, the insurance company will pay either the cost to replace the vehicle or its actual cash value, based on the terms of your policy. You could choose to purchase a replacement cost value comprehensive policy, which pays for a new car of the same make and model as the stolen one.
It is a good idea to review the value of your car periodically to see if comprehensive coverage still makes sense. As your car ages, its value depreciates over time, and the gap between the cost of coverage and the value of the car begins to shrink.
What Type of Auto Insurance Do I Have to Buy?
The requirement for liability insurance varies from state to state and based on other factors. However, most states mandate it as it covers the costs of bodily injury and property damage caused by you in an auto accident. In case of a minor accident, the other driver may sue you for expenses that exceed your liability insurance policy, which you will need to pay out of pocket.
CreditKarma suggests purchasing collision insurance in addition to your comprehensive policy to cover damage to your own vehicle. Leasing and financing companies also require collision coverage. Collision insurance will pay for repair or replacement of your vehicle up to its actual cash value if it gets damaged in an accident with another vehicle, a rollover, single-car accident, or a collision with a building or fence.
To determine if comprehensive insurance is worth it, you should consider several factors. These include the frequency of extreme weather, car theft, and vandalism in your area, the cost of comprehensive insurance, the value, age, and mileage of your vehicle, and the amount of savings you have to pay for a replacement vehicle after a crash. To find an affordable policy, get quotes from different providers, and remember the 10 percent rule of thumb to evaluate the quotes you receive.
