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Insurance

Collision vs Comprehensive Coverage

Are you considering changes to your auto policy to try to save some money? Do you know the difference between collision and comprehensive insurance? Each is a type of car insurance, however, both cover different types of accidents and damages. The first step is understanding the difference between comprehensive and collision before considering making any changes to your coverage.

Collision Insurance:

·       Collision means that damage sustained to your vehicle during the collision with another vehicle is covered. Collision policies differ, and some cover collisions with other obstacles besides vehicles, such as trees or buildings. Some policies may cover repairs, while others cover the replacement cost of the vehicle.

·       You might consider dropping collision insurance if you have available savings. With liability insurance, you would have to use your savings or emergency fund to pay for any repairs or even a new car if yours is totaled. In this case, it may be a good savings technique to downgrade your collision insurance as long as you would be able to retain at least half of your savings after paying for a new car or repairs. So, when to drop collision insurance largely depends on your emergency fund.

·       You should NOT drop collision insurance if the savings in your bank account is already tight, or even non-existent, it’s probably not a good idea to drop collision insurance from your vehicle. If you would have a hard time covering the cost of repairing or replacing your vehicle in the event of a collision, it’s best to keep the collision insurance in place.

When you ask yourself, “do I need collision insurance?”, the answer should always depend on what will happen to you financially in the event of a collision.

Comprehensive Insurance:

·       Comprehensive means that damage sustained to your vehicle during a non-collision accident is covered. However, which non-collision accidents are covered differs by the policy. Common accidents covered by comprehensive insurance include natural disasters and theft or vandalism.

·       You might consider dropping comprehensive insurance if your car is on the last leg of its life? Downgrading your comprehensive insurance, for the time being, maybe a good option to help you save money. In this case, if you were to get in an accident that required car repairs, you could choose to buy a new car instead of spending any more money on the old one. You would also need some savings to purchase a new car, and we recommend switching back to comprehensive insurance once you’ve acquired a new car.

·       You should NOT drop comprehensive insurance if you’ve recently purchased a brand-new car, chances are your budget is slim while you’re still making car payments. If you were to transfer your car insurance so that it only covers liability, you will need to pay out-of-pocket for any non-collision damages that occur to your car. In this case, it would be risky to downgrade your comprehensive insurance unless you had enough cash on hand to completely repair or replace your car.

Between these two perspectives, you may find that comprehensive and collision insurance aren’t worth it to you. But you may find yourself also feeling unprotected without that insurance. Insurance does have a psychological benefit beyond any direct financial benefits – you can be confident in knowing that even if something bad happens, you’re covered.

If your signs are pointing away from needing collision and comprehensive insurance, but your gut is telling you it’s a bad idea, we recommend raising your deductible. That way, you’ve got the security of the insurance while saving money as well. This may be the best option of all for people with used cars and a nice hefty emergency fund but find that comprehensive and collision insurance makes them feel better about their car.

Remember that accident insurance is always an option too. If you want greater peace of mind but don’t want to go through the hassle of changing around your car insurance coverage, accident insurance is a path worth exploring.