Collision vs. Comprehensive: Optional Car Insurance Coverages
Though it’s typical for car owners to think of car insurance as a single cohesive product, that’s far from the truth.
Every car insurance policy comprises several parts, each providing coverage for particular auto-related incidents.
The two most commonly mentioned – yet only vaguely understood – are collision and comprehensive.
In most cases, these are auto insurance policy options. But depending on the vehicle you drive and its value, they are among your overall plan's most critical policy options.
In some cases, collision and comprehension are required; in others, they are not.
Still:
They’re well worth having, even if they aren’t required.
Once you know what they are and what they do, you’ll understand why you should have these two auto insurance provisions in most situations.
What is Collision?
Before we get into a detailed discussion of collision, we need to start by covering the liability portion of an auto insurance policy.
Liability
Liability, as the name implies, pays a claim when you are responsible (liable) for an accident.
If the party in the other vehicle is injured or if their car was damaged, your liability coverage will pay the claim.
Liability is the portion of your policy that pays when you are at fault in an accident.
For this reason, it usually comprises the most significant part of your auto insurance premium.
What it covers
With that in mind, it’ll be easier to describe precisely what a collision option covers.
At the most basic level, collision pays for damages sustained to your vehicle when you are the at-fault party in an accident.
Once again, your liability provision covers damages sustained by the other driver when you are at fault. Collision is the portion of your policy that will pay for your vehicle.
Your collision coverage, as well as your liability coverage, only applies when you are the at-fault party.
If the other driver is deemed to be at fault, their insurance policy will be required to pay for both injuries to you and damage to your vehicle and any losses sustained by the at-fault driver.
More specifically:
Collision applies only for damages sustained while your vehicle is in motion.
That includes collisions with other moving vehicles and stationary objects, like parked cars, trees, signposts, utility poles, or fences, among other obstacles.
What is Comprehensive?
If the collision portion of your policy covers accidents sustained while your vehicle is in motion, comprehensive covers hazards while your car is parked.
There’s a pretty long list in that category.
It includes damages sustained from:
- storms
- fire
- flooding
- falling trees or tree limbs
- collapsing buildings
- your car being hit by another vehicle while it’s parked
Collision also extends to theft of your vehicle and some less common hazards, like a broken windshield, a collision with an animal, vandalism, or even public disorder, like riots.
Claims & your premiums
One of the advantages of comprehensive coverage is that your premium won’t automatically be increased because you file a claim.
Since your vehicle is parked, you won’t usually be liable for the claim.
For example, some years ago, I collided with a deer. Or, more precisely, the deer hit my car at a full gallop. I filed a claim for the damage, which was quite extensive, and the insurance company paid it. But my premium did not increase as a result.
Do You Need Both Collision and Comprehensive?
If it seems that collision and comprehensive are something of an auto insurance tag team, that’s not far from the truth.
Insurance companies typically sell the two in tandem.
Why?
Where one coverage is either required or needed, so is the other.
State laws
Every state in the U.S. -- except New Hampshire -- has state laws requiring operators of motor vehicles to have auto insurance coverage.
But generally speaking, that requirement is limited to liability coverage, which we discussed earlier.
In many states, you’ll also be required to have coverage for uninsured motorists or under-insured motorists.
Those policy provisions will pay for injury to you or damage to your vehicle from an accident with someone who either has inadequate insurance coverage or no coverage.
But virtually no state is legally required to have collision and comprehensive coverage.
That said:
Collision and comprehensive will be required if you have a loan on your vehicle.
Since both collision and comprehensive provide for reimbursement for the repair of your vehicle, the lender will require those coverages to protect the value of your car.
After all, if the vehicle is damaged, either in a moving accident or while parked, the value of the car will fall or disappear entirely if it isn’t fully repaired.
Lenders require comprehensive and collision to protect their security in your vehicle, which acts as collateral for the loan it secures.
Even in New Hampshire, the only state in the U.S. that does not require auto insurance coverage, lenders have the right to require borrowers to get full range, including collision and comprehensive.
Good to Have Even if They Aren’t Required?
Even if you are not required to have collision and comprehensive by either state law or a lender, adding both is still well-advised in most cases.
Let’s say you pay cash for a brand-new vehicle.
If you get into a traffic accident that causes substantial damage to your vehicle and it’s determined to be your fault, you will need to come out-of-pocket to pay for all repairs.
Significant damage can efficiently run $10,000 or more. That being the case, paying a few hundred dollars yearly for collision and comprehensive will be a wise investment.
The same is true if your car was parked in the driveway when a tree fell on it. The damage may be so extensive that the car isn’t even worth repairing. Should that happen, you’d lose your entire investment in the vehicle.
If you have a comprehensive policy option, the insurance company will pay for the damage to your car.
Suppose the car is determined to be unrepairable, which in insurance parlance means it will cost more to repair the vehicle than it is worth. In that case, the company will total the vehicle (as in destruction).
That means you’ll be reimbursed for the vehicle's value at the time of destruction.
The reimbursement won’t be sufficient to enable you to buy a brand-new car, but it will be a much better situation than if your vehicle was destroyed and you needed to come out of pocket again to buy a new car.
For example, if you purchased the car last year for $25,000, the insurance company may determine the current value to be just $20,000, which would be the upper limit of your claim.
When Do Collision and Comprehensive Not Make Sense?
Collision and comprehensive coverage may not make sense when your vehicle is not worth much.
For example, let’s say you have a car with a resale value of $2,000. It may not make sense to pay $400 or $500 per year for collision and comprehensive because the annual cost of coverage will eventually outstrip the vehicle's value.
Deductibles
There’s still another factor that will influence that decision.
Collision and comprehensive come with deductibles.
Simply put, the deductible is a coinsurance provision in which you agree to pay the first dollar amount of a claim before insurance coverage kicks in. You’ll do this in exchange for a lower premium.
For example, a $500 deductible will produce a much more affordable premium than a policy with a zero deductible. And if you want to save even more money, you can increase the deductible to $1,000 or more.
But let’s say your $2,000 car is destroyed and thus totaled by the insurance company. If you have a $500 deductible, the most the insurance company will pay you is $1,500.
Low-value vehicles
When a vehicle has such a low value, a better strategy might be to cancel the collision and comprehensive and bank the premium you would pay against future disasters.
If the disaster does happen, you’ll have the funds to cover it. But if it never happens, you’ll get to keep the extra money.
But that strategy only applies to low-value vehicles.
The situation will be completely different if your car is worth $5,000 or even $4,000. The financial loss without collision and comprehensive will be substantial even at those relatively low values.
Cost
According to the Insurance Information Institute (III), the average cost of a collision policy is $290 per year, while the average for comprehensive is $134.
If you have both options in your policy, the total cost should be around $424 per year or just over $35 per month.
It’s important to remember that that’s just an average based on national statistics.
The actual amount you’ll pay will depend on several factors, including:
- Your driving history.
- Prior claims, usually within the previous three or five years.
- Your state of residence.
- The value of your vehicle.
- The type of vehicle – luxury cars and specialty vehicles have higher premiums.
- Safety equipment and anti-theft devices in your vehicle.
- High-value components, like premium wheel covers and sound systems.
Because of all the variables, one person may pay $300 per year for collision and comprehensive, and another might pay $800.
One way to lower the cost of your collision and comprehensive coverage is to increase your deductible.
For example, you can get a significant premium reduction if you increase your deductible from $500 to $1,000. If you do, ensure you have the additional funds sitting in your emergency fund to cover an accident.
Summary
Collision and comprehensive are separate policy options.
And though they’re not required by law, they may be required by your lender.
Even if you don’t have a loan on the vehicle, you may want to add the provisions to protect your financial investment and avoid the need to come out-of-pocket with thousands of dollars in an accident.
But perhaps the most important takeaway is that your car isn’t necessarily covered just because you have auto insurance that meets your state’s mandated minimums.
Those minimums refer only to the liability portion of your policy, which you must maintain for the protection of others.
It will not provide for repairing or replacing your vehicle if you’re involved in an accident that’s your fault or even if it’s damaged or destroyed while parked.
Collision and comprehensive are the policy options specifically designed for that purpose. If you don’t have them, you may be playing with fire.
