Collision and Comprehensive Insurance

Collision insurance pays for damage to your car that results from colliding with another vehicle or object, or from a vehicle rollover. Your car is covered no matter who causes the accident.

Comprehensive coverage pays for damage to your car caused by something other than a collision. This includes theft; vandalism; and disasters such as fire, flood, and hail. Collision and comprehensive insurance usually do not pay for the entire loss.

Typically, there is a deductible. The deductible is a specified amount you must pay out of your own pocket before receiving money from the insurance company. In other words, the insurance company "deducts" the deductible amount from any settlement. This means that if you have a $1,000 loss and your deductible is $250, the insurance company will pay you the difference between the loss amount and your deductible, which is $750 in this example.

You select a deductible amount—usually between $250 and $1000—when you purchase the insurance. Bear in mind that higher deductibles mean lower premiums, since the insurance company will be responsible for paying you less in the event of an accident.

Depreciation also affects the amount you can recover. As your car ages, its value declines—or depreciates—and the amount you can collect for a total loss declines as well. If your car is a total loss, the insurance company will reimburse you for the actual cash value(ACV) of your car minus the deductible. The ACV is what it would cost to replace your car with one in the same, or similar, condition. Age of the vehicle, mileage, previous damage, and general wear and tear are all factors when determining the actual cash value.

Sometimes it doesn’t make financial sense to pay for collision and comprehensive insurance. If you have an old car or one in poor condition, you may find that collision coverage would pay only a small dollar amount in the event of a major accident, while eliminating it could mean significant savings. When deciding whether or not collision coverage is appropriate for your specific situation, consider:

Is your car paid for, or do you make car payments? If you owe money on your car, you’ll have to pay it off, even if the car is totaled. If you have collision coverage you can use the money to pay off the loan.
How much does collision and comprehensive coverage cost for your car?
What is your deductible amount?
What is the amount you would receive if your car were “totaled”? (i.e., the actual cash value minus the deductible.)
In the end, only you can decide whether the cost of insurance is more economical than the cost of repairing or replacing the car at your own expense.