Usually, you buy comprehensive insurance along with a collision policy that pays for the damage to your vehicle if you cause an accident. Given the additional cost, it is reasonable to ask “is comprehensive insurance worth it?”
Comprehensive insurance coverage pays for just about anything that could happen to your car outside of an accident. You can make a claim against this policy if your car is stolen, vandalized, or damaged in any covered event except a collision. Comprehensive coverage will also pay your claim after vehicle damage caused by an earthquake, collision with an animal, falling object, explosion, fire, flood, lightning, or hail. Most policies of this kind cover glass repair.
Do I Need Comprehensive Coverage?
The NerdWallet finance blog notes that while states and insurance companies do not require drivers to carry comprehensive coverage, you may have to buy it under the terms of your contract if you finance or lease your vehicle. According to WalletHub, if you own your car outright, you should consider covering it with a comprehensive policy if:
- Coverage costs only a fraction of the car’s value.
- You regularly park or drive your car in a dangerous area.
- You cannot afford to repair or replace the vehicle if it becomes damaged.
- You live somewhere with a high risk of extreme weather.
- You have a driver on your policy who is younger than 25.
- You do not have a large emergency fund that you can use to replace or repair your car if necessary.
While the rule for older cars was to drop comprehensive coverage after six years or 100,000 miles, modern cars last longer and cost more to repair. Most experts now recommend keeping comprehensive insurance on your car if 10 percent of the car’s market value minus the deductible exceeds the premium cost.
Insuramatch details this formula to determine whether you should keep comprehensive coverage for your vehicle:
- Check your monthly bill, the insurance company web portal, or your policy declaration page to find the six-month premium cost of your comprehensive policy.
- Subtract the deductible amount from the value of your car; if you aren’t sure, check a source such as Kelley Blue Book to get an estimate of your vehicle’s worth 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 you get a negative number, it makes financial sense to drop your comprehensive policy. When the result is a large positive number, keep the comprehensive coverage. For a low positive number, you can decide to either maintain 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?
NerdWallet reports data from the National Association of Insurance Commissioners indicating that the average comprehensive auto policy in the United States costs $160 per year. Keep in mind that most insurance companies require you to purchase comprehensive and collision coverage, not one or the other.
When you buy a comprehensive policy, you must select a deductible amount. Most insurers offer deductibles from about $500 to $1500, representing the amount you pay when you file a claim. The insurance company will send you a check for the amount of your approved claim minus the deductible amount in the event of covered damage.
If the damage to your vehicle costs close to or more than its value, the insurer will declare the car a total loss. In this case, you can either accept the payout from your insurance company minus the deductible, or choose to fix the car anyway. In the latter instance, your car will be considered a salvage vehicle and could be ineligible for coverage from most insurance providers.
You can reduce the cost of your premium for comprehensive coverage by choosing a higher deductible. However, you must be able to pay that amount to fix your car if you do have a claim.
For stolen vehicles, the insurance company will pay either the cost to replace your vehicle or its actual cash value, depending on the terms of your policy. For example, you can select a replacement cost value comprehensive policy, which pays for a brand-new car of the same make and model as the stolen one.
Every so often, review the value of your vehicle to see if comprehensive coverage still makes sense. As your vehicle depreciates in value over the months and years, the gap between the cost of coverage and the value of the car begins to get smaller.
What Type of Auto Insurance Do I Have to Buy?
While the answer to this question varies based on the state where you live and other factors, most states require liability insurance. This coverage pays for bodily injury and property damage suffered by others if you cause an auto accident. Even after a minor accident, the other driver can sue you for costs that exceed your liability insurance policy. You are responsible for paying these costs out of pocket.
CreditKarma recommends purchasing collision insurance to cover damage to your own vehicle that does not fall under your comprehensive policy. Your lender or leasing company will also require this coverage for leased and financed cars. Collision insurance pays for repair or replacement up to the actual cash value of your vehicle if you experience an accident with another vehicle, a rollover or single-car accident, or a collision with a building or fence.
In summary, you must consider a range of factors to decide if comprehensive insurance is worth it. When making this decision, review the frequency of extreme weather, car theft, and vandalism in your area; the cost quotes you receive for comprehensive insurance; the value, age, and mileage of the vehicle you drive; and the amount of savings you have available to pay for a replacement vehicle after a crash. Getting quotes from different providers increases your chances of finding an affordable policy. Remember the 10 percent rule of thumb to evaluate the quotes you receive.
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