Auto Insurance: Collision vs. Comprehensive

 

 

In the world of automobile insurance, two types of coverage, collision and comprehensive auto insurance, are often confused, or mistaken for each other. While both include coverage limits and deductibles, there are major differences in what each type of policy really covers.

Collision:

Collision insurance covers you if your car or truck is in a traffic accident – if you crash into another car, or into something like a light pole. An easy way to remember this is that collision insurance protects you if you collide with something.

Your collision policy will pay out when you are at fault in an auto accident, but if someone else is at fault, it is their responsibility to fix or replace your vehicle. Most of the time, the other driver's liability insurance will cover such expenses, but if not you probably have un- or under-insured motorist insurance as part of your total package, and that will kick in.

Remember that if your automobile is leased or financed, and you are in an accident, the insurance company will pay the holder of your lease or note, not you. If your car is very new, it is possible that such a payout will not equal the amount of the loan or lease, which is why – with leases especially – it is recommended that you have gap insurance in addition to collision coverage. Gap insurance is extra coverage that pays the difference between your collision coverage and the amount of your loan or lease.

Comprehensive:

Some people refer to comprehensive coverage as "other than collision insurance," because it offers protection for damages caused by things other than traffic accidents, including fire, theft, natural disasters, vandalism, acts of God, and impacts with animals (if you hit a deer, comprehensive insurance covers it; collision does not.)

As with collision insurance, payouts on comprehensive insurance claims are only up to the fair market value of your vehicle. Gap insurance can be useful in times when a new car is stolen or damaged.

Deductibles and Premiums:

Comprehensive and Collision policies both have deductibles and premiums. The deductible is the amount of money you pay out of pocket before the coverage kicks in, when you make a claim. The premium is the annual (or semi-annual) amount of money you pay to obtain and retain coverage.

You do have some choice about the amount of your deductible, and the amount you choose will affect what you pay in premiums. If you have significant savings, and can weather a financial storm, you may want to choose a higher deductible and keep your premium low. On the other hand, a lower deductible will make your premium higher, but in the event of a claim, you won't have to pay as much out of pocket

 

Which Type of Coverage Do I Need?

When it comes to insurance for car the type of coverage that is best for you, one of the major factors is the age of your car. For very new cars, especially those that are financed or leased, it's probably wisest to have both types of coverage, and, in fact, most lenders will require this "full coverage."

For older cars, you may wish to drop some of your coverage in order to save money, but you should check with your insurance agent before making such a decision.