Car Insurance. One of those necessary things in life – its the one product you purchase hoping you never have to use it! Having a certain minimum amount of auto insurance is mandatory to drive a car in the US. However, the coverage threshold can vary from one state to another. The law only stipulates the minimum required coverage for property damage and bodily harm.
To minimize your potential financial risks of driving, you may consider buying comprehensive car insurance. But the decision to take out comprehensive car insurance can be difficult because the policy will be relatively more expensive.
What is a Comprehensive Car Insurance?
Comprehensive car insurance offers near-complete auto insurance risk coverage. It covers you against various acts of God when you are on the road. The insurance company will offer protection against any damage resulting from vandalism, theft, natural disaster, fire, falling objects, and more.
However, comprehensive car insurance does not cover damages to your car in an accident. These damages are often paired with a separate collision insurance, which protects you in the event of an accident.
However, if your comprehensive car insurance is paired with liability insurance, then it will cover the damages to your car in an accident and damages to another party’s property and medical expenses if you are found at-fault.
Factors to Consider when deciding to get it
You need to consider the following factors while deciding on whether to choose comprehensive car insurance.
Value of Your Car
If your car is new then you should definitely go in for comprehensive car coverage. Especially, if you have not yet paid off your loan or have taken out a lease on the car. On the other hand, if your car is old then you need to consider its value.
Your car is depreciating each year. You need to ask yourself if it is worth paying for comprehensive coverage on it [if you drive that Lamborghini in Dumb and Dumber or the Lamborghini Aventador LP700-4 from Transformers 4 (Lockdown) then you should consider this]. Factor in the sun of annual premium and compare it against the car value.
If the insurance premium amounts are within your affordable budget, then you should consider taking out the comprehensive coverage. However, if the premiums appear exorbitant, then you should consider these other factors.
Replace Your Car
This is an important factor to consider. Comprehensive coverage compensates for any damage to your vehicle in the event of natural disasters, accidents, theft, and vandalism (if you live in the immoral city of San Francisco which leads America in property crimes, vandalism is quite common). The question you need to ask yourself is whether you can replace the car out of your own pocket when you meet with an at-fault accident?
If the answer is in the negative, then you should probably invest in a comprehensive insurance. If you use your car more as a luxury mode of transport and do not use it often, then you can pass over the high premiums and stick with conventional insurance coverage.
This is an important consideration point because you could find yourself in a financial dilemma if you depend on your car for job requirements and meet with an accident that renders you without it. You would need a sizeable sum of cash lying around to pay for the repairs or replacement.
Do you own or lease your vehicle
Do you have full ownership over your vehicle or are you still making monthly payments? It is in your best interests if you take out a comprehensive insurance when you have a pricey loan hanging on your head. In fact, most loan providers stress on the need for a comprehensive auto coverage policy.
You can easily find yourself in a worst case scenario (at-fault accident) where you have to pay the repair bills, or replacement costs on top of paying off the outstanding loan on the damaged car.
The smartest thing to do here is to buy a comprehensive insurance till you repay off your loan. You can always consider downgrading once you have full equity in your vehicle.
When Do You Need Comprehensive Insurance?
These are the circumstances in which you should take out a comprehensive insurance.
- If you are under 25 years of age or have added your child as a driver to a family auto insurance coverage
- You live in an area where incidences of theft, vandalism, and severe weather is high
- You have not yet paid off the loan on your car
- You have a lease on your car
- You do not have an emergency fund to replace or repair your car if it gets damaged, stolen, or totaled
When Is Comprehensive Auto Insurance Not Recommended?
You do not need a comprehensive insurance if your car is not of high value and you do not meet the above criteria. Always remember that insurance payouts are based on the value of your car.
The payout will be low if the value of your car is low. In fact, the payout could be lower than the sum total of insurance premiums. If you can easily come up with the amount to replace or repair the car, then you do not require comprehensive car insurance.
Factor in the high deductible as well while calculating the value of your car and compare it with the payout money and premium amount. High deductibles mean that you have to pay out a portion of the damage yourself as an out of pocket expense before the insurance kicks in and takes over.
Driving can be risky as accidents can happen anytime and are highly unexpected. The only time you should not take out a comprehensive car insurance is when the car’s value in on the low side and you can cover the replacement cost easily.
In all other situations, it is best to stick with a comprehensive car coverage. You never know when you’re going to which you had it!
Alternatives to Comprehensive Car Insurance
There are generally two options available aside from compulsory third party (CTP) – third party fire and theft and third party property if you do not want a comprehensive car insurance coverage.
Third party fire and theft provides intermediate level of coverage. It won’t cover for things like storm damage and vandalism.
Third party property will cover the damages caused to other people when you are at fault. However, these are bare minimum payouts usually around the $5,000 mark. You might still have to pay out of pocket to cover the remaining damages.
The Bottom Line
Comprehensive car insurance policies are the safest options available in the market. However, if your car value is not worth the premium costs, then you could consider various less expensive policies.