The Difference Between Comprehensive and Collision Coverage

The Difference Between Comprehensive and Collision Coverage

Car insurance premiums are eating up a larger and larger portion of household budgets.

According to AAA data, a medium-sized sedan now costs an average of $1,245 per year in the United States. This is a reference to full-coverage car insurance. In most states, the bare minimum coverage required to drive is liability insurance, but most drivers have more.

“Every state has its own insurance laws,” says Laura Adams, a personal finance and insurance expert. However, she warns that "in a lot of cases, the liability limits that the states require are insufficient." They are extremely low, and their sole purpose is to ensure that every driver has at least some liability insurance.” The minimum liability coverage in Florida, for example, is only $10,000.

This is where additional, optional insurance, such as collision and comprehensive insurance, can come into play. States do not require collision and comprehensive coverage, but the Insurance Information Institute reports that nearly four out of every five drivers have it. According to Adams, if you have a car loan or lease, collision and comprehensive insurance are usually required to protect the lender or leasing company.

“Liability protects you as a person and your finances, whereas comprehensive and collision protect the cost of repairing or replacing your vehicle,” Adams explains. “It is not uncommon for people to have all three.”

To help you understand what comprehensive and collision insurance cover, how they work, and how much they cost, here is a breakdown of what they cover, how they work, and how much they cost.

What Is Comprehensive Insurance?

Damage to your car that is not the result of a collision is covered by comprehensive insurance. It refers to events that are generally beyond your control, such as theft, vandalism, and animal-related damage.

“Things that have nothing to do with a collision will be covered by comprehensive,” Adams says. If you live in an area prone to natural disasters, it may make more sense to have comprehensive insurance. According to the state's Department of Motor Vehicles, fires in northern California in October 2017 destroyed an estimated 4,000 cars.

Examples of When You Could Make a Comprehensive Claim

• Your car is vandalized.
• There is a natural disaster that causes damage to your vehicle.
• Your car was damaged after being hit by an animal on the road.
• Your car is hit by a falling tree.
• A riot that causes your car to be damaged or destroyed.

What Is Collision Insurance?

Consider collision insurance to be the polar opposite of comprehensive insurance. It protects your vehicle in the event of a collision with another vehicle or an object.

“If another car hits you and you have a $5,000 repair cost, your collision insurance will pay for those repairs up to the limit that you pay for on your insurance,” Adams says.

Examples of When You Could Make a Collision Claim

• In an accident, you either hit another car or another car hits you.
• You swerve to avoid an animal on the road and collide with a guardrail.
• You collided with a pole.

Comprehensive vs Collision Insurance: Similarities and Differences

It's easy to mix up comprehensive and collision insurance.

The difference is determined by what caused the damage to your vehicle. Collision insurance assists in the repair of your vehicle if it is damaged in a collision with another vehicle or object, such as a pole or a fence. It is commonly used when the damage is caused by driving the vehicle.

Comprehensive coverage protects against damage that does not occur as a result of driving the car, such as theft, weather-related incidents, or vandalism.

Keep in mind that collision and comprehensive car insurance are typically sold as a package, but they can be purchased separately. “Full coverage” car insurance refers to a policy that includes liability, collision, and comprehensive coverage.

Here is a list of the similarities and differences between comprehensive and collision insurance.

How Much Will Comprehensive and Collision Insurance Cost?

Expect to pay a few hundred dollars per year for comprehensive and collision insurance, with a wide range depending on where you live, your driving record, and other personal factors such as your age, marital status, and credit score.

“They look at a lot of surprising demographic factors, as well as factors about your car,” Adams says. The make, model, and year all play a role, with “the idea being that newer cars tend to be safer,” she says, adding that “some cars, such as luxury or hybrid vehicles, are more expensive to insure.”

According to the most recent data from the National Association of Insurance Commissioners, the average cost of collision coverage is $363 per year, while comprehensive insurance costs an average of $160. The chart below shows the average cost of collision and comprehensive insurance in your state.

How to Save on Comprehensive and Collision Insurance

If you want to save money on comprehensive and collision coverage, start by comparing car insurance quotes from various companies to ensure you're getting the best deal. However, there are some other things you can do to save money on comprehensive and collision insurance, such as:

• Inquire about discounts.
• Choose a vehicle that is less expensive to insure.
• Increase your credit score.
• Reduce your driving.
• Enhance your driving record
• Increase your collision and comprehensive deductibles.
• Reduce or eliminate your comprehensive or collision coverage, or both.

Do I Need Comprehensive and Collision Insurance?

Although comprehensive and collision insurance are both required by law, they do not always make sense for every driver.

If you have a car loan or a car lease, you will almost certainly be required to have comprehensive and collision coverage until the car is paid off. This is done so that lenders can protect their investments from any potential damage. According to Experian data from 2019, roughly 85 percent of new cars are financed with a loan or lease, whereas only 55 percent of used cars are.

However, once your car loan is paid off, collision and comprehensive coverage are no longer required. If your car isn't worth much and you have enough money to buy a new one if something bad happens, you might not need collision and comprehensive coverage.

Collision insurance is typically recommended by Kyle Schmitt, vice president and managing director of insurance intelligence at J.D. Power, but the decision to keep or drop it ultimately depends on your car and your financial situation, according to Schmitt.

“If you have a new or recently purchased vehicle, I believe all three coverages (liability, collision, and comprehensive) are essential. “A lot of that is driven by vehicle repair costs,” Schmitt says, “but there is no hard-and-fast rule for collision and comprehensive; it depends on your vehicle, personal situation, and driving habits.”

Without these extra types of coverage, your annual car insurance payments can be reduced by several hundred dollars. And, while the value of your car and your budget are important considerations, it all comes down to peace of mind.

If you're debating whether to get comprehensive or collision coverage, or both, here are a few things to think about.

• Car value and age: It makes sense to carry a full range of auto insurance coverage when purchasing a new or slightly used car, but you can save money by reducing coverage as the car ages. As the value of your car decreases, you may discover that some coverages, such as comprehensive and collision, are no longer required. If you're wondering whether comprehensive and collision coverage is a good value for you, the Insurance Information Institute has a good rule of thumb to follow: Multiply the amount you would pay for comprehensive and collision coverage in a year by ten. If your car is worth less than that amount, comprehensive and collision coverage may not be necessary.
• Deductible amount: You must consider the potential payout of any collision or comprehensive claim in relation to your monthly premiums and deductible in advance. There are deductibles for both comprehensive and collision insurance, which is the amount you owe before your insurance kicks in to cover expenses. At the start of your policy, you get to choose your deductible amount. “I would typically recommend that the higher the deductible, the more available cash you have. If you have less money, a lower deductible may make sense,” Schmitt says.
• Your budget: It's always a good idea to review your auto insurance coverage at least once a year and see how much it's costing you. If your financial situation has changed significantly since last year, it may make sense to keep one type of coverage but not the other, increase your deductibles, or even eliminate optional coverage entirely.