In cases like collision accidents with other cars or objects where your insurance policy would not cover you, what do you do? You get comprehensive insurance. But how does comprehensive insurance work?
Comprehensive insurance was created to repair your car whenever you’re involved in accidents that aren’t road crashes. We’ll explain the intricacies of how comprehensive insurance works as well as how to lower the rates of comprehensive insurance.
What is comprehensive insurance?
Comprehensive insurance is a type of coverage that reimburses you for car repairs on non-collision accidents that aren’t related to traffic.
Accidents of this nature include vandalism, fires, trees or other objects falling on your car, theft, hitting an animal, and all-natural disasters such as hails or tornados.
Related: How to Get Car Insurance Easily
Comprehensive insurance is an optional coverage type if you own the car completely.
If you’re financing or leasing the car, however, your lender will require you to have comprehensive insurance to cushion the risk of your car getting totaled before you complete your car loan, so their investment remains safe.
Car insurance companies usually provide a settlement offer for your damaged car by paying you up to the actual cash value of the car.
The actual cash value is the current market value of the car just before an accident. It is calculated by the original amount you bought the car minus depreciation.
So, the actual cash value is naturally going to be lesser than the cost of buying a new car of the same make and model, since cars get depreciated by 20% the minute they leave the parking lot, and get even more depreciated due to age, mileage, mechanical issues, and other factors.
Comprehensive insurance is not only applicable to cars, but also to yachts, motorcycles, boats, and RVs.
How does comprehensive insurance work?
Let’s say that you own a comprehensive insurance policy with a deductible of $1,000.
A deductible is the amount you pay towards the repair of your car when filing a claim before your insurer covers the remaining cost.
One morning, you’re about to leave for work. Only to go out and see your car dented and partly crushed by a heavy tree limb. It obviously fell on the vehicle sometime during the night.
This is perfect for comprehensive insurance. Quickly, you take out your phone and get pictures of the accident so your insurer can see the extent of damage.
Entering your account on the insurance company’s mobile app or website, you file a claim and upload your pictures as proof.
Not long after, the insurance company sends a claims adjuster to inspect your vehicle. The claims adjuster assesses and determines the payout estimate.
“The estimate for the cost of repairs is $4,000,” he says.
You accept the estimate because it seems fair enough. Note that you can challenge the estimate if you don’t think it’s enough to cover the repair of your vehicle.
Since you’ve accepted it, the insurance company tows your car, and you have roadside assistance as an auto insurance add-on, to a mechanic shop of their choice or your choice.
Your insurer then asks you to pay your deductible of $1,000 and proceeds to write a check of $3,000 to you or your mechanic directly.
If you need to move with a rental car every day while yours is being repaired, you have the option of signing up for rental reimbursement coverage with your insurance company.
When your car is repaired and ready, the mechanic notifies you to come pick it up.
And that, my friend, is how comprehensive insurance works.
What does comprehensive insurance cover on a car?
A comprehensive insurance covers the following accident scenarios:
- Getting hit by trees and other objects
- Riots and other civil unrest
- Natural disasters such as earthquakes
- Damage to windshields
What doesn’t comprehensive insurance cover?
Comprehensive insurance neither applies to nor covers the following circumstances:
- Stolen personal belongings in the car
- Regular wear and tear of a car
- Road crash with another car or object
- Medical cost of accident-related injuries
- Legal costs resulting from the accident
What is a good comprehensive insurance deductible?
A deductible is the dollar amount you’ll pay when filing a claim for an accident before your insurance company pays for the rest. Most people find that a good deductible for comprehensive insurance lies between $500 to $1,000.
If you have a deductible of $500, for instance, and the cost of repairing your car costs $2,500, your insurance company would write you a check for $2,000 so you can pay the deductible of $500.
Deductible tells your insurer the amount of financial risk you’re willing to bear in the event of an accident. A high deductible will lower your premium because you’re bearing more risk while a low deductible will increase your premium because you’re taking on low financial risk.
Do you need comprehensive insurance?
You’ll need comprehensive insurance if you’re financing or leasing your car, as most lenders and banks would always require you to get comprehensive insurance in case your vehicle gets totaled or stolen before you finish paying your car loan.
With comprehensive insurance in place, your lender is likely to get back the actual cash value of the car if it gets stolen, as opposed to when you have no such insurance. That’s why it’s a requirement for financing or leasing a car.
If you fully own the car, on the other hand, then you can decide if you want the option of comprehensive insurance or not.
The cost of replacing parts of an expensive car is high. So, if you have a newly bought expensive ride and you know you’ll have trouble repairing it during an unlikely accident, comprehensive insurance is a good choice.
But if your car is old and has a low actual cash value, you don’t really need comprehensive insurance as the cost of repairs might be less than your deductible and premiums.
It’ll just skyrocket your annual premiums, coupled with the fact that some insurance companies always require comprehensive insurance to go along with collision insurance.
Is it better to have collision or comprehensive insurance?
Comprehensive and collision insurance often get bought and bundled together, so it’s easy to mix them up.
And there’s a good reason for this since it’s better to have both policies to cater to a wider range of possible accident scenarios.
While both of them are targeted at restoring your car to its condition before an accident, collision insurance comes into play when you crash into a tree and comprehensive insurance kicks in when a tree falls on your car.
What this means is that collision insurance is a kind of insurance that covers the repairs of your vehicle for accidents that involve you crashing or “colliding” with another car or object.
Comprehensive insurance, on the other hand, caters to reimbursement for non-collision accidents such as objects like trees falling on your cars, natural disasters like hails, running into an animal, theft, and vandalism from riots or civil disobedience.
Also Read: How Does Collision Insurance Work?
It is not better to have one and not have the other, that’s why most insurance companies bundle both policies, along with liability insurance, into a single policy called full coverage.
It’s far better to have both comprehensive and collision coverages, especially when you own a new and expensive car because the cost of repairs might pose a risk to your purse in the near future.
Should comprehensive deductible be lower than collision insurance?
Comprehensive deductible costs less than the deductible of collision insurance. As a matter of fact, studies reveal that the deductible of collision insurance is 3-5 times the cost of the deductible of comprehensive insurance.
Since the premiums of collision insurance tend to be higher than those of comprehensive insurance, it’s always best to set a higher deductible for collision insurance so you can pay low collision premiums while setting a low deductible for comprehensive insurance.
So yes, the comprehensive deductible should be lower than the collision deductible. It makes more economic sense that way.
Why would my comprehensive insurance go up?
One major reason why your comprehensive insurance goes up is that you’ve previously filed a claim for comprehensive insurance.
Most insurance companies tend to raise the premiums after customers file a claim for an accident.
In the case of comprehensive insurance, if you file a claim because your car got vandalized during a riot, then the insurer would believe that the chances of you filing another claim for that same reason are high.
If this accident that’s out of your control happened once, what stops it from happening again?
And then, boom!
Your comprehensive insurance rates go up because there’ll likely be more civil unrest that would lead to more vandalism of your car.
How can I lower my comprehensive insurance?
You can lower your comprehensive insurance by engaging in these practices:
- Take advantage of available discounts: Most insurance companies have discounts that you’re likely to qualify for. Some insurers have a multi-car discount that cuts down on costs when you insure more than one vehicle with them. Others have discounts for insuring your home and car with the same carrier. Ask your insurance agents for the available discounts in the company and apply.
- Raise your deductible: A higher comprehensive insurance deductible leads to lower premiums as you’re willing to pay more out of pocket during an accident. Insurers also reduce premiums for high deductibles because you’ll tend not to file claims unnecessarily since the deductible is likely to be more than the cost of car repairs.
- Hunt for new rates: Every year, it’s best to hunt for new comprehensive insurance rates because there are sure to be cheaper rates out there.
- Work on your credit score: Car insurance companies look at your credit history when determining your comprehensive insurance rates. After all, a good credit score shows how responsible and capable you are in your financial life.
Also Read: How to Get Lower Car Insurance Rates