Business News Select | SMPost | Terms

Term: Comprehensive Insurance

22 Oct 2014

A type of automobile insurance that covers damage to your car from causes other than a collision. Comprehensive insurance would cover your vehicle if it was destroyed by a tornado, dented by a run-in with a deer, spray painted by a vandal, damaged by a break-in or crushed by a collapsing garage, among other causes.

Comprehensive insurance, collision insurance and liability insurance are the three components of an automobile insurance policy. State law requires drivers to carry liability insurance, but collision and comprehensive insurance are optional if you own the vehicle outright. If you have financed the vehicle, your auto loan company might require you to carry comprehensive insurance. If you have paid for the vehicle in full and you can’t afford comprehensive insurance, you own an older automobile that doesn’t have much value, you think you’re at low-risk of non-collision damage, or you prefer to self-insure, you can choose not to purchase comprehensive insurance. On the other hand, even if you own your automobile free and clear, if you live in a rural area where collisions with animals are common, in a stormy area that often gets hail, or in a higher-crime part of town where break-ins and theft occur regularly, you might want to purchase comprehensive insurance.

Collision and comprehensive insurance each have their own deductibles (liability insurance has no deductible), so you can choose different deductibles based on how much risk you think you’re susceptible to in each of these areas. For example, if you don’t think you’re likely to file a comprehensive claim, but you don’t want to forego comprehensive insurance altogether, you could choose a relatively high $1,000 deductible to lower your premiums. The higher your vehicle’s cash value, the more expensive your comprehensive insurance will be.

Here’s an example of how comprehensive insurance works if you file a claim. If you drive a Honda Accord worth $10,000, you have a $1,000 deductible and your car is totally destroyed by a tornado, you’ll receive $9,000 from your insurance company. If you don’t have comprehensive coverage and your car is totally destroyed by a tornado, the collision and liability portions of your policy won’t cover the damage, and you’ll be responsible for the entire $10,000 loss. You might have to get a loan to purchase a replacement vehicle or settle for something less expensive if you don’t have $10,000 to spend on an equivalent replacement.

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