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Collison or Comprehensive? Or Both, or Neither?

The idea of spending more on insurance is anathema to most Americans, but when it comes to auto insurance, it is an idea that is sometimes worth considering.

State laws stipulate a minimum amount of coverage that every driver must have, and driving without insurance is strictly prohibited and carries stiff penalties. The requirements vary from state to state, but the Insurance Information Institute publishes a good summary of the minimum required levels of compulsory auto and uninsured motorists coverage. Some states have tackled the problem of uninsured motorists by mandating that drivers carry no-fault coverage, which means that a driver can receive payment under his own insurance, even if the other driver was at fault.

However, the minimum coverage set out in each state is, for the vast majority of drivers, insufficient to protect them from a financial catastrophe should a serious accident occur. The general rule of thumb suggests that coverage equal to any assets held should be obtained, but as well as considering the amount of coverage in place, it is worth checking whether the type of insurance held is appropriate or even necessary for the vehicle in question.

Collision insurance is an option that some drivers opt to cut from their policy in order to save money. Collision coverage pays out when your car is hit by either another vehicle or an object, causing damage. Regardless of the amount of damage sustained in an incident, the insurer will normally limit the amount of coverage to the actual cash value of the car.

Comprehensive insurance is another component that is not compulsory but offers drivers protection for their own vehicles if they suffer damage. Comprehensive coverage becomes effective if damage is sustained as a result of something other than a collision, such as a fire, flood or theft.

Collision and comprehensive insurance both bring peace of mind for the driver, who can be certain that their vehicle will be repaired in the event of an accident, even if it occurs from a cause other than collision with another car. However, while the benefits are obvious, there are certain factors that need to be taken into account to decide whether or not this more expensive type of coverage is truly cost-effective.

The value of a car plays a major part in the decision, as replacing a new vehicle, luxury car or SUV will cost significantly more than repairing or replacing an old family saloon that has seen better days. Opinion is divided over where the line should be drawn, but consensus suggests that once the insurance costs more than 5-10% of the total value of the vehicle, minus the deductible, a question should be asked about the validity of carrying collision and comprehensive insurance.

However, although experts may recommend avoiding comprehensive and collision coverage if the car is not valued at more than a minimum amount, those who rely on their car but have little in the way of savings may decide the coverage is worth paying for.

Drivers who have outstanding finance on their vehicle may find the decision about whether to keep collision and comprehensive insurance is taken out of their hands, as some contracts specify that the coverage must be maintained until the loan is repaid. This is primarily due to the risk that if an uninsured driver causes damage, the money to repair the vehicle will not be recoverable from the third party, leaving the finance firm with a damaged asset.

Some drivers that choose to drop collision and comprehensive insurance adopt a compromise, whereby the money saved is set aside so if the worst happens, there are funds available to replace or repair the auto.

For those wanting the peace of mind which the coverage provides, but are concerned about the amount the insurance costs relative to the value of the car, lowering the premium may help to make the decision to keep the coverage easier. Raising the deductible will have a significant impact on how much the insurance costs and pushing it upwards to the maximum amount you could afford to contribute will help lower your costs. Another alternative is to consider switching insurance companies, as many people simply stick to their existing insurer due to inertia rather than searching the market for the most competitive rate.

A poor driving record can be another factor that influences the decision, as insurers are increasingly taking this into account, with some opting to cancel policies for drivers they consider a poor risk or declining to renew coverage. Factors that insurers are likely to take into account could be the number of claims filed, offences such as DUI or moving violations. In addition, minor offences such as failing to signal properly have been linked to an increase in the risk for future accidents taking place. Consequently, this is also a factor as to whether an insurer is willing to provide collision or comprehensive coverage and for what price. Coverage that is particularly expensive due to a less than perfect driving record could also be another reason to consider dropping the insurance and saving the money instead.

On the flip side, collision and comprehensive coverage on a personal policy is very convenient when renting vehicles, so for drivers who regularly rent cars, keeping the personal policy as up to date and inclusive as possible may save money on purchasing expensive rental firm insurance as and when needed.

It is possible to remove collision insurance and keep comprehensive coverage and vice versa, so for drivers not wanting to be completely exposed, there is a middle ground. But fundamentally, the decision about collision and comprehensive coverage is entirely personal—no-one can deny they are useful and provide the motorist with a fully-inclusive policy, but low value vehicles or high cost policies may put the insurance beyond some drivers’ reach.