Do You Really Need Collision and Comprehensive Insurance?

You’re on an auto insurance website, so you probably don’t expect this answer: maybe not. Most often, however, the decision might not be in your hands.

That’s because most lenders will require you to carry collision and comprehensive coverage as part of your auto insurance package. The reason is simple. Lenders want to protect their investment. They’ve loaned you the money to buy the car, and they want to make sure you’ll keep repaying that loan, and if you don’t they’ll have collateral to recover their costs.

A primer on auto insurance

Car insurance can get confusing. That’s because requirements differ across states. Every state requires you to carry liability coverage, though minimums vary widely. Many but not all states also mandate uninsured/underinsured coverage, and some also require you to have medical payments coverage.

What do these terms mean? Liability coverage protects you when you cause an accident resulting in property damage and injuries to someone other than yourself. Uninsured/underinsured coverage protects you if the person who caused the wreck doesn’t have enough or any insurance. Medical payments coverage helps pay for injuries sustained by people in your car.

So why do you need more coverage?

Go back to the liability coverage: It pays for damage to the other car when you’re at fault. That still leaves you with damage to your car. That’s where collision fits in. It will help pay for repairs – minus your deductible. Comprehensive coverage pays for other damage to your car — for example, if it is stolen, vandalized or damaged in a riot, earthquake or some other event. Again, you must first meet your deductible before you get help from this policy.

When you might not need these coverages

To repeat, most lenders will require you to have collision and comprehensive coverages as a condition of receiving a loan. But once you pay off your note, you won’t have to keep carrying it. You may still want to, however, particularly while the vehicle still has a lot of value.

However, once the car is more than 10 years old, its value may not be high enough to justify coverage. Remember, you have to pay the deductible first before you receive help from either of these protections.

Make your choice carefully, and talk it over with a licensed agent before you drop ANY car insurance coverage so that you’ll understand the risk you’ll be taking. If you fall under this situation, you could choose to do without collision coverage and save on your premiums.  But if you do, you might want to put any savings you reap toward starting a new car fund.

Source: AutoInsurance