Comprehensive auto insurance is an insurance product that you add on to your regular insurance policy to cover the cost of any damage caused by covered events. Comprehensive coverage covers acts of nature, fire, vandalism, theft and so on.
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There aren’t any states that require you to carry comprehensive insurance as part of your insurance plan. However, there are a couple of reasons that you will want or need to consider adding comprehensive insurance to your auto insurance package.
Why do I need comprehensive insurance?
The most common reason that someone buys comprehensive insurance is because their lender requires them to do so. You see, when you need to finance a vehicle, then your lender has specific requirements for protecting that vehicle.
That is because, technically, even though the car is in your possession, it is your lender that is investing in the vehicle and they want to ensure that if something were to happen to the car that it will still be paid for.
There are other types of auto insurance that your lender may require.
- Collision: In addition to comprehensive insurance, your lender will also require you to purchase collision coverage. This insurance covers the cost of the damages to your vehicle in an accident that you cause. Without collision coverage, if you have an accident that you caused, then you will have to cover the cost of repairs yourself.
- Higher liability: You lender may also require you to carry higher levels of liability insurance, above and beyond what your state already requires. Again, if you cause a car accident and your insurance doesn’t cover all of the damages to the vehicle(s) that you damaged, then those drivers could go after your personal financing, creating a situation where you may not be able to pay your car payments; something you lender doesn’t want.
A lender requirement isn’t the only reason that you might want to consider comprehensive insurance coverage. Simply put, if you have a vehicle with more than $1000 value, then you will want to consider this coverage.
Not everyone owes money on the vehicle that they owe, but that doesn’t mean that they have the money to replace their car should it be vandalized, stolen or damaged by severe weather.
What happens if I don’t carry comprehensive insurance on my car?
If you don’t have a loan on your vehicle and you don’t carry comprehensive coverage, then nothing happens, you are just making a choice about your personal coverage. If, however, you have a loan and you don’t buy the coverage required by your lender, then they can take matters into their own hands.
The lender can take one of two actions. The least common action is that they will call in the debt because you are in breach of contract. When this happens, your lender will demand that you pay all of your debt or give them your vehicle.
The other, more common, option is to tack insurance on to your loan payment. When a lender charges you for insurance, they aren’t bound by insurance laws as far as price, which means that they can virtually charge you whatever they want.
Typically, when you pay for insurance through your lender, you will pay at least twice as much as you would if you were paying for your insurance on your own. The lender can choose to add your insurance payment to your loan payment, requiring you to pay more each month, or they can extend your loan, which means that you will pay far more for your vehicle.
What does my regular insurance cover?
Many people believe that their basic insurance plan will cover the theft of their car. The truth is that this just isn’t the case. Your basic insurance is called liability insurance, which means that it is designed to cover your liability when an accident occurs.
If you cause an accident, either due to negligence or because something happened that was out of your control, the driver of the other vehicle has a right to compensation. Your liability coverage will pay for the damages to the other car in the accident as well as any medical costs, up to the maximum amount of your policy coverage.
If your insurance runs out before all of the bills are paid, then you become personally liable for the costs associated with the accident. The other drivers in the accident can sue you if they feel they aren’t being adequately compensated.
Although there is a per accident limit on the amount of liability coverage that you have, there is no lifetime maximum on the coverage. Your coverage resets after an accident, so if you cause another accident then your insurance will pay for the damages again.
An insurance company can drop your coverage, however, if you file multiple claims with them in too short of a time period. If this happens, you will probably be able to get coverage elsewhere, but at a higher price.
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