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What is comprehensive auto insurance?

Things to Remember...
  • No states require you to carry comprehensive insurance as part of your insurance plan. However considering comprehensive coverage may be in your best interest
  • If you have not yet paid off your car, your lender will probably require you to get auto insurance coverage
  • If you have a loan and you don’t buy the coverage required by your lender, then they can pursue you for the costs.

Comprehensive auto insurance is an optional add-on to your regular insurance policy to cover the cost of any damage caused by uncovered events.

Comprehensive coverage covers acts of nature, fire, vandalism, theft, etc.

No states require you to carry comprehensive insurance as part of your insurance plan. However, there are a couple of reasons that you will want to consider adding comprehensive insurance to your auto insurance package.

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Why do I need comprehensive insurance?

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The most common reason that someone buys comprehensive insurance is that their lender requires them to do so. When you need to finance a vehicle, your lender may have specific requirements for protecting that vehicle.

Even though the car is in your possession, it technically still belongs to your lender until you pay it off. Lenders want to ensure that if something happens to the car, they can be compensated.

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 the event of an accident.
  • Higher liability – Your lender may also require you to carry higher levels of liability insurance, beyond what your state already requires. If you cause a car accident and your insurance doesn’t cover all of the damages, then drivers could go after your personal financing.

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.

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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.

However, if you have a loan and you don’t buy the coverage required by your lender, then they can pursue you for the costs. 

The lender can take one of two actions. The lender can demand that you pay all of your debt or repossess your vehicle.

The other more common option is to tack insurance onto your loan payment. When a lender charges you for insurance, they aren’t bound by insurance laws, which means 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?

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Many people believe that their basic insurance plan will cover the theft of their car. This 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 something 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.

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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