If you've ever been involved in an auto accident or had your vehicle stolen, you probably know the importance of physical damage insurance coverage. This type of coverage consists of both collision and comprehensive, which are typically purchased together. If you're having difficulty making your auto insurance premium payment, one way to reduce it is to drop your comprehensive coverage.
If you're involved in an accident, your collision coverage will pay for damages to your vehicle. However, damage to your vehicle can occur even without an accident. Incidents, such as vandalism, theft or even a chipped or cracked windshield, can result in a major expense. Comprehensive coverage is designed to pay for these types of non-accident-related occurrences. Comprehensive coverage requires the payment of a deductible, which is the amount you pay out-of-pocket before coverage begins.
Comprehensive and collision coverage together can comprise about 40 percent of your auto insurance premium amount. As a result, you may look for ways to drop comprehensive coverage to relieve the financial burden of high premiums. Keep in mind that if you do so, you will need to foot the entire bill for any repairs to your vehicle. If your vehicle is stolen and cannot be located, you may be forced to buy a new one while having nothing to trade in at the dealer.
The value of your vehicle will play a large role in determining whether dropping comprehensive and collision coverage is a good idea. As your vehicle ages, its value decreases. Your insurance company bases the amount it will pay under comprehensive on the value it assigns to your vehicle at the time of loss. As a result, he older your vehicle is, the less you will receive. In general, if your comprehensive and collision premiums exceed 10 percent of your vehicle's value, carrying the coverages probably isn't cost-effective.
Raising the Deductble
Instead of dropping comprehensive, another option is to raise the deductible. The higher the deductible, the lower your premium will be. This will at least provide you with some coverage for your vehicle although you will need to pay more in repair costs. However, if your vehicle is financed, your lending institution will seek to protect its financial interest by mandating that you keep comprehensive coverage until the vehicle is paid off, and that the deductible cannot exceed a certain amount.