When you begin shopping around for auto incerence quotes, you quickly discover that there are two basic main types of auto insurance: Liability insurance (sometimes known as Basic or Collision insurance) and Comprehensive. As with many terms in the insurance industry, the term ‘comprehensive’ sounds much more complete than it actually is. Whereas with Liability insurance you are actually insured for the damage inflicted on other peoples’ vehicles, with Comprehensive coverage you are actually covered for the value of your own vehicle up to the standard book value of the vehicle. Whether or not Comprehensive coverage is recommended for you is determined by several factors.
For the most part, Comprehensive coverage is not usually required by law. Liability incerence frequently is required by law as it guarantees that drivers who are not at fault in an accident will be compensated for their loss or repair costs. Comprehensive coverage is sometimes required by a lender when there is a loan attached to the car, or by a dealer leasing a car. However if you are not required by your lender or do not have a loan on the car at all you are usually not required to carry Comprehensive coverage.
Comprehensive coverage does not guarantee your losses will be completely covered in the event that your car is totaled in an accident (damaged too much for repairs to be a practical solution) or stolen. The replacement value of your car is determined by its book value, calculated based on initial value against the wear and tear the car has undergone in the time since purchase. These calculations are often based on your answers to the regular questionnaires insurance companies send to you asking about how you use and house the car (commuting, for recreation only, in a garage or parked on the street).
Often the book value of a car, even a very new car, is significantly lower than the perceived value, or the amount owed on a loan. It is important to understand that Comprehensive coverage may not pay back the loan value on a car. If you are concerned about the remaining balance of a loan, you should investigate Gap insurance in addition to Comprehensive coverage when looking for auto insurance quotes.
The question of whether Comprehensive coverage is appropriate for your vehicle often comes down to the value of the car (again, the book value, not the perceived or loan value). The accepted rule of thumb is that if a car is worth less than $5,000 Comprehensive coverage is not cost-effective. However, the question should be whether or not you would be in a financial position to replace your car for $5000 or less. If the answer is no, you may choose to seek auto insurance quotes for Comprehensive coverage despite the low value of your car in order to guarantee you would be able to replace it if it was totaled or stolen. Comprehensive coverage does not make sense for everyone, but it is always worth discussing with your insurance agent.