What is the Meaning of Comprehensive Insurance?

All you need to know about Comprehensive Insurance.

In today’s advanced world, there are many types of insurance policies available. These are to protect you in various situations and are overall a good asset to have.

One of these insurance policies include comprehensive insurance.

What is the Meaning of Comprehensive Insurance?

As per the comprehensive insurance definition, it is a kind of auto insurance that provides coverage to your car from any damages resulting from causes other than collision. For example, comprehensive insurance will provide coverage for your vehicle if it has been dented by a run-in with a deer, destroyed by a tornado, damaged by a vandal, among other causes.

Comprehensive Car Insurance Explained

An auto insurance policy consists of three components: comprehensive insurance, collision insurance and liability insurance. It is a requirement by the state law for drivers to have liability insurance. However, comprehensive and collision insurance are optional coverages that drivers can choose to have for their vehicles. Comprehensive insurance might be a requirement by an auto loan company if a person has financed their vehicle. In case a car owner has paid for their vehicle in full and cannot afford comprehensive coverage or they own a vehicle that is old and does not have much value or they believe to be at low risk of non- collision damage or they prefer to be self-insured, they can just plain and simple choose not to purchase comprehensive insurance.

However, if an automobile owner lives in an area where collisions with animals is more common than collisions with other cars, or there is a bigger risk of hailstorms or tornadoes damaging the vehicle, or they live in a town where break-ins and vandalism is common, they might have to consider getting comprehensive insurance.

Unlike liability insurance, collision insurance and comprehensive insurance have their own deductibles. It is up to you and the perceived level of risk in your area that will determine what your deductible should be.

For example, if you want to pay lower premiums because you think you are unlikely to file a claim based on their perceived level of risk but they do not want to forego comprehensive insurance altogether, they can choose to pay higher deductibles so that they will have lower premiums to pay each month. However, when buying comprehensive insurance, you should keep in mind, the higher the cash value of a vehicle, the more expensive comprehensive insurance would be.

Here is how comprehensive insurance would work in the event of a claim. For example, a driver has a car that is worth $10,000 and a comprehensive insurance deductible worth $1,000. That car is then destroyed by a hailstorm. The owner of the car will be able to get $9,000 from the insurance company easily when they file a claim under the comprehensive insurance cover. However, if the owner of the car does not have comprehensive coverage but the car has been destroyed by a hailstorm, the collision coverage or liability insurance would not be able to cover the damage and the owner of the vehicle would have to pay the entire $10,000 out of their own pocket. This might lead to the owner taking a loan in order to purchase either a replacement vehicle or settle for a vehicle that has a lesser value than the car that was destroyed in the hailstorm if they do not have $10,000 to spend on a replacement that is equivalent.

How to Choose a Comprehensive Coverage Deductible

Comprehensive deductibles are usually offered by insurers in set increments such as $500, $1,000 or $1,500. As discussed above, if you want your premiums to be lower, you can choose a higher deductible. This can save a lot of money upfront as you might not even have to pay the deductible. Likewise, having a lower comprehensive deductible means the amount you pay in premiums will automatically be higher. This is the best option for people who live in a high risk zone where tornadoes, hailstorms, crimes like theft and chances of animals colliding with your car are high. With a high risk like this, it is likely that you will have to file a comprehensive coverage claim more often than not and you would be able to save yourself from paying high deductibles everytime you file a claim.

If you are not convinced about comprehensive insurance benefits and are still wondering why you would buy comprehensive coverage, here are a few factors that might put everything in perspective.

Why Buy Comprehensive Coverage?

  • Comprehensive insurance coverage is usually required by your vehicle’s lender if you are leasing or financing your car. It is a requirement for you to have comprehensive and collision coverage until the vehicle has been paid.
  • The worth of your car and how old it is. Once you have paid off your car, comprehensive coverage is optional. However, it may be a good idea to find out the value of your vehicle. To do so, you can use a comprehensive insurance calculator usually available on every insurance company’s website that offers auto insurance.
  • Once you know what your vehicle is worth, you need to determine whether or not you can afford to repair or replace it in case it is stolen or damaged in an accident? If you cannot afford to pay much out of your pocket then buying optional coverage plans like comprehensive and collision will be a smart move.
  • How much are the annual premiums? It is recommended by the Insurance Information Institute to take the amount you would be paying for comprehensive and collision coverage in a year and multiply that by 10. If your car is worth less than the sum you get then getting comprehensive or collision coverage may not be the best option for you. However, you should talk to your insurance agent to figure out what option would be the best fit for you considering the value of your car and the ability to pay for the premiums.

The Bottom Line

We know what is the meaning of comprehensive insurance and why it is a cost-effective investment depending on your financial situation and how much of a risk your vehicle is in. The only thing left to do now is figure out whether or not it fits your needs. If it does not, you might have to explore other options but if it does, it will prove to be a smart, cost-effective investment that is going to reward you.

Nabeel Ahmad

Nabeel Ahmad

Nabeel Ahmad is the founder and editor-in-chief of Insurance Noon. Apart from Insurance Noon, he is a serial entrepreneur, and has founded multiple successful companies in different industries.

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