Previously I wrote about the state required minimum liability insurance. That’s the insurance that pays the other people you hurt when you cause an accident. What pays to repair your car when you cause an accident? That would be what is referred to as “full coverage”. There are two main parts to this:
COLLISION: This is when you cause a collision with another car, or something like a light post or a building; although usually we’re talking about a car. This coverage pays to restore your car to the condition it was in when you crashed it. In order to make this coverage affordable – especially when your car is worth $45,000 – you can choose a deductible. This is the amount you will pay before the insurance pays to repair or restore your car. The higher your deductible – your share of repair costs – the lower your monthly bill for insurance.
COMPREHENSIVE: This coverage – as the name implies – is supposed to cover every other way you can get damage to your car. Examples are: Tree falls on your car, Flooding, Hail, Sandstorm and even a COLLISION with a deer or other animal. Yes, that would be comprehensive. Comprehensive can also cover your windshield or theft of your car or items in it. Many people choose a lower deductible on this coverage because what causes the damage is something they couldn’t control or plan for, like a rock hitting the windshield. Another reason people often take a lower deductible for comprehensive coverage is that people feel this type of damage is more likely. However, the lower your deductibles, the higher your monthly insurance bill will be.
You decide for yourself how much of these losses you can cover yourself. Typically, people pick $500/$500 deductibles, but some people choose $250 comprehensive and $500 collision or $100/$500. If you want to save on your monthly insurance premium, you might choose $1,000 deductibles on both, but remember: if your car is in the body shop and the accident was your fault, they are not giving you your car back until you give them $1,000 if that is the deductible you chose.
WHEN IS FULL COVERAGE REQUIRED?
You are usually required to carry full coverage auto insurance if you have a loan on your car. If you owe $25,000 on a car and you are paying the bank for 6 years, they want you to have collision and comprehensive coverage so they get paid off if you wreck your car. Some lenders require specific deductibles. Often when you have a lease, the bank will want you to carry deductibles no higher than $500.