If you’re looking for ways to cut your auto insurance rates, you might consider canceling comprehensive coverage. That’s certainly one way to keep your budget in check — but before taking that step, make sure you understand what comprehensive coverage does (and what it doesn’t do).
First, comprehensive coverage is usually a smart purchase, but it’s not legally required. Per the Texas Department of Insurance, Texas drivers need to carry $30,000 of liability coverage for persons injured in an accident for a total of $60,000 per accident, along with $25,000 in property damage liability coverage. Liability coverage is important, but it doesn’t cover damages incurred by the policyholder.
For additional financial protection, many drivers add on collision coverage, which pays for damages to the policyholder’s vehicle caused in an accident. In other words, if you cause an accident, collision coverage will generally pay for your vehicle’s necessary repairs. Comprehensive coverage fills in the gaps by paying for damages to the driver’s vehicle that occur due to fire, flood, theft, or other events not involving a collision. Some drivers confuse the terms “comprehensive” and “collision,” which can lead to unfortunate misunderstandings during the claims process.
With that said, if you’re considering a cut to your comprehensive coverage, consider the following factors before making your decision:
- Financing — If you’re financing your vehicle, you will probably need to keep a certain amount of comprehensive coverage until you’ve paid off the loan. Banks and credit unions require comprehensive coverage because the vehicle is the collateral for the loan; if the buyer stops making payments, the lender will repossess the vehicle. If the vehicle is totaled, the buyer doesn’t have much of an incentive to continue the payments.If you’re financing or leasing your vehicle, check with your lender before changing your coverage levels. Otherwise, your banking institution might step in to purchase insurance on your behalf (and those policies are often much more expensive than what you’d find on the open market).
- Vehicle Value — Think about whether you could afford to pay for a vehicle replacement following a major event. If someone steals your $20,000 truck and you’re only carrying liability insurance, you’ll need to cover that loss out-of-pocket — and you’ll realize that a $50 monthly add-on for comprehensive coverage was well worth the expense.On the other hand, if you’re driving a vehicle valued at around $2,000, you could reasonably set some money aside to cover a car rental and a down payment on a new vehicle. You’re still taking a risk by not purchasing comprehensive coverage, but your risk is considerably lower (and, depending on your financial circumstances, the risk might be worth the potential reward).
- Deductibles — If your comprehensive coverage seems unreasonably expensive, make sure you’ve set an appropriate deductible. The deductible is the amount of money that the policyholder pays before insurance starts issuing payouts. To use our previous example, if you’re driving a $20,000 vehicle and your comprehensive coverage has a $250 deductible, you might be able to reduce your insurance rates while keeping your coverage by switching to a $500 deductible. Again, think about what you could reasonably pay in the event of a total loss claim.
The bottom line: For most drivers, comprehensive coverage makes sense. If you’re driving an inexpensive vehicle, comprehensive coverage might be too expensive to justify the additional premiums — but if you’re paying too much for your insurance outright, the safest course of action is to compare rates before you start cutting coverages.
An experienced agent can help you bundle insurance policies, find discounts, and stay covered while still reducing your payments. If you have questions about your current coverage, contact us today. We’re dedicated to helping our clients find the right auto insurance options, and we look forward to hearing from you.