Auto Collision & Comprehensive Coverage
Physical damage coverages pay to repair or replace your own vehicle if it is damaged, destroyed, or stolen up to its local market value. Unlike liability insurance, this protects your personal financial investment in your car.
Coverage Types Explained
| Coverage Type | What It Covers | Example Scenario |
|---|---|---|
| Collision | Damage to your car resulting from an impact with another vehicle or object, or a rollover. | You rear-end another car, back into a pole, or flip on an icy road. |
| Comprehensive (Other-than-Collision) |
Damage to your car caused by non-collision events beyond your control. | Your car is stolen, damaged by hail or fallen tree branches, hit by a deer, or vandalized. |
Should You Keep Physical Damage Coverage?
Everyone is different.
First, you need to determine what the Actual Cash Value (ACV)—also known as the Local Market Value—is for your vehicle.
The best way to do this is to go to sites like www.Edmunds.com or www.kbb.com where you can enter information about your car, and they will give you a rough idea of what the "local market value" is for your car.
Now look at your current insurance policy and find out what your collision deductible and comprehensive deductible are.
Subtract your deductible from the "local market value" you have determined for your car. That is the maximum the insurance company will give you for your car following an accident if your car is a total loss.
Now go back to your policy and determine how much you are paying for collision and/or comprehensive coverage. This is not your total insurance costs; you are looking at your cost just for this coverage. If you cannot find this, contact your insurance agent.
Does it make sense to you to pay that amount of money on a regular basis now knowing the maximum the insurance company will give you?
I have worked with people who have bought a new car and have a very high "risk tolerance" and do not carry any coverage for damage to their own car. Do note they bought their car cash so there was no lender to force them to get collision and comprehensive coverage.
I have also worked with people who have a very old car with a low "local market value" who want both coverages because they would rather pay a smaller amount to the insurance company and get something if their car is totaled as a down payment for their next car.
EVERYONE IS DIFFERENT – now that you know your options you get to choose what works best for you.
Still not sure? Below are some rules people have made over the years to figure it out although I cannot highlight enough – every person is different, so these do not apply to everyone. Wanted to share them with you though.
The 10% Rule of Thumb
A simple benchmark used in financial planning
If the combined annual cost of collision & comprehensive coverage exceeds 10% of your vehicle's Actual Cash Value (ACV), it is usually time to drop the coverage.
Example Calculation:
- Current Market Value (ACV): $4,000
- Deductible: $500
- Maximum Payout (ACV - Deductible): $3,500
- Annual Coverage Cost: $400/year
Result: $400 is 11.4% of the $3,500 payout. Over 3–4 years, you will have paid more in premiums than you could receive in a total loss.
Is Physical Damage Coverage Mandatory?
- By Law: No. State laws only mandate minimum liability coverage.
- By Lenders: Yes. If you lease or finance your vehicle, lenders usually require both Collision and Comprehensive coverages.
Key Concepts to Know
Deductible
The out-of-pocket amount you agree to pay before insurance covers the rest. A higher deductible lowers your premium, while a lower deductible increases it.
Actual Cash Value (ACV)
The maximum payout is capped at your vehicle's current market value. In California, insurers compare recent sales of similar make, model, condition, and mileage.
Total Loss
If repair costs approach or exceed the ACV, the car is considered "totaled" and pays out the ACV minus your deductible. Insurers may declare a total loss early if hidden damage is expected.
Key Questions to Guide Your Decision
Can you afford to replace or repair the car out-of-pocket?
If your car is totaled tomorrow and you have enough savings to handle repairs or buy a replacement without financial stress, dropping coverage is low-risk.
What is your deductible relative to the car's value?
If your car is worth $2,500 and your deductible is $1,000, your maximum check is $1,500. Carrying full coverage makes little sense for such a small safety net.
Can you drop Collision but keep Comprehensive?
Comprehensive coverage (hail, theft, fallen branches, windshield damage) is often much cheaper than Collision. Many drivers drop Collision while keeping Comprehensive for unpredictable hazards.