A Cost/Benefits Analysis of Collision/Comprehensive Insurance

Apr 20, 2000

Auto insurance can be expensive. I know. For a few years, until my oldest son got his own apartment and paid for his own car insurance, we owned four cars. We had four drivers living at home, and two were young men.

I spent many hours teaching them how to drive while they took driver's ed, and my efforts paid off. One's been driving eight years, the other one five. Only one had a minor accident, about six months ago.

Selecting the auto insurance coverage you need is a decision in risk management. How much protection do you want to buy, and how much risk do you want to assume yourself? The cost of insurance will probably be a deciding factor, along with some other key considerations.

In determining whether to purchase collision and comprehensive insurance for your car, these are some factors to consider:

Is the Car Collateral for a Secured Loan?

If you have a car loan, the decision is usually out of your hands. Because the car is collateral for the loan, the bank or lending institution will usually require you carry collision and comprehensive insurance, often with the very lowest deductible.

Even if you have purchased a reasonably-priced used car, one that you might not normally carry collision on, it will be a loan requirement. In cases like this, if you are really opposed to carrying collision and comprehensive insurance (or if you are in an assigned-risk pool which makes such coverage cost-prohibitive), you might want to finance your car in another way.

Do You Have a Personal Umbrella Liability Policy?

If you do, companies will usually demand that you carry the highest liability level on your auto insurance. Some may require that you carry collision and comprehensive as well on all your cars (we had one insurance company that did, and now we use one that doesn't.)

What is Your Car Worth?

You can find that out online by checking used car values in the Kelley Blue Book at www.kbb.com. Make sure you add the different options and features your car possesses before calculating its value.

What does the insurance company propose to charge you for collision and comprehensive? If you own a used car with a book value of $3,000, and carry collision with a $1,000 deductible, how much are you paying annually for a maximum $2,000 benefit?

How Do You Rate Yourself, Risk-Wise?

When we lived in South Dakota, and drove along I29--the world's longest landing strip--I often wondered what I was carrying collision insurance for. I knew why I was carrying comprehensive--lots of deer, hail, ice storms, gravel roads...

When our boys first started driving, we carried collision insurance on their cars. We felt that the first six months of driving, before they'd developed a good set of instincts and strong defensive-driving skills, were high-risk for collisions. When I became comfortable enough with their driving that I'd allow them to drive their baby sister to soccer practice, I measured their need for collision insurance more by the cost of the insurance as compared to the maximum benefit we could receive.

Comparative Negligence? What's That?

I have had two small car accidents in the past fifteen years. If I hadn't have had them, I might never have learned what comparative negligence is and how it works.

If your car suffers body damage in an accident, and you carry collision insurance, your insurance company will send you a check, almost immediately, to cover repairs minus the cost of your deductible.

Then they'll try to assess whose fault the collision was. Your company, Company "A", in reviewing the police reports and the participant's interviews, might decide that the accident is 50% your fault and 50% the other driver's fault. The other driver's company, Company "B", might decide that the accident is 25% your fault and 75% the other person's fault. The two companies would meet and reach an agreement, averaging out their percentages. In short, you would be 37 1/2% at fault and the other driver would be 62 1/2% at fault.

Your company, Company "A", would then pay you 62 1/2% of your $1,000 deductible with proceeds from the other insurance company. You would get a second check for $625.

Unfortunately, because you were deemed 37 1/2% at fault, it would be considered a "chargeable" accident (and I have been told that there is almost never a case where both drivers aren't assigned a little bit of fault.)

If you don't have collision insurance, carrying liability only, you won't get a check to repair your car until a comparative negligence determination has been made (I've been told this can take months sometimes....) In the end, if you are determined to be 25% at fault, you will receive 75% of the book value of your car, or 75% of the actual repair costs, whichever is lower.

When I was in this situation, the other driver's company said that they were 90% at fault and I was 10% at fault. My company said the other driver was 85% at fault and I was 15% at fault. The other driver's father was a lawyer and threatened to sue my insurance company. When my insurance company found out that their insurance company thought they were even more at fault, they didn't pay the lawyer a dime, not even the 12 1/2% he was entitled to...

As you can see, this can all get a little bit complicated. But, in short, if you don't carry collision insurance:

1) you won't get paid for property damages until a comparative negligence determination is made by both companies.
2) What you get will be based on this determination.

If you have a collision with an uninsured driver, your collision insurance is the only thing that will protect you against property damages.

Comprehensive Insurance

Comprehensive insurance is almost always quite a bit less expensive than collision insurance. If you have collision with a $500 deductible, the comprehensive deductible linked to that policy will usually be 50% (or $250.)

Comprehensive covers theft, glass damage, hail damages, and collisions with deer and other wildlife.

Most companies have a free "chip" repair policy, so that if your windshield is hit by a rock, you can get the chip repaired for free (a $40 or so benefit) rather than ignoring it and letting it develop into a long crack.

What We've Done About Collision and Comprehensive Insurance

We now own three cars, and have three drivers insured under our policy. We're all good drivers.

Until last November, when we replaced our son's old clunker, we had collision and comprehensive on two cars and assumed the risk on the third (it was a 1991 Buick Century with 130,000 plus miles.) Our son was 21, and, in evaluating the number of miles he drove, his personal driving habits, the value of his car, and the cost of providing collision insurance with a minor listed as principal driver, we decided it wasn't worth the expense.

He now drives a car that's three years old and has about 45,000 miles on it. His rates went down when he turned 21. We decided to add the collision on again because this car would be more expensive to replace.

We usually take the highest collision deductible we can, because we've found that a lower deductible is purchased at too high a price when compared to the benefit we'd receive.

We don't purchase rental replacement coverage. If your car does need to go into the body shop, you can usually rent a car at the discount rate the insurance companies receive (about $25 a day) by telling the rental company your car is in the body shop.

We don't get "auto club" type coverage through our car insurance (we recently found out it's a free perk we receive through using the Chase Shell Mastercard.)

Because each of us has different factors to consider, my family's decision about collision/comprehensive insurance might not work best for you.

But I think that the factors I've outlined will help you to choose your insurance options wisely.

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