Do I need comprehensive and collision, or physical damage coverages?
First of all, what is physical damage coverage? Physical damage coverage consists of comprehensive and collision coverages. These are coverages for damage to your car.
Collision - This coverage pays for damages to your vehicle caused by collision with another vehicle or object.
Comprehensive - This coverage pays for loss or damage to the insured vehicle that doesn't occur in an auto accident. The types of damages comprehensive insurance covers include loss caused by fire, wind, hail, flood, vandalism or theft, hitting an animal.
Do you need it? If you have a loan on your vehicle then yes you will need to keep the vehicle fully insured since the vehicle is not yours yet.
Once you pay off your car the first thing you may want to do is call your insurance company and drop your comprehensive and collision coverages. But, should you?
You may cut your insurance in half by dropping these coverages but your risk to yourself may go up dramatically. Because now, if you get in an accident and total out your $15,000 car, you have no coverage for damage to your car. You are on the hook to replace your car that you just paid off. But hey, on the bright side, you saved $200 bucks on your auto insurance.
You should keep comp and coll on your car until the actual cash value on the vehicle is too low for the amount you are paying for comp and coll.
For example, if you have a $7000 car and the cost of comprehensive and collision is about $350 every 6 months, or $700 a year. You are paying $700 to insure $7000 worth of value, or a 10-to-1 ratio. You should definitely keep the coverages on your car.
Now, if you're paying $400 a year to insure a car only worth $2000 then you should consider dropping your comprehsive and collision coverages. Because at this point you should have already increased your deductible to $1000 to keep the costs as low as possible. In one year you're paying $1400 (insurance premium + deductible) to insure a $2000 car.
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