Auto Insurance Canada

Jump to Comments

Car insurance coverages can be categorized into two broad groups: mandatory and optional coverages (also called endorsements). Among the many endorsements you can purchase are collision and comprehensive insurance. They address different circumstances, and together, offer wide-ranging protection in the event your vehicle is damaged or stolen. The problem is, both are expensive.

Below, we’ll describe the events that collision and comprehensive cover. We’ll also explain when both coverages are valuable, and when you should consider dropping them from your policy. You’ll also learn how to maintain these endorsements while lowering your rates. Our goal is not to sway your decision regarding whether to invest in collision and comprehensive. Rather, we hope to provide the details you need to make the best decision for you and your family.

What Does Collision Insurance Cover?

As noted, collision coverage is an optional feature of your policy, which means it can be dropped at your discretion. It covers damage sustained by your vehicle as the result of an accident you cause. The accident can involve another driver, or only yourself – for example, colliding with a tree, rail guard, or wall. Your insurer will compensate you for repairs made to your car up to its cash value. If the damage is extensive, they may decide to “total” your vehicle, and pay for a replacement.

If your car is hit by another driver, any resulting damage would be paid for by the offending driver’s liability coverage. Also, consider your deductible when filing a claim. If your deductible is set at $1,000, and repairs total $900, it makes little sense to submit a claim to your insurance company.

What Does Comprehensive Insurance Cover?

Comprehensive is also optional, and can be dropped at anytime. In contrast to collision insurance, it covers damage to your car stemming from events unrelated to an accident. For example, if your vehicle is damaged by falling rocks, this feature of your policy would cover the necessary repairs. So too would comprehensive cover repairs or replacement costs arising from vandalism, theft, and fires.

As with collision coverage, your insurer will compensate you up to the cash value of your vehicle. Alternatively, they may decide to “total” your car if the damage it has sustained is substantial. This endorsement is accompanied by a deductible, similar to collision insurance.

When Does It Make Sense To Purchase These Coverages?

Not every person will benefit from carrying collision and comprehensive on their policy, especially given the relatively high cost of both endorsements. Long ago, consumers were encouraged to carry both coverages for a specific number of years, after which both were to be dropped.

Such broad rules are no longer useful. The growing disparity in depreciation rates between various makes and models makes this rule inappropriate. Also, more people than ever have outstanding auto loan balances that are larger than the values of their cars. This can make dropping collision and comprehensive coverages a poor financial decision; if a person’s vehicle is totaled, they’ll need to continue making payments while paying for a new car. In the end, your personal circumstances will dictate whether these coverages offer value.

If your car’s cash value is high, adding these endorsements to your policy may be a good idea. Otherwise, replacing your car in the event it is totaled or stolen may pose a financial burden. Collision and comprehensive coverages may also be appropriate if your vehicle is expensive to repair. Often, replacement components for imports and exotic cars are costly.

Consumers who currently have these endorsements should take a close look at their annual car insurance bills to determine how much they are paying for them. Most people would be well-served by dropping collision and comprehensive once their combined annual cost reaches ten percent of their car’s cash value.

Raise Your Deductibles To Maintain Affordable Coverage

If you have these optional coverages, and want to keep them on your policy, consider raising the deductibles attached to them. Doing so will lower their rates. For example, if your collision deductible is currently set at $500, ask your insurer to raise it to $1,000. If the amount you’re paying for collision insurance declines far enough, it may be worth keeping the coverage on your policy.

When making changes to your policy, whether dropping collision and comprehensive coverages or adding another endorsement, shop around. Compare quotes from several car insurance companies. You’re likely to find a lower rate than you’re currently paying.