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Collision and Comprehensive Coverage Explained: How To Decide Whether You Need Them

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WARNING: Car insurance rules and regulations may differ drastically from province to province across Canada. The rules outlined by Kanetix below are applicable in select provinces only. Please check with your insurance provider for more details regarding your coverage. This article is written and endorsed by Kanetix.

Some insurance coverage is mandatory. If you plan to drive legally in Canada, you must have third-party liability insurance. It pays for losses incurred by others resulting from injury and property damage you cause while driving your car. You don't have a choice regarding whether to add this coverage to your policy; it is mandated by law.

Collision and comprehensive coverage each works differently. Both are optional. They can be added to your policy or disregarded according to your preferences.

A lot of consumers carry collision and comprehensive (C&C) without needing to do so. Surprisingly, some of them are unfamiliar with the types of events these two coverages address. We'll clarify this issue below. You'll learn what C&C covers, including the differences between them. We'll also help you decide whether paying for both makes sense given your circumstances.

Basics Of Collision & Comprehensive Coverage
Collision insurance covers damage that occurs to your vehicle as the result of an accident. It is not limited to collisions involving other cars and drivers. It can include accidents during which you collide with other objects (e.g., a lamp post, wall, lane divider, etc.).

Collision insurance comes with a deductible. This is the amount you agree to pay toward repairing damages before your auto insurer agrees to cover the rest.

Comprehensive insurance covers damage to your car that results from events that are unrelated to an accident. For example, suppose you park your car under a tree and a large branch falls onto its roof, crushing it in the process. This scenario has little to do with an accident. No one is at fault. The comprehensive portion of your insurance policy would cover the cost of repairs. If your car is beyond repair, your insurer will pay to replace it (up to your coverage limit). This coverage also comes with a deductible.

Note that any event that causes damage to your car (with exceptions), whether it stems from an accident or circumstances outside your control, is covered by collision or comprehensive. Also, note that the incident is covered by one or the other; never both.

As a side note, your insurer may decide to raise your premiums if you submit a high number of comprehensive claims. This may initially seem unfair since the circumstances are usually beyond your control. However, it is important to realize that insurers calculate their policyholder’s rates based on the likelihood that they will file future claims.

Whether a covered event is an individual's fault or not is not the primary factor considered, at least with regard to comprehensive insurance.

Should You Add Collision & Comprehensive Coverage To Your Policy?

These two coverages are expensive; collision tends to be less so than comprehensive. Given their cost, it is worth deciding whether you need to carry them on your policy. As noted earlier, a lot of consumers pay for C&C coverage when they should consider dropping both to save money.

Let's first consider a policyholder who is a good candidate for this coverage. This individual might have recently purchased a new car that still has the majority of its value (depreciation has not yet taken its toll). For him or her, it is worth investing in collision and comprehensive insurance. Extensive damage would be expensive to repair, and theft would carry a high replacement cost.

Let's now contrast that individual's circumstances with those of a policyholder for whom C&C is less suitable. This person has kept his or her vehicle for 10 years. Its market value is now a fraction of what it was at the time it was purchased new. The compensation this policyholder would receive if the car sustained extensive damage or was stolen is limited by its low value. Here, the amount paid in premiums to carry collision and comprehensive may represent a much higher percentage of the compensation the policyholder would receive. Thus, the combined coverage is much less appealing.

To determine whether you should carry or drop collision and comprehensive, calculate how much you pay in premiums for both each year. If that amount is 15% or higher than the compensation you would receive if your car was stolen, consider dropping both.

Finding Low Rates For Collision & Comprehensive
If you are currently paying a high price each year for this coverage, don't assume other insurers will charge the same. Their rates may be much lower. Before you drop C&C from your policy, shop around to learn whether your insurer is charging more than its competitors. By switching to another insurer, you may be able to keep your coverage while paying less in annual premiums. The first step: Compare car insurance quotes side-by-side to determine whether you're currently enjoying the best possible price.