For many people, buying a vehicle is second only to buying a house in terms of the cost and financial responsibility it carries. Just as you need to purchase homeowner’s insurance, you also need to think about what type of insurance coverage is best for you: basic or comprehensive coverage.
Most states, including Florida, require all drivers to buy PIP and liability car insurance and carry proof with them when they drive. However, you may also want to consider comprehensive car insurance, which provides additional coverage for non-driving-related damage to your car. The size of the deductible you choose can be affected by multiple factors. Here are four you should know about.
What Does Fully Comprehensive Insurance Coverage Mean?
We want to start by explaining what fully comprehensive car insurance is because there can be confusion around the topic. In Florida, all drivers must carry $10,000 in personal injury protection (PIP) insurance and $10,000 in property damage liability (PDL) insurance. Neither of these things is the same as comprehensive car insurance.
Comprehensive coverage is sometimes referred to as "other than collision coverage," and that name can help us explain what insurance coverage is. Simply stated, comprehensive car insurance covers damage to your vehicle caused by fire, vandalism or falling objects such as hail or tree branches.
We should also note that comprehensive coverage is different from collision coverage, which covers damage to your car that occurs because of a crash.
Who Needs to Buy Comprehensive Car Insurance?
We have already noted that the state of Florida does not require comprehensive car insurance for drivers. That means buying it is optional.
One thing that may require you to buy comprehensive insurance is if you are leasing a vehicle instead of buying one. Most leasing companies require comprehensive insurance to protect the vehicle being leased, which they still own. The amount of coverage required shouldn’t be more than the replacement cost of the vehicle.
We would argue that comprehensive car insurance is a good idea for every driver. It covers damage that is beyond your control and offers peace of mind that you wouldn’t have without it. It even provides, in most cases, roadside assistance. We think it’s particularly important to buy comprehensive auto insurance in Florida, where hurricane damage is a risk every year.
4 Factors That Impact Your Deductible for Comprehensive Car Insurance
Melanie Musson is a Car Insurance Expert at CarInsuranceComparison.com. She told us:
"You can choose your comprehensive insurance deductible. The higher the deductible, the lower your monthly rates will be. You need to be prepared to pay the deductible if your car is damaged, though, so make sure you can set aside the deductible amount you choose."
The deductible and coverage limit are both items you can select. Both will affect the amount you pay for insurance. Now, let’s talk about the factors that impact your deductible for comprehensive car insurance.
#1: Your Personal Tolerance for Risk
The first thing to take into consideration is your personal tolerance for risk and liability. Some people prefer an insurance policy with a low deductible because having it means they won’t need to come up with much money out of pocket if something happens to their car.
Others are comfortable with a bit more risk if they can save money. That means they’ll trade a high deductible for up-front savings on their insurance premium, knowing that they’ll need to come up with the deductible amount if their car is damaged.
There’s no wrong answer. You should think about your financial situation and how you would feel if you had to come up with some amount of money if your car were to be damaged, and set a deductible limit and liability coverage that feels comfortable to you.
#2: The Amount You Can Afford to Pay Monthly
The next factor to consider is the amount you can afford to pay for an auto insurance policy. The average cost of car insurance in Florida is just over $2,300 annually, which translates to $191.67 per month. The cost is lower for minimum coverage, of course, and higher for people who choose higher policy limits than those required by law.
Melanie Musson offered some advice regarding insurance premiums, as well. She told us this:
"You may enjoy the peace of mind of having a low deductible, making the higher monthly premiums worth it. If your goal is to pay as little for coverage as possible and you’re prepared to pay a significant deductible, you should choose a higher deductible."
We suggest looking at your monthly budget and working out what you can afford to pay and if you'll be able to purchase that optional coverage. Remember, you can save money by bundling your policies with one carrier.
#3: Your Savings and Emergency Fund
The next thing to consider when choosing a deductible for your comprehensive car insurance is how much money you have saved for emergencies. Laura Adams, MBA, is an Auto Insurance Expert with AutoInsurance.org. She told us that she recommends never selecting a deductible that you can’t afford to pay – and that goes both for comprehensive car insurance and collision insurance.
If you’re someone who has six months’ worth of savings in an emergency fund for unexpected events like medical expenses, then you can probably handle a higher deductible in the event something happens to your car. You may want to pad your emergency fund a bit to accommodate the deductible.
On the other hand, if you’re someone who is living paycheck to paycheck and doesn’t have money saved, then a high deductible might not be a good idea for you. What you could do is choose a lower deductible and look at your budget. Saving even a little bit each month can help you build an emergency fund, at which point you could contact your insurance company and request a higher deductible.
#4: The Area Where You Live
Choosing a high deductible for comprehensive car insurance may be easier in some locations than in others. We already mentioned that Florida residents should buy comprehensive coverage because the risk of damage from hurricanes and other severe weather is significant.
Weather issues aren’t the only things to consider. Since vandalism is covered by comprehensive car insurance, living in high-density areas or areas with high crime rates can impact the deductible you choose, as well.
Jaime Arias, a licensed insurance agent with Dynamic Insurance Solutions, talked to us about what a high deductible might mean if you live in an area where vehicle damage is common:
"A $1,000 deductible will lower your premium, but it will also mean you will have to cover the cost of smaller repairs like a cracked windshield or small dents."
It’s one thing to be required to pay for repairs once due to an unforeseen event, but if you live in an area where your car is at risk for repeated damage, then a lower deductible might be a better choice for you.
Which Comprehensive Car Deductible is Right for You?
Now that you know about the four major factors that can influence your comprehensive car insurance deductible, let’s talk about which coverage limit is right for you.
The first thing that can help you decide is to get free quotes from several insurance carriers. Laura Adams talked to us about the importance of comparing rates:
"Always shop and compare auto insurance quotes for different deductible amounts. That way, you'll know if a higher deductible will save you money. However, make sure you always have enough savings to pay it if your car gets damaged or you're involved in a crash."
Remember, damage that your car sustains in a crash is not covered by comprehensive insurance. Laura’s advice applies to both comprehensive and collision insurance. We suggest getting at least three quotes. Make sure you’re making an apples-to-apples comparison.
We would also add that it’s a good idea to ask your existing insurance carriers (for any type of insurance) what kind of discounts they can offer if you bundle your policies with them. Having your car insurance, homeowner’s and other policies in one place is a good way to save money.
Jaime Arias shared some information with us about which deductible offers a good balance between peace of mind and savings:
"The deductible is something that is very much a matter of personal tolerance for risk. For most consumers, $500 strikes the right balance between providing peace of mind knowing any damage to the car will be covered, while still being affordable."
It’s our recommendation that you ask for quotes at several deductible levels to compare. If you’re someone who has a clean driving record, then you may feel comfortable with a higher deductible on your collision insurance and a lower one for your comprehensive insurance.
Buying comprehensive car insurance coverage is something we recommend to our members because it offers much-needed protection if something other than a collision damages your car. Since most of us rely on our cars to get us to and from work, it makes sense to have protection in place. Choosing a deductible based on the advice we’ve listed here will ensure you have the coverage you need without paying more than you can afford.
If you’re planning to buy or refinance a car, Addition Financial is here to help!
Posted on Dec 11, 2021
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