Comprehensive Coverage? Apply the 80-20 Principle To Help You Decide.

When "comprehensive coverage" is being discussed, including in advertisement, it is often characterized as automobile insurance that provides "complete peace of mind." Frankly, that statement, without qualifications, is misleading. Let's see why--and ask when you might want to pay for that coverage.

Broadly speaking, there are two types of automobile insurance: coverage of liability and coverage of property. All states except New Hampshire require auto liability coverage of some kind; if you don't have it, you shouldn't be on the road. If you have an accident of any kind, the insurance covers your liability for the damages. It is not optional.

But liability is only one common form of car insurance coverage. Others are uninsured and under-insured motorist coverage, collision coverage, medical- payments coverage, and personal injury protection. If you have a car loan of some kind, you will be required to have at least collision coverage because the car is collateral for the loan.

How comprehensive

So, does "comprehensive coverage" give you all those other types of insurance. Absolutely not, and that is why "comprehensive" can be misleading. "Comprehensive," here, means all damage to your car except collision. The Insurance Information Institute reports that the average annual premium for collision insurance is $290 a year. Comprehensive insurance is added to that for the full protection of your car and often called the "Rolls-Royce" of auto insurance.

But being fully covered for damage has a cost. It is not necessarily the right choice for every driver; it is only the right choice "at a price." To take an extreme example, if you had a very old car with a blue book value of $250, then even if you totaled your car the reimbursement would be less than the $266 (for example) first-year premiums you paid for comprehensive insurance. Remember, you are adding this to other automobile insurance costs, such as liability and medical coverage, so you may be seeking ways to reduce the total.

Insurance specialists can give you precise figures and other information, but here is a way to begin thinking about comprehensive coverage.

Costs and benefits

One way to conceptualize what we are doing, here, is the so-called "Pareto" or "80-20" principle. This says that in achieving many goals (such as adequate insurance coverage), about 20 percent of inputs (efforts, causes) result in about 80 percent of the benefits--as long as that 20 percent are the right or best inputs. Let's see how this applies to deciding whether you need comprehensive coverage.

 Comprehensive coverage typically is chosen instead of just collision coverage because comprehensive covers just about anything else that happens to your vehicle: broken windshields, vandalism, theft of the car and its contents, hit-and-run damage by another driver, damages from flooding or fire or storms, and freak accidents such as falling trees and collisions with deer or other animals in the road.

One thing to note is that If your car is totaled in an accident, with comprehensive coverage, you are more likely to be reimbursed for its total value. With a new car, at full valuation, this can be important.

But what does such coverage cost? Because rates on this insurance are not regulated or set to any industry standards, rates will vary from state to state. Rates also will depend on your vehicle's make and model, age, mileage, and such. The company is setting the rate by reference to the total value of what it is covering. Recent data from the Insurance Information Institute shows the average cost of comprehensive insurance is about $137 a year. That is a real ballpark figure. The Institute put the top of the range of $266 and bottom at $97.

Do you need it

So, a few hundred bucks or less? Why not? Well, that might be one third or more of your total annual premiums (liability, collision, medical, comprehensive). And that is the cost year after year. If your car is old and getting older, you are less at financial risk for damage to it. If you have paid a total of $2,000 over 10 years for comprehensive, then you slam into a deer or have your spare tire stolen, you are not going to come out ahead.

One rule of thumb is that because comprehensive coverage will never pay you more than the current blue book value of your vehicle (even if getting it repaired costs more than that) you should not pay an annual premium that is more than 10 percent of your car's value.

Getting it cheaper

That turns our focus to the premium you pay, and there are ways to reduce it.

Raise your deductible. When you buy comprehensive coverage, you can choose a deductible up to about $1,000. That means you are willing to cover damage up to that amount. It also means you will pay a lower premium. You may figure, if you have an automobile with a high total value, you want to guard against costs of a serious and expensive accident but buy that protection at a lower premium by take a high deductible. This is the 80-20 principle at work. You cover your major risks, but not all, with lower input (premium) because you don't need to cover all risks. )

Go for just collision. Another perfect example of the 80-20 principle. Drivers who decide not to buy comprehensive coverage usually buy collision. You reduce your inputs, saving $100 to $300 a year in premiums, but collision coverage gives you most (80 percent?) of what you want: protection in the event of the "big one" if you have a serious collision.

Ask Select My Insurance for more information

 For additional information about these and other comparisons of costs and benefits of your automobile insurance—including options for coverage--contact a specialist, here. Or fill out the brief form on this site, so we can get in touch with you. There is no obligation, of course, but some big opportunities to save.

We can help you to shop around for the best rates. The Insurance Institute reports that the highest rates for comprehensive coverage were in Washington, DC, and the lowest in Oregon.   Our insurance specialists can take into account all the factors and suggest some of your best rate options.

You can have "peace of mind" with or without comprehensive insurance if you know that you have protected yourself at the best price.

 Check back here for regular information, insights, and updates on your automotive insurance needs.