Full auto insurance coverage is physical damage protection for the policyholder’s own vehicle. It includes collision and comprehensive insurance.
Collision coverage is used to pay for repairs to the vehicle due to an accident which involved the policyholder’s car striking another object. It also pays to repair or replace the car if it is damaged in a rollover accident.
Comprehensive coverage comes into play if the loss is due to an event other than a collision with an inanimate object. It pays for damage caused by hitting an animal, fire, hail and flooding. It also pays out if the car is stolen.
Both types of full auto insurance coverage pay out based on the vehicle’s cash value. The driver will not receive its replacement cost or the amount he or she paid for the car originally. Since a car depreciates in value from the day the driver picks it up, at a certain point it does not make sense to keep full coverage in place.
If there is an outstanding loan on the vehicle, the bank or financing company will likely require that full coverage be kept in place until it has been paid off. The lender will want to ensure that its interests are protected.
Once the loan has been paid off in full, the owner may want to consider dropping full auto insurance coverage. Doing so will help the owner save on coverage costs.