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Overview
Most people have auto insurance because it's required by law, though many do not understand precisely how it works. Coverage comes in three basic types: liability, comprehensive and collision. Although some level of liability coverage is required by law, comprehensive and collision coverage are optional and in some circumstances should be dropped altogether.
What comprehensive insurance covers
Comprehensive coverage is an optional form of insurance that protects against damage not caused by normal traffic accidents. Comprehensive is often said to protect against "acts of God," random events that often have nothing to do with driving and that can damage a car even when it is not being used. Situations covered by comprehensive insurance can include: theft, hail, fires, floods, falling trees and essentially any other source of random damage. It also often covers damage incurred by crashing into an animal.
Insuring older cars
Perhaps the best case for dropping comprehensive coverage can be made for older vehicles that are not worth very much. Comprehensive insurance is a fairly expensive component of an insurance plan, so buying it for a car that is not valuable can be a bad financial move. What's the use of paying $300 extra a year to protect a car that might be worth less than $1,000? Generally speaking, collision coverage can and probably should be dropped for any vehicle that is worth less than $2,000, and often for cars that are worth up to $5,000 or so.
Living in a low-risk area
Another time comprehensive coverage can be more safely dropped is when one lives in an area that is unlikely to be affected by random weather events and other events that are covered by collision insurance. If someone lives in hurricane territory or cities where theft is more likely, comprehensive coverage is more important. If someone lives in a remote area that does not have many natural disasters, comprehensive coverage might be unnecessary. Someone living in an area with a lot of deer or other large animals on the road is well advised to keep comprehensive coverage, unless the car is not worth very much.
When deductibles are high
The deductible is the upfront payment that the motorist must make before the insurance company will pay for any damages. The higher the deductible is set, the lower the cost of the insurance plan. If the deductible on a vehicle is fairly large, say $2,000, one should consider dropping coverage if her car is not worth much more than that amount. Say your car is worth $3,000. It does not make sense to carry comprehensive coverage with a $2,000 deductible. That means you would have to cover 2/3 of the cost of a total loss. If your deductible is approaching a half or even a third of the value of a vehicle, it can be a better option either to drop coverage or lower the deductible if you cannot afford losing your car.
After a claim is made
One interesting aspect of auto insurance policies is that whenever someone makes a claim, the insurance company raises prices. To the insurance company, a claim by a customer indicates that the customer presents a higher risk than initially thought, which makes it increase the cost of insurance. While comprehensive coverage is somewhat different in that it covers things that are not always the driver's fault, a claim can nonetheless increase premiums. If you are forced to make a claim with comprehensive coverage and the insurance company increases the cost of the plan, it can be a good idea to drop the coverage if the increase is too large.
