Insuring Against Damage to Your Vehicle

In this article, I tell you how to manage the risks of damage to your vehicle - risks such as fire, theft, collision, vandalism, glass breakage, and so on. Here are just a few examples of how to use non-insurance strategies to reduce risks:

• Carry an onboard fire extinguisher to reduce the risk of a serious fire.
• Always lock your car and install a burglar alarm to reduce the risk of theft.
• Park in a locked garage at home and always park in well-lit, non isolated areas when away from home to reduce both theft and vandalism risks.
• Keep a safe distance behind the vehicle ahead of you to reduce the risks of both glass breakage and collisions.

You can use the retaining strategy by either choosing higher deductibles or not buying damage insurance at all and paying all claims out of your own pocket.

Insurance for vehicle damage is usually offered in two parts:

• Collision: Covers damage from colliding with another object (for example, a vehicle, post, or curb), regardless of fault
• Comprehensive (also known as other than collision): Covers most other kinds of accidental damage to the vehicle, such as fire, theft, vandalism, glass breakage, hitting a deer, wind, or hail.

Both of these coverages are subject to a front-end copayment on your part, called a deductible. When buying either or both of these coverages, assume as much risk as you can afford, financially and emotionally (see the nearby sidebar, "Deductible psychology"), through higher deductibles - or don't purchase these coverages at all.

A couple of things to keep in mind here:

• Make sure that the insurance company gives you enough of a price discount for taking the additional risk.
• If you're on a tight budget but still need higher liability insurance limits to protect future assets or income (like if you're a student in medical school), it may make sense to carry higher deductibles even if the money to cover them isn't currently available. The savings will often pay for most or all of the cost of the additional liability coverage you need. Incredibly, the savings for raising your collision coverage deductible by just $250 (from $250 to $500) is often enough to pay for an extra $200,000 of liability insurance. No matter how tight things are, coming up with another $250 to fix dents is far easier than coming up with $200,000 to cover lawsuits!

If your driving record has deteriorated and your premiums are in danger of rising significantly with one more claim, I recommend very high deductibles, such as $1,000. In all likelihood you won't file a small claim - and risk higher rates - so why pay for something you're not going to use anyway?