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What Is Physical Damage Coverage?

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Joel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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When purchasing auto insurance, “physical damage coverage” can be purchased in addition to a liability-only insurance policy.

The term “full coverage” is used to describe a personal auto policy that includes both physical damage coverage and liability coverage.

There are two main types of physical damage coverage available on an insurance policy:

Collision insurance
Comprehensive car insurance (sometimes referred to as “Comp” or “OTC”, Other Than Collision)

Physical Damage Coverage Protects YOUR Vehicle

Both of the above are intended to cover any damage to YOUR vehicle.

It’s important to recognize which of these types of insurance you have on your policy to better understand your coverage.

Each type only pays for specific causes of damage to your vehicle, and both can be purchased separately.

Adding or removing either of these types of coverage could result in raising or lowering your insurance rates.

As a general rule of thumb, the more coverage you have, the more your insurance will cost.

Physical Damage Coverage Examples

“Collision Insurance”: Jenny has collision insurance on her new car.

If Jenny backs her car into a cement pole in a gas station parking lot, her collision coverage will pay for the damage to her vehicle because her accident falls under the definition of “collision” in her insurance policy.

“Comprehensive Car Insurance”: Colin’s car is stolen from the driveway of his home.

The insurance company will pay for Colin’s car to be replaced as a result of having comprehensive coverage in his insurance policy.

In this example, the car was not damaged by way of a collision (running into an object, or rolling over as a result of loss of control while driving), so collision coverage alone wouldn’t be sufficient to replace Colin’s car.

Comprehensive or “Other-than-collision coverage” also covers the following:

•    Fire
•    Theft
•    Riot
•    Hail, water, or flooding
•    Explosion (including earthquake)
•    Vandalism
•    Windstorm
•    Damage resulting from a bird or another type of animal
•    Breakage of glass – Please note, if broken glass is a result of a collision, be sure to claim it that way to avoid paying two deductibles
•    Missiles or falling objects – not missiles in the military sense, those are specifically excluded under “acts of war.”

Physical Damage Coverage May Be Mandatory If You Have a Lease or Loan

In most cases, you cannot obtain a vehicle without physical damage coverage if you are borrowing the money to buy a car (lease or loan).

The company that lent you the money for the car is listed on your policy as a Loss Payee, meaning if the car is damaged beyond repair, your insurance company will pay the lender the remaining balance of the loan on the vehicle so you are not responsible for it.

Even if your car is completely paid off, it’s a good idea to get both collision and comprehensive coverage if you want to be certain your car is repaired or replaced in the event it is damaged or stolen (assuming you can afford it).

One final note. Towing and Labor Costs coverage, if not already included in your physical damage coverage, can be purchased for your personal auto policy.

This coverage would apply to your covered auto or a non-owned auto you may be driving.

Typically, you purchase this coverage for a predetermined amount per occurrence, somewhere between $25.00 and $75.00.  Y

ou may also purchase coverage for aftermarket stereo equipment, which isn’t normally covered, for an additional fee.

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