What is the physical damage coverage on my auto insurance policy?

Q:

What is the physical damage coverage on my auto insurance policy?

A:

Physical damage coverage on your auto insurance policy is also typically referred to as "own damage." As that name implies, it protects your own vehicle in case it suffers a loss.

Many people are confused by this because they are mixing up physical damage coverage with third party liability. Third party liability covers you when you damage someone else's property or person (hence the use of the word liability). Coverage under this category only kicks in when another person's property is involved in the accident, and only to cover damage done to the other person's property.

There is no coverage for you own car under third party liability simply because you are not a third party. This is also why buying third party liability insurance for your automobile is required by law while physical damage coverage is typically optional. The legal requirement ensures that other road users are protected, even if you leave yourself at risk of a significant loss.

Now that we've cleared that up, there are usually three options when it comes to buying physical damage coverage:

  1. Collision: covers you when you hit something and damage your own vehicle (impact with animals, however, is excluded)
  2. Comprehensive: covers you for damage that arise out of things other than a vehicle collision (including animal impact)
  3. Specified Perils: covers you for damage to your own vehicle arising out of things like fire, smoke, windstorm, hail, and lightning.

When someone opts for physical damage coverage, they usually buy collision and comprehensive coverages together. Since this coverage increases your insurance premiums, some policyholders opt out of it if their car isn't valuable enough to warrant covering.

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Written by Jacques Wong
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Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won an Insurance Council of BC award in 2015 for academic excellence in the insurance licensing courses and educates insurance professionals through PNC Learning.   Full Bio