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While liability coverage is obviously the most important part of your auto insurance policy, physical damage coverage runs a close second. Physical damage coverage consists of both comprehensive and collision coverages, policy parts that will pay for the damage to your own vehicle if it is damaged. Here's how it works.

Physical Damage Coverage is Not Mandatory

Wisconsin state law does not mandate that you carry comprehensive and collision coverage – nor does the law in any other state mandate such. Many people pay for these coverages if the have newer or extensively modified vehicles. Anyone who has a car loan or lease will have these coverages, not because the state requires it but because their bank loans make it mandatory. Your bank will make you purchase these coverages so that they can ensure your loan is repaid if you are even in an accident and the car is destroyed.

Collision Coverage

The collision part of your policy pays for damages caused when your car comes in contact with (ie. collides) with another car or some other object, like a fence or telephone pole. Collision coverage usually comes into play if you are the person who caused the accident. Your liability coverage will pay for the damages you caused to the other person's property while your collision coverage will pay to repair your own. Many insurance policies will take payments made under this part of your policy into consideration when determining your premiums for your policy renewal.

Comprehensive Coverage

Comprehensive coverage is another crucial part of the physical damage portion of your policy and you are not generally penalized for this type of claim. Comprehensive coverage takes care of the things you really can't control – like fire, theft, vandalism, falling objects, riots, and weather-related damages. Accidents that involve hitting animals – especially deer- are also considered comprehensive claims (liability auto coverage). In Wisconsin, accidents involving deer are not at all uncommon.

The uniqueness of this coverage doesn't end there. Comprehensive coverage will help you to replace individual car parts if they are stolen as well – not necessarily the entire vehicle. You'll also receive benefits if your car is damaged in a flood.

Determining the Value of Your Car

When determining the amount you will be paid at the time of a claim, your insurance company will take the Kelley Blue Book into consideration. If the cost of repair is higher than the cost of replacing your car in its current condition, your car will be considered a total loss. If the costs are less than the cost of your car, you'll receive the value of the repairs minus your policy's deductible.

It is important to note that many new car owners are often upside down on their loans. Because cars depreciate so quickly, the value of your car is likely to be far less than the amount you owe on your loan. If your car is totaled, your insurance company will only pay for the value of the car – not the loan. You'll need to purchase gap insurance to make sure the difference is covered.

Collision and comprehensive auto coverage are incredibly important to have if you have a newer or high-valued car but don't have the financial means to repair or replace it. Do your homework and consider adding these coverages to your policy. You may one day be surprised at how valuable they can be.