The collision portion of an automobile insurance policy covers damage
to a car caused by an accident, while the comprehensive portion
covers damage caused by fire, theft, flood and other perils. In all
states, collision and comprehensive insurance is optional. However,
if you took out a loan to buy a car or are leasing the car, the
lender or dealer will require that you purchase the coverage.
According to "Get a Financial Life" (Simon & Schuster),
"After your car is about five years old or you've paid off your
loan, you may want to consider dropping the collision and
comprehensive coverage. To determine whether it makes sense for you
to continue this coverage, consider the value of the car minus the
deductible. Compare the answer to your annual premium." For
example, you obviously don't need collision and comprehensive
coverage if your car is worth only $1,000 or so and you have a $500
or even $1,000 deductible.