Physical Damage Coverage
Two main coverages
Collision covers damage from impact with another object or upset. Comprehensive (all perils) covers theft, fire, vandalism, weather, and glass, subject to exclusions. Both are optional and subject to a deductible. Coverage is usually written on an actual cash value basis unless replacement cost or a waiver of depreciation endorsement applies.
Valuation concepts
Actual cash value = replacement cost minus depreciation. Questions frequently test this calculation. Betterment is not covered - an insured cannot improve their position from a claim. Partial losses are repaired; total losses are settled at ACV.
Exclusions and conditions
Common exclusions include intentional damage, wear and tear, mechanical breakdown, and use contrary to the policy. Insureds must report theft promptly and cooperate with the insurer. Subrogation applies after payment.
Traps
(1) Forgetting the deductible reduces the settlement. (2) Applying replacement cost when the policy says ACV. (3) Assuming comprehensive covers collision - it does not. (4) Overlooking that tires and batteries may be depreciated separately.
Worked example
A three-year-old car with a replacement cost of $30,000 and 40% depreciation is stolen and not recovered. ACV = $30,000 × 0.60 = $18,000. With a $500 deductible, the insurer pays $17,500.