Combined Physical Damage Coverage

Key Takeaways

• Combined physical damage insurance covers theft, fire, flood, vandalism, and accidents.
• This coverage combines collision and comprehensive insurance but excludes liability coverage.
• Vehicle loans and leases often mandate physical damage insurance for protection.
• Businesses can buy combined physical damage or cheaper specified perils insurance.
• State laws generally require liability insurance, but not collision or physical damage insurance.

What Is Combined Physical Damage Insurance?

Combined physical damage insurance includes both collision and comprehensive coverage, combining these typical elements of conventional auto insurance policies. Personal injury or damage to other people's vehicles is not covered, however. Combined physical damage coverage is typically mandatory on leased or financed vehicles.

Businesses can also purchase this insurance for vehicles other than cars and trucks, such as tractors.

How Physical Damage Insurance Works

Combined physical damage insurance protects policyholders in the event of vehicle theft, fire, flood, vandalism, window breakage, collisions with animals, and weather-related damage, as well as auto accidents. Premiums for physical damage insurance vary based on the value of the vehicle and its owner’s accident record.

Lenders, lessors, and lienholders often require physical damage insurance for financed and leased cars to protect their interests if the car is stolen or damaged. Noncompliance can result in a termination of the lease or loan agreement.

Individual states, which set auto insurance laws, require drivers to carry at least a certain minimum amount of bodily injury and property damage liability coverage—and, in some instances, other types of coverage, such as personal injury protection and medical payments coverage. However, they do not require collision, comprehensive, or physical damage insurance.1

Physical Damage Insurance for Businesses

Businesses that operate vehicles for commercial purposes can also buy physical damage insurance to cover their cars, trucks, tractors, and other vehicles. Additionally, they have the option of buying “specified perils” coverage, which is cheaper than combined physical damage insurance because it covers a more limited set of risks. That type of insurance is often referred to as “fire and theft with combined additional coverage (CAC).”

Rather than a single policy, businesses with multiple vehicles can choose to cover (or not cover) each vehicle separately. “Regardless of how many vehicles your business has, it may be cost effective to carry physical damage coverage only on the newer or more valuable vehicles,” the Insurance Information Institute notes.2

In some instances, businesses may find it more economical to self-insure against the physical risks to their vehicles, while also buying commercial insurance to meet their state’s liability requirements.