Are Comprehensive And Collision Insurance Mandatory? | Know

No, most states don’t require these coverages by law, but lenders and leases often require them until the loan is paid off.

People ask this when they’re trying to avoid a surprise bill. A state wants proof you can pay for harm you cause to other people. A bank wants its collateral protected. A lease company wants the vehicle returned in good shape. Same car, three different goals.

Below, you’ll get a clear split between legal requirements and contract requirements, plus a practical way to decide what to carry once you own the car outright.

What “Comp” And Collision Coverage Pay For

Both cover damage to your vehicle. That’s the opposite of liability coverage, which pays other people when you cause a crash.

Collision Coverage

Collision coverage pays to repair or replace your car after a crash with another vehicle or an object, like a pole or a guardrail. It applies in many at-fault situations and comes with a deductible you choose.

Comp Coverage

“Comp” is common shorthand for what many policies label “other than collision.” It pays for non-crash losses like theft, vandalism, fire, hail, flood, falling objects, broken glass, and animal impacts. It uses a deductible too.

Where “Full Coverage” Fits

“Full coverage” isn’t a legal term. It’s a sales shortcut that usually means liability plus comp plus collision. Your policy language and your contract terms are what count.

What State Law Requires Versus What A Lender Can Require

State laws usually focus on liability. That’s the part that pays for injuries and property damage you cause. Physical-damage coverage, meaning comp and collision, protects your own vehicle, so it’s commonly optional under state law.

The NAIC’s auto insurance overview notes that comp coverage is not required by law. Lenders can still require comp and collision through a loan or lease contract, to protect the vehicle’s value.

Auto finance contracts often spell out that you must keep comp and collision active during the loan term. If you let coverage lapse, some contracts allow the servicer to buy lender-placed “collateral protection” coverage and bill you for it. The CFPB Issue 24 supervisory report (June 2021) describes this setup and how it shows up in servicing.

Who Can Make It “Mandatory”

• Your state: sets minimum liability rules and proof-of-insurance rules.
• Your lender: can require comp and collision during the loan term.
• Your leasing company: can require it for the full lease, often with deductible caps.

A Concrete State Example

State DMV pages make the split easy to see. The California DMV insurance requirements list minimum liability limits and note that comp or collision does not meet the legal requirement by itself. That’s a common pattern across the U.S.

When Comp And Collision Coverage Becomes Non-Negotiable For You

Even if your state doesn’t demand it, a contract can. People usually get caught in one of these scenarios.

Financed Car

If you financed the vehicle, expect a requirement for both coverages until payoff. Many lenders set deductible caps, like $500 or $1,000. Check your loan paperwork and your declarations page, then match them.

Leased Car

Leases can be stricter than loans. It’s common to see lower deductible caps and higher liability limits than the state minimums. If you don’t meet the lease terms, the lessor can treat it as a contract breach.

Paid-Off Car

Once the loan is paid, the contract pressure is gone. Now you’re choosing between paying a steady rate and taking on the risk of repair or replacement costs.

How To Read Your Declarations Page Fast

Your declarations page is the one-page snapshot of what you bought. It can settle “Do I have this?” disputes in minutes.

Find These Items

• Comp: sometimes labeled “Other Than Collision” or “OTC.”
• Collision: listed as “Collision” with its deductible.
• Deductibles: what you pay before the insurer pays.
• Lienholder/lessor: listed when a contract requires it.

Don’t Pick A Deductible That Breaks Your Budget

A higher deductible can cut your rate, but it raises the cash you need when you file a claim. If you’d have to borrow to pay it, it’s too high.

Coverage Choice Map For Common Situations

This table turns the “mandatory” question into a quick match between your situation and the usual requirement. Your contract wording can be stricter than any rule of thumb.

Situation	Is It Required?	What That Means
State minimum insurance law	Usually no	Most states require liability; physical-damage coverage is optional under state law.
Car loan with a lienholder	Often yes	Loan terms commonly require comp and collision until payoff, with deductible caps.
Vehicle lease	Yes	Leases commonly require physical-damage coverage for the full term.
Paid-off car you own outright	No	You can keep or drop coverage based on value, savings, and repair risk.
Newer car with high replacement cost	No by law	Skipping coverage can leave you paying a large bill after a crash or theft.
Older car where repairs can exceed value	No	Some drivers drop collision, keep comp, or drop both and self-insure.
Frequent street parking or theft concern	No	Comp is the part that responds to theft and vandalism losses.
Regular highway driving with animal risk	No	Comp often covers animal impacts; collision covers many crash repairs.

How A Claim Gets Labeled: Comp Or Collision

The label decides which deductible applies.

Simple Sorting Rules

• If your car hits something while moving, it’s often collision.
• If something non-vehicle damages your car, it may be comp.
• If the loss is theft or vandalism, it’s usually comp.

Glass Can Be Different

Some policies treat windshield repair with a separate option or a lower deductible. Don’t assume it’s zero cost until you see it on your declarations page.

What You Give Up When You Skip Physical-Damage Coverage

Dropping comp and collision can be reasonable on the right car. The trade-off is simple: you keep your rate lower, and you take the bill when something happens.

Repairs Can Cost More Than You Expect

Modern cars hide expensive parts behind a small scrape. Sensors, headlights, and paint work add up fast. Without coverage, you pay the full amount.

Total Loss And Theft Hit Hardest

If your car is totaled or stolen, comp or collision can pay the vehicle’s actual cash value minus the deductible. Without them, replacing the vehicle comes out of your pocket.

If You Still Owe Money, The Risk Is Bigger

When you owe on the loan, a total loss can leave you paying for a car you can’t drive. Gap insurance can help with that mismatch, but it’s separate from comp and collision and it has its own rules.

How To Decide What To Carry Once You Own The Car

This decision gets easier when you turn it into numbers.

1) Start With Current Value

Use a consistent valuation source and be honest about condition. Insurers pay actual cash value, not what you wish the car was worth.

2) Add Your Deductible

Your deductible is cash you should be able to produce quickly. If a lender sets a deductible cap, stay at or below it until the loan ends.

3) Compare Annual Cost To What You Could Lose

If the annual cost of comp and collision is close to what you’d be willing to risk on a low-value car, dropping one or both can make sense. If replacing the car would strain your budget, keeping coverage can protect your cash flow.

For a plain-language breakdown of optional coverages, the Insurance Information Institute’s explanation of basic auto policy coverages shows how comp and collision fit inside a wider policy.

How To Lower Cost Without Getting Burned

You can often reduce price without gutting protection.

Choose A Deductible You Can Pay

Pick a deductible that won’t force you to use a credit card at claim time. If the price drop is small, a giant deductible may not be worth it.

Ask For Discounts You Already Qualify For

Multi-policy discounts, safe-driver programs, and anti-theft features can help on some policies. Compare the final price after all credits.

Don’t Trigger Lender-Placed Insurance By Accident

If you still have a loan or lease, canceling coverage early can backfire.

What Happens During A Lapse

You may get a notice that your coverage wasn’t verified. Then you can see extra charges added to the loan account for lender-placed coverage. That coverage protects the vehicle as collateral and usually doesn’t replace your liability coverage.

How To Fix A Problem Fast

Reinstate or replace coverage, then send proof to the lender. Keep a copy of your declarations page and a payment receipt so you can challenge duplicate billing.

Decision Table: Keep, Drop, Or Mix Coverage

Use this table after you confirm your contract terms and your car’s current value.

Your Situation	Likely Choice	Why It Fits
Financed or leased vehicle	Keep both	Contracts often require comp and collision; dropping can trigger lender-placed charges.
Paid-off car with strong savings buffer	Drop both	You can self-pay repairs or replace the vehicle without shaking your monthly budget.
Paid-off car where replacement would strain finances	Keep both	Coverage can prevent a sudden cash drain after a total loss.
Older car, collision repairs often exceed value	Keep comp, drop collision	Comp still covers theft, glass, fire, hail, and animal impacts.
High price compared with car value	Re-price or adjust	Shop deductibles and discounts, then re-check if the remaining cost still makes sense.
Second car that sits parked most days	Mix based on storage risk	Comp can protect against theft and storm damage while parked.
Drivers sharing one vehicle	Keep both until risk is manageable	A single accident can disrupt work and family logistics along with repair costs.

Next Steps That Keep You Out Of Trouble

1. Check whether you have a loan or lease and read the physical-damage coverage clause.
2. Confirm your comp and collision deductibles on the declarations page.
3. Estimate current vehicle value and compare it with annual cost plus deductible.
4. If you change coverage, start the replacement policy first, then cancel the old one to avoid a lapse.