Last night, I was contacted on instant messenger by an individual who had an interesting question about his automobile:

My entire engine is going to have to be replaced and the cost of it is more than the remaining monthly payments on my car. Should I try to sell off the car now or should I pay for the repair?

I asked him how much the repair and aftermarket part would be and he reported that the lowest estimate he had received was $3,100, which is certainly a pretty penny.

The first question to ask here is how reliable the car has been otherwise. I found out that there had been two other minor repairs done to it as well, but these were more typical accidental situations, nothing that indicated a severe problem with the car.

However, when I asked about these in detail, I found out that he had paid cash in full for both of the older repairs as well, when something occurred to me: I was assuming that he had collision insurance only on his car, not comprehensive insurance.

For those unaware of how this works (in the United States at least), most insurance carriers carry both collision insurance (which covers accidents – damages due to collision) and comprehensive insurance (which covers almost everything else that could go wrong with your car, like environmental damage and so forth). For some insurers, comprehensive will include collision insurance; for others, you would have to get them both separately.

I was shocked when he went and got his policy, checked it over, and reported that he did in fact have comprehensive insurance. I told him that I thought that the engine repair would likely be covered by the insurance and that he should check his policy. He leafed through it and found a key sentence that confirmed it: the engine repair is completely covered by his insurance. His bill would only be $250, not the $3,100 he was expecting, a savings of $2,850.

His excitement, even through the IM window, was amazing.

The moral of this story is if you’re paying for insurance, know exactly what that insurance will cover. If you’re about to pay out of pocket for something you’re paying to insure, make absolutely sure that your policy doesn’t cover what you’re paying for.