Auto Insurance for Beginners

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Why you need insurance?

Let's ask this question a slightly different way. Under what conditions would you not need auto insurance?

If you were financially wealthy and didn't care about the risk of losing a substantial portion of your wealth, you could self-insure. That is, you would use your own money to pay for damage repairs, a replacement vehicle if your current vehicle is stolen or destroyed, towing and storage charges, medical bills associated with an accident, lawsuits by other parties when you are at fault in an accident that causes damages, injuries, or death, attorney fees, and property damages.

However, those who might be able to self-insure don't for two reasons. First, the cost of insurance is relatively small compared to the potential losses associated with self-insurance. Why risk losing thousands or millions of dollars in an at-fault lawsuit? Second, states have laws requiring liability insurance as a way of proving financial responsibility. Although a bank full of cash might seem to accomplish the same thing, state laws don't see it that way. State laws vary, so car insurance in New Jersey is not the same as in California.
Another reason for having auto insurance for those who buy with a loan or lease is that bank and finance companies insist on it. They want to protect their investment during the time of the loan or lease. If the vehicle is destroyed or stolen, they want to be sure they are paid.

In summary, you need insurance to protect you, your finance company, and other parties and property for which you might be responsible.

Types of insurance

An auto insurance policy might include one or more of the following types of coverage:

Liability - Protection from risks associated with property damage and personal injury. Legal actions against at-fault drivers is becoming more common and more expensive. Multi-million dollar legal settlements are not unusual. Without insurance, a single accident could easily ruin an unfortunate family's life. For this reason, liability coverage is the most important part of such a policy.
Comprehensive - Protection from the cost of non-collision damages, vandalism, theft, weather-related damage, or natural disasters. Comprehensive coverage typically pays for the cost of repairs, or in the case that the vehicle is totally destroyed or stolen, the cost of a replacement vehicle - at "cash value" of the old vehicle. A deductible lessens the amount you are paid.

Collision - Protection from the cost of repairing damages to your own vehicle. A deductible lessens the amount you are paid.

Medical - Pays medical costs to you or other parties for accidental injuries associated with your automobile. There are limits specified in your policy regarding maximum amounts paid for each incident.

Uninsured Motorist - Protection from costs associated with an accident caused by another driver with insufficient liability coverage - or no liability coverage.

Towing and Labor - Pays cost of towing your damaged or disabled vehicle. Maximums usually apply.
Rental Reimbursement - Pays cost of renting a replacement vehicle after an accident.

Gap Coverage - Pays the difference between the amount owed on a loan or lease and the "cash value" paid by your insurance company in case of theft, fire, or accident. A gap waiver or gap insurance is usually provided with most leases, but not loans. Some auto insurance companies offer it and some do not. If you are going to be "upside down" on your loan, it's good coverage to have.

How much coverage do you need?

Many drivers view auto insurance as a necessary evil and buy as little coverage as they can get by with to minimize costs. State laws may dictate what and how much liability coverage is required, and whether no-fault coverage is required. If you buy with a loan or lease, the finance company may dictate minimum coverage requirements. They may even tell you the maximum deductible you can choose.
Beyond the requirements of your state laws or finance company, you have some ability to determine kind of coverage you want, how much, what deductible, and what add-ons you want.

For example, you can add more liability coverage, which can be a smart thing to do in these days of mega-million dollar legal settlements, especially when medical costs are involved. Many policies only cover $50,000 or less. If your auto insurance policy doesn't cover the full cost of a large settlement, you are personally responsible for the remainder.

You can also adjust your deductible amount, within limits. If you have sufficient cash available in case of an accident, you can set a high deductible to reduce your premiums. However, many people who set high deductibles really can't afford to pay but bet on the chance they'll never have to. Not a good move.

Dropping collision and comprehensive coverage is another opportunity to save money. You should only do it, however, if you can afford to buy a replacement vehicle or pay for repairs from your own pocket. As mentioned previously, your loan or lease company may require this coverage even though you may not need it.

Many insurance companies now look at your credit score and offer lower rates to people with high scores. You should know your FICO® credit score before you begin shopping for insurance.

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Comments On Auto Insurance for Beginners (2)

Guerrilla MarketingWednesday, March 18, 2009

Hello nice site. I've got very useful information.


shrutikaWednesday, March 18, 2009

this is nice site,it gives very useful site.

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