Things you should include in your policy

There are certain automobile insurance basics that most car owners fail to insure. For example, do you know what happens when an accident occurs soon after you buy a new car?

Let us assume you bought a new car for $30,000 without any down payment on your car loan and had an accident a month later. Now, the value of your car goes down by 20-30% as soon as you drive your new car out of the car dealer’s showroom. In all probability you have paid only one installment on the automobile loan and it stands close to $30,000. Even if you have full coverage you are still stuck with having to pay that 20-30% by which the value of your ‘new’ car has depreciated. It is because of this that most experts recommend that one of the important automobile insurance basics that you must insure is the gap between the car’s worth and how much you owe on it.

Similar, there are other automobile insurance basics that you must make sure are covered.

While how much insurance one should have varies according to the profile (including net worth) of the person buying insurance and the value of the car being insured some other automobile insurance basics you must insure include the following:

Third Party Coverage: Also known as liability insurance, this is perhaps as important as insurance of your medical expenses in the event of an accident. Liability coverage protects you against damage to others that you are responsible for. It includes damage to property as well as bodily damage. In some states there is a minimum liability coverage that you must have for a car to be legally driven on the road.

It is recommended that you take adequate liability coverage for bodily injury as well as property damage because any amount beyond the amount of third party coverage has to be paid from your own pocket.

Physical Damage: Protection against physical damage to the vehicle is one of the critical automobile insurance basics to insure. However, you may drop it if your vehicle is ten or more years old. Insurance providers generally calculate reimbursement value on the basis of current cost less depreciation. If you car is very old, it is more costly to repair than repair. In that case the company would rather pay replacement value, which is not likely to be much.

Deductibles: One of the automobile insurance basics that many people tend to ignore pertains to the relation between insurance cost and deductibles. A deductible is the amount of physical damage to the vehicle that you agree not to claim from the insurance provider. While physical damage coverage is among the most important automobile insurance basics, remember that higher deductibles mean low premium.


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