Cheap auto insurance on your new car – is it worth it?

One of the mistakes you can make when you purchase a new car – especially with a bad credit auto loan – is to underestimate the cost of insurance.

Full Coverage vs. Partial Coverage (what you may have now)

If you are currently driving an older car, what car guys call a “beater”; chances are you have what is known as partial coverage – often called “PLPD” insurance. PLPD stands for “public liability and property damage”. This basic insurance covers the damage your vehicle would cause if you were involved in an accident. It also satisfies the minimum amount of coverage required by your state. It does not cover any damage to the vehicle itself.

Full coverage auto insurance (an insurance policy that also contains comprehensive and collision coverage), on the other hand, covers just what the name implies – not only the damage your vehicle would cause in an accident, but also the damage to the vehicle, itself. To make full coverage insurance more affordable, it is available with differing levels of deductibility. The “deductible” is the amount that you as the insurer would contribute to the repair bill. As an example, if you were in an accident and it caused $2000 in damage to your vehicle and you had a $500 deductible collision policy, you would contribute $500 towards the damage, while the insurance company would pay the balance of $1500. If the damage was under $500, you would pay the entire amount. The higher the deductible (the more you would contribute), the lower your insurance premium will be.

Which one should you get?

If you are driving an older car (one that is paid off), partial coverage insurance often makes sense. If the car is only worth a couple of thousand dollars, the money that you save could easily equal the value of the car in a couple of years.

Full coverage insurance, although more expensive, gives you peace of mind, since, even in the worst accident (other than a total loss), you would only be responsible for the deductible amount to repair your car.

Why is this important if I’m buying a car?

If you finance a car, the bank will require you to carry comprehensive and collision coverage. Since the bank loaned you the money for the car, they want to make sure it is repaired in an accident or, if the vehicle is a total loss, they get back the money that is owed them.

The Bottom Line

If the car you’re currently driving has partial coverage, the difference in cost could be $100 or more a month. At Auto Credit Express, we are aware of the difficulties many new car buyers have in understanding the total cost of ownership of a new vehicle – especially for bad credit car loan customers. So if you are planning on buying a new car, be sure to check the insurance rates before you sign on the dotted line. Make sure to include the added cost of insurance in your budget.

Posted on January 14, 2008 by in New Cars
Reader Comments

6 Responses to Cheap auto insurance on your new car – is it worth it?

  1. Anonymous says:

    I recommend quoting multiple online carriers as well as local agents to get the best rate on car insurance. Just make sure your liability limits are identical as well as your deductibles so you have apples-to-apples comparisons to work with.

  2. ltr says:

    Agree with the previous commenter. Most people stay with the same insurance company their entire life. This can be costly unless your insurer gives big customer loyalty discounts. If you shop your rates around and raise your deductibles slightly, you may be able to get full coverage with one company for nearly the same price as partial coverage with another. Do your homework.

  3. Max says:

    “Thanks for the providing good information.I will also suggest to consider buying an auto insurance for your car as it has become inevitable to buy auto insurance these days.

  4. Thomas says:

    How convenient two of the posters have sites you can go to in order to get quotes. Whatever.

    Do some REAL research. Especially those in Michigan. Read this report put out by the state:

    Pay special attention to pages 7 and 8 that lists the insurance companies and their discount rate structure. Then look real close at the last column. The one labeled “Claim or Ticket Free”. The most important column when it comes to auto insurance one would think. Guess again.

    You’d be amazed at the number of insurers who place more emphasis on your credit score, moving your other cars and insurables to their company, and other irrelevant criteria other than your motor vehicle record.

    And don’t believe that BS hype they spew about persons with better credit don’t commit insurance fraud as often.

  5. Steve Cypher says:

    Thank you for the information. The insurance document is a real eye-opener. I have also removed the links to the two posters sites – I don’t know how I missed them.

  6. ca car coverage says:

    Having full coverage car insurance is a must. Like most auto loans, a car refinance loan is secured by the vehicle. If the car is stolen, involved in an accident or otherwise damaged then you would be required to repay the loan without use of the vehicle or its market value. Lenders know that repayment under such circumstances is usually too great a burden for the borrower and will have a difficult time being repaid on the loan. Requiring insurance protects both the lender and the consumer.

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