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7 Major Mistakes to Avoid When Buying Car Insurance

Buying Car Insurance

If you live in the United States, you’ll need car insurance to drive on public roads. Most states require drivers to carry a minimum amount of liability insurance. If you cause an accident that injures another motorist or damages his or her property, liability will cover the cost of medical treatment and property repairs. Different car insurance policies, however, have various functions, and it’s important to choose the right plan based on your needs.

VIDEO: What You Need To Know About Buying Car Insurance

1) Buying State-Required Minimum Coverage

Most states require drivers to have at least $10,000 to $50,000 of property damage liability and $10,000 to $50,000 of bodily injury coverage per person, per accident. Unfortunately, this doesn’t always cover all the full cost of a crash. If you’re at fault for an accident that totals another motorist’s $20,000 vehicle and you only have $10,000 of property damage liability insurance, you could be held liable for the remaining difference of $10,000. Purchasing a car insurance policy with at least $20,000 of property liability coverage, however, means your insurance will cover all the costs, thereby relieving you of any liabilities.

2) Overlooking Gap Coverage on New Car

If you’re still paying off your car loan, consider adding gap coverage to your insurance policy. This optional add-on will compensate you for the difference between your car’s actual cash value and the amount you owe on the loan if you are in an accident. According to CARFAX, the average new car loses about 10 percent of its value when it’s initially driven off the lot. If you buy a $30,000 new car, its value will drop to $27,000 when you first drive it. And if you get into an accident that totals your new vehicle, a collision insurance plan will only compensate you for its actual cash value, $27,000, meaning you’ll still owe $3,000 on the loan. Gap coverage ensures that your car loaned is paid off if you are in an accident by bridging the gap between your car’s actual cash value and the amount owed on the loan.

VIDEO: What Is GAP Insurance? Do I Need It?

3) Buying Comprehensive or Collision Coverage for Low-Value Car

When shopping for car insurance, ask yourself if you need comprehensive or collision coverage. Comprehensive coverage compensates you for theft or damage to your car caused by fire, flood, fallen tree, vandalism, hail or flood. Collision coverage pays you for damage to your vehicle in accidents for which you at fault. To determine if comprehensive or collision coverage is worth it, compare the value of your car to the total cost of these policies. If the combined annual premium cost of collision and comprehensive insurance is greater than 10 percent of your car’s value, stick with liability-only insurance to save money.

4) Not Listing All Drivers on Application

It’s not uncommon for two or more people to drive the same car. If you allow a friend or family member to drive your car, you must mention this when applying for insurance. Some insurance companies charge higher premiums when other drivers are added to your policy because it increases the overall risk of collision. However, failure to include all drivers on your insurance application can leave you personally liable for all costs if you cause an accident. Be honest and name everyone who will drive your car on the insurance application. And if someone moves into your home and begins driving your car after you’ve already acquired insurance, then you need to contact your insurance company to notify them of this change.

5) Buying a Comprehensive or Collision Policy With the Wrong Deductible

Most car insurance companies offer comprehensive and collision policies in a variety of deductible options. One policy may have just a $100 deductible, while it’s $1,000 for another plan from the same company. Why does this matter exactly? The deductible affects two things: premium costs and the amount you pay when you file a claim. A policy with a $100 deductible means you’ll pay just $100 when you file a claim, but your monthly premiums will be higher than it would be for a policy with a $500 or $1,000 deductible. If you’re a safe, overly cautious driver, choosing a plan with a high deductible can save you money on your monthly premiums. On the other hand, if you tend to get into fender benders, choose a policy with a low deductible to minimize the financial impact of filing a claim.

6) Not Asking About Discounts

The average cost of car insurance in the United States is about $125 per month, according to Business Insider. While many factors affect the total cost of premiums, you can often save money on car insurance by taking advantage of discounts. Car insurance companies offer a variety of cuts, but it’s the driver’s responsibility to claim them. For example, a car insurance company may offer a 10 percent discount for low-mileage usage. If you work from home and only drive your car on the weekend, you may be eligible for this discount. Many car insurance companies offer safe driving or accident-free discount of 5 percent to 10 percent. If you haven’t been in an accident in several years, you may be eligible for this discount. You may also get a good student discount if you keep good grades and are still in school. There are also insurance premium reduction courses that many auto insurance companies allow you to take. Take advantage of all discounts for which you are qualified to minimize the cost of car insurance, and be sure to ask your agent periodically if there are any new discounts you qualify for.

7) Assuming All Insurance Companies Are the Same

Finally, don’t assume that all car insurance companies are the same. The value of a car insurance company doesn’t get measured in its price, but instead, in the company’s ability to handle claims fairly and expeditiously. When you file a claim, the insurance company should quickly resolve it so that you can get back on the road. If an insurance company drags its feet by delaying or rejecting your claim, you might be left without a car to drive. Search for past customer reviews online to gain a better understanding of a car insurance company’s ability to handle claims.

Final Thoughts About Car Insurance

Driving without insurance is a serious liability that exposes your money and personal assets to forfeiture in the event of an accident. Most importantly, it’s illegal to drive without insurance in the United States. If you’re caught doing it, you may receive strikes on your driver’s license, a fine, suspended license and other penalties. Just remember to avoid making the seven mistakes listed here when choosing a car insurance policy.