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Let’s face it, we’re all forced to buy car insurance. Some people never use their auto insurance, and they’re aware that their premiums are dust in the wind. You work hard for your money. Maybe it’s time to figure out just how much insurance you need on that trusty automobile you drive. There are ways to figure it out. Maybe you can move to cheap liability car insurance.
What is Auto Insurance? When you buy auto insurance, you shift the cost of a loss due to a collision to the insurance company. In turn, they charge a premium to shoulder the risk. It’s all about risk. You risk a considerable sum of money when you put your car on the road. If a collision occurred and you received the blame, you could be liable for thousands of dollars. By buying car insurance, you put the risk on the insurance companies. The insurance company is betting that you’re a safe driver and will not get into an accident. Cars depreciate fast, so the question is always out there: When should I change my insurance type from full coverage to cheap liability car insurance and lower my premium. How Old is the Car? One way to know if liability insurance is the way to go is to consider the age of the car. If the car is new, it’s important to buy full collision insurance. After a collision, everybody’s made whole with full coverage. On the other hand, if your car is old, you pay a premium for a payout that is proportionally less because of the car’s age. While your car depreciates, your insurance premium stays the same. A value of $10,000 is the usual breaking point between paying for full collision or cheap liability car insurance. How Much Coverage Do You Want? The next way to know if it’s time to switch to liability is to know how much coverage you want. Liability covers bodily injury and loss of property to the other person in the crash, so you’re covered when it comes to paying the other person’s expenses but nothing else. When you use liability insurance, the insurance doesn’t pay to replace your car after an accident. Full collision will cover everything that is damaged in an accident including your automobile. So if you want that level of insurance, keep paying for full collision insurance. The full collision also assumes the risk against theft or break-in, vandalism, hail damage or any weather for that matter. It also covers against large objects from falling on your vehicle. If a tornado hits your garage and wrecks both the garage and your car, full coverage picks up the replacement or repair cost of the car. It’s nice insurance, but it costs a healthy premium. Use a Formula Another way to know if you should switch to liability insurance is to use a formula. Try using the fifteen-percent rule. If your annual insurance premium exceeds fifteen percent of the car’s value, it’s time to move to liability insurance. Many people prefer full collision insurance. For example, if they paid $23,500 for a new vehicle, and it gets totaled minutes after crossing the curb and entering the street, the owners will wish they had full coverage. The full sticker price of $23,500 is hard to recover. So a smart person does buy full coverage though it may seem expensive. On the other hand, fifteen percent of an older $7000 car comes out to $1050/year. That’s $87.50 a month, much less than a full collision premium costs. Can You Handle the Risk? Another way to look at liability is to consider the risk. With liability insurance, you are buying the least coverage for the car. The risk in collisions has been handed back to you when you opt for liability insurance. The first thing to consider is the title of your old car. Do you own it outright? Does the lending company you took out a loan from years ago still hold the title? Your lender will demand full coverage as long as they own the title. Check Your Budget Another way to know if it’s time to switch to liability insurance is to check your budget. If insurance is taking a big chunk out of your monthly expenses, perhaps you need to go to liability just out of month-to-month budgetary necessity. On the other hand, much of the stuff included in the full collision package is nice. Maybe you bought a Massaratti or a ’65 Ferrari. You might want to keep insuring luxury or performance vehicles with as much insurance as you can reasonably afford.
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November 2018
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