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Auto Insurance Basics

Auto Insurance Form.
Understanding the basics of auto insurance allows you to choose a policy that fits your needs. This guide is about car insurance coverage basics.
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Ask a QuestionHere are the questions asked by community members. Read on to see the answers provided by the ThriftyFun community or ask a new question.

By 0 found this helpful
November 20, 2009

I have a 2003 Toyota Corolla that will be paid for by the end of this year. Is it necessary to continue having full coverage auto insurance on it, or is liability sufficient?

By Onesummer

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Answer Was this helpful? Yes
November 21, 20090 found this helpful

I would contact your insurance agent with your concerns. I think they would have the best answers for your minimal coverage. For example on a car that old do you need fire and thief?

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November 21, 20090 found this helpful

It is not necessary to have full coverage insurance. You can drop your coverage to PLPD (personal liability & property damage) but it would make it so if you have a wreck and its your fault, your car would not get fixed but insurance would still fix the other vehicle you hit if applicable. We keep fire, theft, and deer coverage on everything driven also but we live in Indiana. I think it makes me drive more careful knowing we would have to pay to fix it. Have you thought of raising your deductible. Lots of times it can be a good cost savings. Hope this helps.

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November 21, 20090 found this helpful

We had a paid-off '95 Accord (I loved that car . . . in 10 years we only had to do maintenance) and were rear-ended at a high rate of speed. We have no reason to believe the car would have had any mechanical problems any time soon . . . the value of no payment is more than we think. The car was totalled, and their insurance didn't want to give us much for it. (We had just liability since the car was 10 years old.) My husband works for a local auto group and kept extremely good records of all maintenance, and he had the manager at the Honda dealership write a letter estimating what our car was worth before being wrecked (we took extremely good care of that car). So the insurance gave us maybe another $1,000 or so.

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We had to get another car. Even with my husband's connections we couldn't find a good newer-used Honda (or Toyota). So we ended up buying new. We had savings, but not enough to pay for a brand new car in full. So we had to finance and got it paid off in a couple years.

Full coverage would have helped when getting the new car. It's debatable whether or not the added expense of the insurance is worth it. WE are very safe drivers, but someone else was being careless and hit us (with a cop sitting next to us, and another two cars behind him!). We could go another 10 years without an accident, or we might get hit today driving to a birthday party. But we have enough savings to get a new car today, if we need to.

There is much to consider. It's not an easy question to answer. Look at all your options and possibilities, crunch some numbers. If something happened and your car was totaled today, how would you handle it? Best of luck. Even though our car is paid in full, we continue to carry full coverage. In a few years we'll sit down and have a discussion as to whether or not we'll continue.

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November 21, 20090 found this helpful

Don't go bare minimum liability, make sure you are protected if you are at fault but drop the full coverage. Even if you have full coverage, your insurance company is only going to give you current market value or maybe a little over to make you happier but you will not get what you think it is worth, insurance companies do not increase value because it has been a good car for you.

Personally, I buy cheap, carry liability and drive them til they drop. I have saved many thousands of dollars on car payments and full coverage insurance payments over the years. I have taught myself to do many basic repairs so I am lucky in that sense. It has helped us raise 3 kids on one income and even though there are days (like this one- I have to fix our 94 minivan that won't start) that I would love a new car with a warranty, I will never regret going thrifty so my kids have a mom at home.

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November 21, 20090 found this helpful

I always had full coverage on any of my cars that were paid off, mainly because I couldn't afford to buy a different car or replace a broken windshield, etc. I haven't had a car since 1997 and back then I was paying $40.00 a month for complete coverage and my renter's insurance. With my renters I had it so that if I lost stuff in a fire or whatever, I could go out an buy completely new stuff. To me it is worth it to have more coverage than you might need, especially with people so sue happy now a days.

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November 24, 20090 found this helpful

If you contact your insurance agent about this issue as someone suggested, t's in their best interest to tell you to keep full coverage. That agent is in the business to sell insurance (he gets a commission) and if you think he has your best financial interest in mind you're fooling yourself.

General rule of thumb: drop full coverage when the car is five years old if it's paid off and save the difference in premiums. If it's financed the bank will require full coverage to protect themselves. If your car is totaled your insurer will pay you next to nothing depending on the mileage and condition of the car. I always drop full coverage on my cars when they reach 5 years old, and keep uninsured motorist. Just keep uninsured motorist protection.

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Anonymous
November 24, 20090 found this helpful

PLPD will be fine if you're not worried about being able to replace or repair the vehicle out of pocket but if you don't have medical that would cover should you be injured by an uninsured motorist it's advisable to also have uninsured motorist coverage. My car is ten years old and only worth about $3,000.00 and I have medical that would cover so I dropped to only PLPD only and it cut my insurance rate in half. I put what I save aside for possible future repair or replacement 'just in case'.

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July 7, 20100 found this helpful

Liability will suffice but comp is good to keep especially if your auto is on the top 10 list for most stolen cars.

Comp is also coverage against fire and theft. So you may want to keep it; its usually a pretty low cost. In our state-Texas, we have uninsured/underinsured motorist and some folks keep this one on, too.

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November 11, 20130 found this helpful

I am new to Canada and am preparing for the drivers license tests. In the interim, I would like to drive using my home country license, as I am allowed to drive in Ontario, Canada for 60 days on my home country license.

Please advise if I need insurance to drive my siblings car(s)? If so, which firms offer such insurance in Mississauga?

By Azmat

Answer Was this helpful? Yes

Gary Foreman0 found this helpful
March 4, 2005

Dear Dollar Stretcher,
I have liability insurance on my car. I know my coverage will take care of the other party. But does my liability pay for anything else after I have a wreck?

Thanks,

Kathryn K.

The simple answer to Kathryn's question is no, liability insurance only pays for the other guy's losses. But, let's take this opportunity to look at what types of coverage are available and what each one does.

First, consider what types of damage can be done when you're involved in an auto accident. Obviously, there could be damage to your car and to the other car. There could also be injuries to you, the other driver or passengers in either car. And, finally, bystanders or their property could suffer loss. Damage to any of these could cause you financial loss. For most of us, auto insurance is the method that we use to protect against that loss.

Next, let's review the different types of coverage you can buy. Your state may require a minimum liability coverage. After that you can pick and choose what type and how much insurance you want.

We'll begin with the liability insurance that Kathryn mentioned. She's right. Liability insurance pays for injuries or damage that you caused to someone else. You are responsible or liable to correct the damage. Liability does not pay for your losses. Only others hurt by your auto.

Liability comes with "limits" or maximum amounts that the insurance company will pay. State required minimums are often not sufficient to protect you financially if you're involved in a serious accident. For any damages over the maximum covered you'll be on your own. Remember that $10,000 doesn't go as far as it used to.

There are two types of liability insurance. "Bodily Injury" covers pedestrians, your passengers and people in any other car you hit. It will pay for claims against you and for your legal defense up to the amount of your policy. You're not the only one protected. It covers your car when you, your family members or anyone else drives it with your permission.

If you're responsible for damaging other people's property you'll need "Property Damage" coverage. The damage could be to their car or anything else that they own. Again, legal defense is also included. Your property is not covered.

Now to the heart of Kathryn's question. Liability doesn't cover your loss in an accident. If you want help to pay for any loss you suffer you'll need additional coverages.

"Collision" pays for repairs to your car when you're involved in an auto accident regardless of who was at fault. After a deductible is reached, your insurance company will be responsible for repairs to your car.

"Comprehensive" is for damage to your car that's not caused by an auto accident. Theft, fire, storm damage are common causes of damage that are covered. Again, you'll receive payment once a deductible amount is reached.

Suppose you're hit by someone who doesn't have enough or any insurance. That's when "Uninsured or Underinsured Motorist" coverage comes in. It pays you and others in your car if someone else is at fault, but they don't have resources or sufficient insurance to cover the loss. In effect, it's like you're buying extra insurance for the 'other guy'.

How can you get the most for your auto insurance dollar? First, by comparing quotes. You'll probably be surprised at how much the prices vary for the exact same coverage.

Higher deductibles can lower your bill. If you can afford to pay for an $800 repair to your car, you'll save quite a bit by increasing your deductible from $500 to $1,000. Remember, that you'd still pay the first $500 of an $800 accident. So the difference isn't as large as it seems.

If you're driving an older car it might make sense to drop the collision and comprehensive coverage. Your old car might be valuable transportation to you, but the insurance company will only pay you based on the car's "book value". If book value is $1,000 there's very little sense buying insurance that will pay you $1,000 less the deductible.

Check on low mileage and other discounts. Each insurance company offers different discounts. Ask for a list of available discounts. You may already qualify and merely need to apply.

Finally, a caution. An auto can do a lot of damage in a very short period of time. To people and to property. So it's important to have enough insurance to cover any situation that you might get into. But it's also important to take the necessary steps to avoid accidents. Make sure your car is well maintained. Don't drive while impaired. Be cautious when you drive and anticipate problems. After all, the best accident is the one that doesn't happen.

Answer Was this helpful? Yes
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