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Friday, August 10, 2007

Car Insurance: Is it REALLY Worth It?

Free Image Hosting at www.ImageShack.usHere's another type of insurance to consider and determine its real value.

In almost every state liability car insurance is mandatory. See here for minimum requirements of each state. When it is the law, there is no question that it is worth it - both financially, legally, and most of all morally/spiritually worth having. If you live in one of the few states where liability insurance is not mandatory, unless you have enough savings to pay out hundreds of thousands of dollars in the event of a wreck without missing it, it would be foolish to avoid liability car insurance. For older drivers, the policy is not cost prohibitive. For young drivers (especially below 21), the costs are high, but so are the risks of a wreck with inexperienced drivers. The bottom line, you can look into any factors you want, liability car insurance is worth it.

What about full coverage car insurance, though? To determine if this type of insurance is worth it, you’ll have to do some figuring on your own.

First, compare the cost of premiums between liability only and full coverage insurance. Consider how much the difference is, and remember that the main reason to pay for the extra coverage is to replace your vehicle in the event of a wreck that is your own fault.

Second, consider how much this will cost if you pay for the premiums for an extended period of time, have a total wreck, and have to pay the deductible. Compute this for a year and then for two years of paying the premiums.

Third, consider how much it would cost to replace your car if you do not have full coverage insurance.

Fourth, consider your ability to pay for that need without insurance based on your savings.

Fifth, consider your ability to self-insure. If you take the difference in premiums, and invest it at 5% (online banking) for the year or two that you figured before, how much would you have in the account? Is it enough to cover what would actually be paid by the insurance company (after your deductible)?

To compute the value of your used car, check the NADA price guide here and Kelly Blue Book personal value here and realize your insurance company will go with the lower of the two values!

If you are driving a newer vehicle, you may decide that the value of the insurance is worth it due to the high loss that could be sustained in the event of a wreck. As your car ages, however, you continue to pay high premiums, though the coverage constantly declines. When a person is paying full coverage for a 10 year old high-mileage car, they are making an unwise financial decision! The amount you would receive in the event of a total loss is less than the amount of premiums payed in over a year or two, and definitely less if the individual self-insures! $100 per month for two years invested at 5% will build to just over $2,500. On the other hand, if you are an individual who has a lot of wrecks, the need for full coverage may be greater, but then, so will the costs!

Think it through though, and re-evaluate your decision to keep full-coverage car insurance on a yearly basis. As that car ages, it is less and less sensible to keep the full-coverage car insurance!

4 comments:

Joey said...

I had to do a double take to make sure that wasn't your Saturn in the picture, but it looks like a white or silver BMW...good thoughts here...

JHDalton said...

I wish I had put up a picture of the Saturn! To those who don't know the story, my first car was a brand new Saturn SL, purchased in June 2002. I fell asleep at the wheel and totaled it in October 2002. Full coverage definitely bailed me out there! I paid a total of about $1,500 towards the car and my deductible. State Farm paid the rest. But I plan for it to be many years before I again have a new car and thus full coverage!

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we buy any car said...

yes it is. thanks for sharing