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Assessing what car insurance coverage you need

Many of us find ourselves shopping for insurance with no idea of what we're about to do. No wonder people throw up their hands in frustration and just shell out as much as cash they can afford, and never review the policy again. Here's a guide to help you decide if you still need full-coverage auto insurance, along with a tips on reviewing your current policy. Kate Forgach,

Do you drive a car? You must have minimum insurance coverage as required by your state. Full-coverage auto insurance generally refers to a policy that includes comprehensive and collision insurance, in addition to the state minimum.

Have you paid off your car loan? Unless you have paid off your car loan, you won't be able to drop full coverage. You may play with the deductible to make this more affordable, but you do need full coverage until you've paid off your loan.

Do you already have auto insurance? After the purchase price, auto insurance can be the most expensive aspect of owning your car. Adjusting your policy can lead to substantial savings and more affordable auto insurance. It's worth reviewing your policy and comparison-shopping every year.

What is your car worth to you? Comprehensive insurance covers you if your car is stolen and not recovered, or damaged by anything other than a car accident (e.g. fire or flood). This will pay for your car to be fixed or replaced for the amount your insurance determines to be the car's actual cash value, minus your deductible. For a general estimate of your car's worth, consult the Kelley Blue Book.

What is your car worth to the insurance company? Get out your calculator and do the math on the last question. Look up your car's value in the Kelley Blue Book. Subtract your deductible. Don't forget to also subtract the amount of your car loan. This is what you will receive if your car is totaled.

What is your car worth to someone else? Before you decide to write off comprehensive coverage based on the results of your math, consider the 10 most commonly stolen cars in the United States are more than a decade old. So even if you drive an older car, if you can't replace the car yourself, you might want to keep your comprehensive insurance.

Are you a careful driver? Collision coverage pays for repair or replacement (minus your deductible) in case of a crash. Even if you're a safe driver, an accident may happen because of another car.

Is your car European, or an "old reliable" Honda or Toyota? In this case, it may not make fiscal sense to keep collision coverage because the price of parts could be through the roof. Damage to a single part can "total" a low- or mid-value car, even if it's otherwise drivable. A fender-bender could result in a total loss. Would it be difficult to buy a replacement with the Blue Book value, minus your deductible (and car loan if you have one)? Your money is better spent in saving for a new car.

Where does your car live? Urban drivers face many more automobile hazards than suburban or rural drivers. If you're carrying full coverage and do little or no city driving, consider changing your auto insurance policy.

Is your car new? A newer, more expensive car should carry full coverage. Just review your policy as the car ages. You may even have a point in mind to begin switching over from insurance to saving for a new car. Overall, the one that is best for you is the plan that will give you enough money to put you back on the road after a loss.

Assessing what car insurance coverage you need 04/27/11 [Last modified: Wednesday, April 27, 2011 4:30am]
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