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Important Information About Auto Insurance

Are you about to get your first car as an adult? Will this be the first time that you've shopped for and purchased auto insurance on your own? If your parents didn't have a car when you were growing up or if you never discussed insurance with them, there are some misconceptions that you may have when it comes to buying and owning a vehicle of your own. Here are some things that you may not have realized before:

Buying and owning a brand new car isn't always a good idea: If your budget is limited, you may be looking at getting a brand new car simply so that you don't have to worry about repairs. While this is fine, you should also realize that you're going to be paying a much higher auto insurance premium for a brand new car, versus one that is already several years old. Newer cars are stolen more frequently than older models, making the cost to insure them go up. In addition, should you somehow get into an accident and total your vehicle, most insurance companies won't actually pay to replace your vehicle. Instead, they will cut you a check based on your vehicle's worth as it was just before the accident. Since a new car depreciates in value as soon as you drive it, and may lose 25% of its worth in the first year alone, the amount you receive may not be quite what you expected.

If a vehicle is totaled, you still have to pay off the loan: If you own a newer car and get into an accident, you may think that your responsibilities to the loan company end there. Unfortunately, unless you specifically have auto insurance that pays off the remainder of the loan, you'll still owe whatever balance is left on the loan. Making sure that your insurance will cover the remainder of your loan usually requires purchasing additional loan/lease gap coverage. Should your insurance company pay off your auto loan, you're unlikely to receive much, if any, money from them afterwards. However, because the loan is paid off and your credit is hopefully still good as a result, you should be able to purchase another vehicle almost immediately.

Insuring more things may cut your costs: Whether you own or rent your home, you've probably been advised to purchase insurance for your dwelling. By purchasing auto insurance through the same company, your total costs may be less than purchasing either insurance policy separately. An insurance company may view people who get multiple policies as more responsible and less likely to need to file a claim than people who just get one or the other, resulting in a sometimes substantial discount on all premiums.