Proper insurance coverage is not only essential to legal driving habits, it also protects you from a potentially horrendous financial dilemma. An understanding of your financing terms and insurance options will help you decide the level of insurance coverage you should get.
Full-Coverage vs. Liability Insurance
Before you can make a choice between full coverage and basic liability insurance, you have to understand the difference between the two.
Liability insurance covers the cost to repair damages or provide medical treatment to other drivers if you are at fault for an accident. Most insurance providers also provide optional liability coverage that would provide for an uninsured driver being found at fault. A basic level of liability car insurance is legally required by most states.
Full-coverage includes liability and two other kinds of car insurance. Also included in full-coverage car insurance are comprehensive and collision coverage. Comprehensive insurance covers damages related to fire, flood, other natural disasters, theft, vandalism and other occurrences depending on your provider. Collision insurance is more self-explanatory in that it covers you if you collide with an object. Full-coverage car insurance is more expensive than basic liability, as it provides for substantially more problems you may encounter.
The Best Choice When Financing
Until you have finished paying off your car loan, the financing company you work with is entitled to repayment if the car is declared a total loss. For this reason, full-coverage car insurance is recommended to those with a financed vehicle, at least until the loan is repaid. In fact, most insurance providers and state law insist that those with a financed vehicle maintain full-coverage throughout the term of the loan. The comprehensive and collision insurance included in a full-coverage policy ensures that the lender will receive what they are owed in the event of the worst-case scenario. Failure to maintain the required insurance on your financed car could result in the lender attaching the cost of their chosen full-coverage policy onto the monthly loan payments. The monthly payment for the lender-attached insurance is, on average, much higher than the policy premiums you would be charged from an insurance provider you shopped for yourself.
Many drivers fail to realize that if a financed car is declared a total loss due to a natural disaster or accident damage, you will still need to repay any remaining loan balance. While working toward paying off your car’s financing you should opt for full-coverage car insurance instead of a policy limited to liability coverage.
