Nov 24, 2011

5 Types of Car Insurance you might not need

In every state, drivers must be able to prove that they can take financial responsibility for any damages that result from an accident that they cause. They don’t have a choice in this matter, but they do have a choice when it comes to the types of insurance they purchase for their own vehicles. These optional policies can be very good for some people, but others may be able to save money by forgoing this optional coverage.

The types of insurance as follows:

Personal Injury Protection (PIP) Insurance

PIP insurance is a requirement when drivers live in a no-fault state. In no-fault states, drivers may not sue each other in most circumstances; they must have insurance that will pay for their own bodily injuries because the authorities will not determine who caused the accident for purposes of paying anyone’s medical bills.

In tort states, the at-fault driver does have the responsibility of paying for the other driver’s bodily injuries, and they must purchase liability insurance for this purpose. They may also purchase a PIP insurance policy to augment the coverage they purchase for their own medical bills.

PIP insurance pays the medical bills for the drivers, the driver’s passengers and possibly the pedestrians if they were hurt in the collision. Drivers with adequate medical insurance may not need to purchase PIP insurance for themselves or their family members because the health insurance will pay the medical bills.

If the policy holders have umbrella insurance, a policy that extends their car insurance and home insurance policies, they may not need to purchase PIP insurance. The umbrella insurance policy will cover the medical bills for anyone who sues them for bills that go beyond what the liability insurance covers.

Collision Coverage

Collision coverage is an important insurance policy for new cars but as time goes by, people can drop this type of coverage when their cars are no longer new. If they are purchasing a used car, they may never need to buy this type of insurance at all.

Policy holders will need to pay premiums for collision coverage as well as the deductible if they need to file a claim. These amounts could be very expensive and it’s possible that the policy holders wouldn’t be able to afford this amount if they ever have a collision.

They also need to consider the amount of money they would receive after they have paid the premiums for the year and the deductible. The actual cash value (ACV) on a used car may be very low. In this case, they would be paying several hundreds of dollars to receive a small sum of money, and this may not be worth it for some car owners.


Comprehensive Coverage

The same applies to comprehensive coverage as applies to collision coverage if the car has a low monetary value. The owners of a car worth less than $1,000, for example, will pay yearly premiums for this coverage. After the car has been completely destroyed by something other than a collision, they will have a deductible to pay and all they will receive is the car’s ACV that could be much lower than what has already been paid in premiums. In this case, comprehensive coverage may not be a good buy.

Emergency Roadside Assistance

It’s not always necessary to purchase emergency roadside assistance because some people already have it. Roadside assistance may be included in the new car’s manufacturer’s warranty. If the vehicle isn’t new, people may still have roadside assistance without knowing it because their credit card companies offer this service.

Car owners also have the option of joining an automobile club such as the American Automobile Association, also known as AAA. Membership with AAA might even be more advantageous to car owners because membership applies to the person and not the vehicle.

For example, if a AAA member is a passenger with someone who is not a AAA member, the passenger has the ability to call AAA for help. It doesn’t matter that the member was not driving his or her own car.

Guaranteed Auto Protection (GAP) Insurance

GAP insurance is a type of coverage that is not needed for every car. When people purchase their vehicles through financing, they receive a loan for the price of the vehicle but the price and what the car is worth will be two very different things.

Everyone has heard that a new vehicle’s value decreases significantly just after the new owner drives it off of the lot. The depreciation continues rapidly in the next two to three years and the difference between what is owed on the vehicle and what it is worth grows. The reason is because the loan’s balance is decreasing at a slower pace than the car is depreciating.

If the vehicle were to be written off as a total loss, the car insurance company would pay the insured the ACV. The problem here would be that this amount wouldn’t cover what is owed on the loan, and the policy holder would have to pay the difference. The difference is what GAP insurance will cover.

Someone with a used car wouldn’t need to purchase GAP insurance if there would never be a large discrepancy between what is owed on the vehicle and the ACV. People who might want to consider GAP insurance are:

* Those who lease their vehicles
* Those whose financing agreements will be longer than five years
* Those who offered a down payment that was less than 20 percent
* Those with the negative equity from their old vehicles rolled into the new loan
* Those who will drive their vehicles more than 15,000 miles a year
* Those who purchased a vehicle known to depreciate rapidly

All five car insurance coverages have a purpose for some vehicles. But, people who don’t own those types of vehicles can evaluate their situations and possibly not have a need to buy this insurance.

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