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Insuring a Used car

Lyndon Bell
by Lyndon Bell
January 15, 2011

Let's face it, if you wanted to spend a lot of money for transportation, you'd be reading an article about how to buy a new car. The financial benefits of going used are many, however one frequently overlooked is the lower insurance premiums you'll pay on a used car versus an identical new one'”if you pay attention and insure the car accordingly.

It is important to note driving a used car does not free you from the need to have insurance; it is mandated by law that every vehicle be insured. This can be either by a traditional auto insurance company, or in some states, by placing a sizable amount of cash on escrow in the form of a surety bond with the Department of Motor Vehicles.

When shopping for insurance, it's useful to understand the different types of coverage available and how they can pertain to your particular situation.

Liability coverage insures you against damage you may have caused to other people. This can include their property as well as their body. Medical liability helps to ensure the cost of a victim's medical costs and/or their death will be met.

Comprehensive coverage extends to your own vehicle and the property of other people. Collision coverage ensures that your car and other vehicles involved in the collision are covered in the event that they are damaged and you are found to be the cause.

Underinsured motorist property damage pays costs in the event the liability insurance coverage had by the negligent driver is not enough. The good news is, on a used car, this coverage can be had for significantly less money. If a used car is damaged or stolen and written off as a total loss, the insurer's potential exposure is lower than that with a new model, so the company can charge less for the comprehensive and collision coverage, therefore lowering the premium.

On the other hand, a used car can cause just as much damage as a new car, should an unfortunate situation arise. So regardless of the coverage you choose to protect your car, you should not skimp on liability coverage.

Another factor in the determination of an auto insurance premium is the amount of the deductible you choose to assume. In a nutshell, the deductible is the amount you are willing to pay against a claim before your insurance coverage kicks in. The lower the deductible you choose, typically the higher the premium you pay, as the insurance company is trying to balance cost against exposure.

That said, while a low deductible may make sense on an expensive brand-new car, used-car buyers may choose to save money by raising their deductible. A used vehicle may already have some cosmetic wear

and tear so you might choose to skip repairing minor collision damage, or simply go out of pocket for smaller repairs, rather than paying the higher premiums a lower deductible commands. Keep in mind, however, the higher the deductible, the more you'll have to pay out of your own pocket in the event of a claim.

Another factor determining cost can be the type of insurance company you choose. Different insurers have different rates for different cars. This is why it is important to shop your particular car around among several different insurers, taking care to make sure you're getting comparable coverage with each quote.

Similarly, buying insurance online, or through an agency can sometimes result in lower rates as well. However, this should be balanced against the solvency of the company you have in mind. When dealing with unfamiliar insurance companies, you should always investigate them with the Better Business Bureau as well as your state's Insurance Commissioner's office to make sure they'll be around if you need to file a claim.

Long story short, identifying your insurance needs and researching the associated costs for the used vehicle you're considering can save you money. But, like any other financial transaction, doing your homework first can set you in good stead.


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