Most insurance companies are pretty good at covering your automobile; however, insurance companies excel at separating you from your money. Television airwaves are filled with Battle Creek auto insurance offers providing “Better Car Replacement” and new car replacement. It’s important for consumers to know, that purchasing these policies, significantly add to insurance costs.
Better Car Insurance
Only one insurance company is currently offering “Better Car Replacement” and here is how it works. Imagine you have a 2009 Toyota Corolla with 35,000 miles on it. If, and only if, your car is totaled, under this plan the insurance company will replace it with a 2010 model with 15,000 less miles on it. Your new car has to be in the same class and trim type as the car you wrecked. On the surface, this looks like a good deal--but is it? While the only insurance company writing this type of policy will not reveal the additional cost of the policy, agents for the company reveal that it adds up to 40% more. Moreover, in order for the policy to pay for “Better Car Replacement” your car not only must be a total wreck, but you also still have to pay your deductible.
Most insurers do offer, as an added feature in their auto policies, new car replacement cost rather than being compensated for the depreciated value of your car. However, most insurance companies charge more for this type of policy and after three years, if you total your car, you will only receive compensation for its depreciated value.
Age, condition and total mileage are all factors in determining the value of “Better Car Insurance," and since it is impossible to figure the exact cost of this type of insurance, is best to use the services of an independent insurance agent who works for you, rather than an insurance company.
New Car Replacement Insurance
Initial car depreciation is rapid, most say it begins the moment you drive the car off the dealership lot. Actually, your new car probably lost some value the moment you signed the sales contract.
Frankly, it doesn’t matter, the fact is if you get into a serious accident after you bought the car, there is the possibility that you owe more than the car is worth. If you purchased a new car that is worth $25,000, and put very little or even no money towards a down payment your car loses as much as $5000 during the first year of ownership. If you are unfortunate and have an accident that first year where the car is totaled you could owe as much as $22,500 for a car whose total worth is only $20,000. This is how much money you can expect from your insurance company. Certainly, the bank will expect the entire amount of the outstanding loan so the question becomes how can you protect yourself from this dilemma? Actually, you have two choices, you can purchase “new car replacement insurance" or “Gap Insurance" often also known as “loan/lease" coverage.
New Car Replacement Insurance
New car replacement insurance is considered by some insurance agents to be the better option. However, while it fully covers the cost of replacing your car without deducting depreciation. There are two things to consider when purchasing this type of insurance. First, it is only available for the first year of ownership. Second, it is more expensive than Gap Insurance.
While Gap Insurance may have subtle differences. The benefits of it are usually as follows:
Gap insurance pays the difference between the actual depreciated value of the car and the amount of money you owe on it. The following items are not covered;
Any overdue payments at the time of loss.
Any security deposit paid to the lessor.
Any financial penalties imposed by a lease agreement for high mileage, unusual wear and tear, or excessive use.
Extended warranties, credit life insurance and the like are also not covered.
Also not covered is any balance that you owed on a previous vehicle that was carried over when you bought or leased your new car.
Gap insurance or new car replacement insurance is fairly inexpensive, perhaps five or six extra dollars per month. Call Allen Harmon Insurance today at 269-441-5156 to learn more about this important coverage.