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Insurance Coverages to Consider When Buying a New Car

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Buying a new car is an exciting but stressful experience. It's best to be prepared before you even leave home to start your journey from one dealership lot to another. Beside figuring out which car you want and if it is going to fit into your budget, you must decide which additional insurance options you want. The cost of the car can increase dramatically when you add on the interest charges and so many optional benefits that can be financed into the payments. Let's look at these options.

Credit Life Insurance

 

A car dealer can sell you a policy that pays off the loan should you or the co-borrower die during the length of the contract. You must consider carefully the cost of this type of insurance as it may be very expensive compared to what you could buy on an individual basis. If you already have life insurance, you may not need this coverage. You may be able to buy the same type of coverage directly from a life insurance agent or broker for much less money and for a lot larger amount of coverage. If you pay off the financing contract early or your car is totaled or stolen before paying it off, you may be entitled to a partial refund of the premium, depending on how long you have left. Now, credit life insurance is fantastic for the uninsurable. The price is set and there are generally no medical questions. You qualify simply be virtue of taking out a car loan.

Credit Disability Insurance

This is very similar to credit life insurance. You or your car borrower would have your payments reduced or eliminated completely during the period of your financing contract for as long as you remain disabled. A doctor must determine and report whether your disability is partial or full. Again, the premium you paid might be partially refunded if you pay the loan off early. Be sure and as for the refund!

Loan Balance Pay Off or Gap Insurance

There are lots of names for this type of insurance and the coverages vary. Consumers discovered long ago that the car drops in value quickly after driving away from the dealer's lot and that they owe more than the automobile is worth. Even worse, they get in an accident, totaling the car and realize that the insurance company is only obligated to pay for the actual value of the vehicle at the time of loss. The buyer is often left with a sizable balance still owing the bank of finance company. How can this happen? It's often referred to as being "upside-down" in your auto loan.

Gap insurance tries to remedy this problem by attempting to pay the difference between what you still owe on the contract and what the insurance company pays after a total loss. Be careful! It does not guarantee to pay off the loan to the penny. No! The gap insurance company will, just like the auto insurance company, determine what it thinks is the value of the car at the time of loss and factor in how many miles you drove during the time of ownership compared to the "average". You may still owe the finance company money even after the gap insurance has been paid and all the other coverages and warranties you purchased have been refunded. How can this happen? You either paid too much for the car to start with or you drove too many miles relative to the average. The resulting balance must be paid to the financing institution. Many times they will require it to be paid immediately and in full as there remains no collateral to secure the loan. Most will allow a short period of payments to satisfy the loan contract.

Warranties

This is where you have to really pay attention. Warranties from the factory come standard on all brand new cars. You might be entitled to some residual warranty on a used car if the time or miles specified in the contract have not expired. But, be careful. Be sure the warranty has not been voided by the previous owner for not having met the maintenance requirements specified in the contract. Yes, a warranty contract requires you to do certain maintenance work during the life of the agreement. If you don't change the oil for 50,000 miles, your contract won't pay. Usually, you have to change the oil every 3,000 to 5,000 miles. And you have to keep records. Whether you do the oil changes yourself or keep receipts of the oil and filters. You may be asked to provide copies and proof the work was done should something go wrong with your car.

Secondary or aftermarket warranties are available for purchase on just about any car that has less than say 70,000 to 100,000 miles. The cost depends on how many years and miles you want covered. Take care not to buy a warranty the runs concurrently with any existing factory warranty. There's no sense in duplicating the coverage unless the secondary warranty covers items beyond what the factory pays for.

Not all warranties are created equal! Some only cover the drive train. And, each warranty contract defines drive train differently! Others will go beyond the drive train and cover you for what they call "bumper-to-bumper". This implies that every single thing, including the windshield wiper motors, is covered. You should spend most of your time reading the "what's excluded" section of the contract.

Pay attention to the deductible as well. Can you afford $1,000 out of your pocket at the time your car breaks down? Yes, warranties have deductibles. The dealer should let you spend some time reading the warranty contract before you buy.

In Conclusion

There may be other service contracts and roadside assistance programs that are available for purchase at the time you close the deal. Be judicious in your decisions about what you buy and what you don't. Don't let the salesman, manager or finance manager pressure you into what you don't need or want. Sometimes consumers drive off with a car that they've financed for double its value just because of all the extras that were thrown on the cost. Also, don't let a dealer make you think that you must buy your auto insurance from them in order to qualify for their auto loan.

Oregon law says you must provide proof that the car you have just purchased has insurance before you drive off the lot. If you already have liability insurance and you paid cash for the car, your auto insurance automatically transfers to the newly purchased car. You just have to show your identification card on the car you have insured already. Your policy automatically covers you for 'newly acquired' automobiles. If you don't have full coverage on at least one of your vehicles and you have just financed a car, then yes, you must modify your policy and place the new car on it with full coverage in order to take it off the lot. Again, the dealer may try to push another policy on you to be able to close the deal. Call your agent or sign all the papers and wait until the next day to put the car on the policy. Don't be too eager to take the car home. Doubling your insurance coverage is costly and may put you in a legal dilemma if you get into an accident with two insurance policies covering the same car. Check with your insurance company. Some allow you to go online or call the company twenty-four hours a day to make a change to your policy.

Often in the car buying process you have a long time to wait while the salesmen goes and discusses the deal with his or her manager and finance manager. Ask to look at a copy of the insurance and warranty contracts. You can spend this time reading the contracts so that you are well informed at the time you will have to sign the paperwork and buy them. You could save yourself thousands. Don't let them make you think that you must buy any of the above as a condition of buying and financing the car. You might even consider going to your own bank or credit union before you even head out car shopping. Getting pre-approved at a certain interest rate and value can save you thousands.

Being prepared before you leave the house puts that car buying power in your hands, not the dealers'! Call your insurance agent with the vehicle identification numbers of the cars you have narrowed down to get an estimate of how making the change to your policy might affect the price. It's better to know before you buy the car how your insurance policy will be affected than to be surprised later. Each car has its insurance cost and the year, make and models vary widely.

Good luck! And happy car shopping.

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