Avoid Misunderstandings

By Author: Marcus Stalder
Total Articles: 491
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It's a sad fact of life but the majority of people don't know exactly what they are buying when they pay for an insurance policy. In part, it's a language problem. The insurance industry believes in asking attorneys to write the policies using a particularly complicated form of language. Even with a dictionary to hand, it can be difficult to understand what it all means. The rest is all down to handed-down wisdom from family and friends. If you are lucky, what they tell you is largely correct. The rest is all one big misunderstanding. Let's take a not-uncommon event. You buy a new vehicle and a few weeks later, it's totaled. Here's the test question. Will your insurance policy cover the full retail price? Think for a moment. If you said, "no", congratulations, you know your insurance. Almost without exception, insurance policies cover the fair market value of the vehicle not the retail price you paid. This means you immediately lose any sales tax added when you bought it and there's always a small amount of depreciation even though you may only have had the vehicle for a few weeks. Then did you agree to a deductible? So many ...
... people today self-insure about $1,000. Put all this together and you can be seriously underwater on an auto loan - remember the front-loaded interest element that could have you owing more than the vehicle is worth. The only way of dealing with this problem is to buy gap coverage. You see, there's an answer, but you have to know what question to ask.

It's no better if you rented the vehicle rather than buying it. You have to read the policy to see whether it will replace the vehicle and pay off the lease. In most cases, you will need gap coverage to avoid the pain of picking up a big bill. Then, when the damage is slightly less than total, will the policy cover the cost of replacing parts? Well, again, insurers tend to think about depreciation and only pay the value of the parts damaged and not the retail cost of replacing them. This can work out very expensive if you drive a hybrid and need to replace those batteries. And what about the contents of your car? When you were in an accident, your Blackberry was totaled. This time most policies would exclude coverage. You make the claim for lost personal possessions on your homeowners policy.

So here's the real message of this article. Before you come online to get those all-important auto insurance quotes, make sure you know exactly what you want these insurers to include in their quotes. Think about whether you need gap cover or additional insurance if you have a rental. Think about whether you can shorten your commuting distance. This can earn a discount. Are you a member of a group or association that can earn a discount? Can you buy through your workplace? Auto insurance is complicated and it's set up so you are the loser unless you know the rules of the game. Get with it. Get the cover you need and the discounts to pay for it.