If you've been driving inexpensive used cars since you first got your license, buying that first brand-new car right off the lot can be an emotional moment. Unfortunately, the first month's premium on your new insurance policy can also be an emotional moment, for all the wrong reasons. If your car is leased or financed, you probably had to opt for full-spectrum collision and comprehensive coverage, as well as liability. Collision is easy to understand, but comprehensive coverage is more complicated.
Auto Coverage Basics
In most states, it's only mandatory to carry liability insurance on your car. However, liability coverage is primarily for the benefit of others. If you're paying on a new car, or own a high-value vehicle, you should also carry collision and comprehensive coverage to protect your investment. Collision, as the name suggests, provides replacement and repair costs if your car is in an accident. Comprehensive policies cover damage to your car from other causes.
Comprehensive coverage, sometimes called OTC for "other than collision," protects against a variety of other hazards. Although there are differences between policies, most protect against a range of common threats such as theft, vandalism, fire, falling objects, impact with animals or birds, and losses due to a major storm or other natural disaster. That last category might include flooding, destruction by a tornado or a car crushed by debris during a hurricane. Broken windshields are another common claim, often caused by stones from other vehicles' tires and similar road hazards.
If you opt for comprehensive coverage, or if it's a condition of your financing, you'll need to decide how large a deductible you're comfortable with. The deductible is how much of a given claim you'll pay out of pocket, like the co-pay on your health coverage. Choosing a higher deductible will reduce your premiums substantially, but you'll need to pay that amount out-of-pocket any time your car is damaged. It's an individual decision, but be sure you think it through. If you'd have difficulty paying the deductible, it might be too high.
Before you make a purchase decision, do some digging. Consult online quote services, and learn the range of prices for the coverage you want. Adjust your deductible up and down, and see what effect it has on price. Check the insurer's financial stability with ratings agencies such as Moody's, and deal with companies at the highest ratings. Check the insurer's history of claims and complaints with your state's insurance bureau, and the Better Business Bureau. If they have a history of problematic claims, or of dictating the use of cheaper aftermarket parts, you might wish to take your business elsewhere.
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