Car Insurance: Liability vs. Full Coverage

December 31, 2018 &• 5 min read by Taylor Cenicola Comments 0 Comments

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Most people need car insurance in order to drive legally. Car insurance has two main categories: liability and full coverage.

The two types of car insurance will cover you in different circumstances. They also come at two very different prices. This article will cover the difference between the two types of car insurance coverage.

Liability Coverage 

Liability car insurance is simply insurance that covers your liability. In other words, liability coverage will pay for any damage to other property or people. You must pay out of pocket for your own damage though.

Liability coverage has two other subcategories as well.

Bodily Injury

Bodily injury coverage is exactly what it sounds like. This type of coverage covers medical expenses for the other party in the event you have an accident. Without bodily injury protection, you have to pay their medical expenses.

You can choose the amount of bodily injury coverage that you want to purchase. Keep in mind that most states require drivers to have bodily injury liability insurance to legally drive a vehicle.

Property Damage

Property damage coverage is also exactly what it sounds like. This covers physical damage to property, which usually means a vehicle. It may cover other property damage too, but this depends on the coverage.

Full Coverage

Full coverage car insurance is likely what most people think of when they search for auto insurance. Full coverage insurance will cover your vehicle in the event of an accident.

It may also cover your vehicle for than just an accident too, but this depends on the terms of the policy. Some policies cover acts of God, which means you will have coverage for natural disasters and other natural events. Some examples include the following:

  • Falling objects
  • Flooding
  • Theft
  • Other unforeseen circumstances

Legally Required Coverage

The coverage required by law varies depending on the state. Forty-seven states require liability insurance. The amount varies depending on the state. However, if you use a loan to purchase to a vehicle, then your loan provider will require you to purchase full coverage insurance. Lenders do this so they can receive money if you have an accident, or the car gets damaged.

Do I Need Full Coverage?

The decision to get full coverage or liability coverage is one that depends on a wide range of factors and your risk tolerance. This section will cover all the factors you should consider before deciding what insurance to choose. However, this section will not recommend a policy type for you to purchase. Simply consider the factors listed below when shopping for auto insurance.

Things to Consider

The following are a few considerations to make when deciding the level of insurance coverage you will need:

Your Ability to Purchase a Vehicle: one of the most important things to consider is your ability to purchase a new vehicle in the event of an accident. Remember, if you total a vehicle, then you will likely need a rental car for a few days while you search for a new car.

Also, you might have money at the moment, but if you’re in a money crunch and wreck your car, then you might have a problem purchasing a vehicle. Make sure to keep your ability to purchase a new vehicle in mind before dropping full coverage.

Vehicle Resale Value: another important factor is the resale of your vehicle. For instance, if you have a junk car, then paying for full coverage might not be worth it. Your insurance company will most likely total the car in the event of even the most minor accident because the cost of repairs exceeds the total loss in value of the vehicle. The car’s value might not even exceed the deductible, which means you might have to pay out of pocket!

On the other hand, if you have a very expensive vehicle, then full coverage will mean your wallet will not hurt as much in the event you wreck your vehicle. Your insurance company may even pay to fix the vehicle rather than writing it off. This just depends on the cost of the repairs and the total value of your car.

Policy Cost: the price difference between a liability insurance policy and a full coverage insurance policy will vary depending on a lot of factors such as your driving record, type of vehicle, zip code, and even the color of your car. It will also depend on your credit score!

Despite all those factors, sometimes only a marginal difference in price between the two policies exists. If the price difference is small enough, then it might make more sense to purchase the comprehensive coverage.

Risk Tolerance: one of the more critical factors in deciding the type of coverage you want is your risk tolerance. Insurance, by definition, is merely paying to transfer your risk to another party. You will have to analyze all the factors and determine the amount of risk you want to have.

Loan: if you have a loan on your vehicle, then you will have to purchase full coverage insurance for the amount of your loan. You might have the ability to lower the total coverage to your loan amount though. You will have to contact your lender to check.

Final Thoughts

The difference between liability insurance and full coverage insurance is a very large one in a legal sense and a benefit sense. It can also make a financial difference. You want to know exactly what type of coverage you purchase before signing a contract.

Make sure to fully review the policy and understand exactly what it covers and does not cover. This understanding is especially important for a full coverage plan since they tend to be very large.

More importantly, understand exactly what type of insurance fits your needs. Sometimes purchasing a liability plan make more sense for you and sometimes purchasing full coverage makes more sense for you. The above checklist should help you find the right type of insurance for your needs.

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When Should you Drop Full Coverage on your Car?

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Full coverage car insurance covers you for most eventualities, but it is also expensive. You get what you pay for, and in this case, what you pay for is liability coverage, collision coverage, and comprehensive coverage.

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The question is, how essential are all of these coverage options and at what point do they become surplus to requirements?

Your insurance coverage is never set in stone. You can increase your coverage as needed and drop coverage when it is no longer needed. Staying on top of everything is just a case of making the right choices at the right time.

What is Full Coverage Auto Insurance?

There are several different types of auto insurance, each covering you for something different. The most important cover is something known as liability insurance, which spans bodily injury and property damage and covers you when you injure another driver or their property.

Liability insurance is required in nearly all states and there are minimum coverage limits in all of them. To make sure you are legal, you need to meet these limits. If you want additional liability cover to protect your personal assets, you can pay more and aim higher.

Collision coverage and comprehensive coverage are also required if you want full coverage car insurance. With collision insurance, you are protected against damage caused to your own property, whether that damage is the result of a road traffic accident or a collision with a wall or guardrail. As for comprehensive insurance, it protects you against vandalism, theft, weather damage, and most of the things not covered by collision insurance.

A full coverage policy should also include some personal injury protection (PIP) cover, whether in the form of medical payments coverage or personal injury protection coverage. Both are designed to help you with medical bills and other expenses resulting from personal injury, while PIP goes one step further and covers you for transportation costs, childcare expenses, and loss of work.

All of these options are part of a full coverage insurance policy. There are also many additional coverage options and add-ons, but these aren’t necessarily part of a full coverage policy and, in most cases, need to be added for an extra cost. These options include:

  • Uninsured/Underinsured Motorist Coverage: Minimum cover car insurance won’t protect you if you are hit by an uninsured driver. It has been estimated that as many as 13% of all drivers on US roads are not insured and, in some states, this climbs as high as 25%. With uninsured motorist coverage, you will be protected for such eventualities.
  • Gap Insurance: When you purchase a brand new car on finance, the lender will often insist on gap insurance. A car depreciates rapidly and if that depreciation drops the value below the balance of the loan, the lender stands to lose out. Gap insurance protects them against such an outcome and covers the difference to make sure they get their money back if the car is written off.
  • New Car Replacement: A new car replacement policy will do exactly what the name suggests, providing you with a new vehicle in the event your current one is written off. Depending on the insurer, there will be limits concerning the age of the vehicle and the number of miles on the clock.
  • Roadside Assistance: With roadside assistance, you will be covered for essential services if you break down by the side of the road. It typically includes tire changes, fuel delivery, towing, lost key replacement, and more.
  • Pet Injury: What happens when your pet gets injured during a road traffic accident? If you have pet insurance, they will be covered through that. If not, many providers will give you a pet injury insurance add-on.
  • Rental Car Reimbursement: If your car is stolen or getting repaired, rental car reimbursement coverage will help you to cover the costs of a short term rental. This insurance option is often fixed at a daily sum of between $50 and $100 and lasts for no more than 30 days.
  • Accidental Death: A type of life insurance that focuses on accidents, paying a death benefit to a beneficiary when a loved one dies in an accident.

When to Drop Full Car Insurance Coverage

The value of the car you drive, along with your insurance rates and your driving record, will impact whether or not you should drop full coverage auto insurance. Take a look at the following examples to discover when this might be the right option for you:

1. Your Insurance Premiums are too High

If your car insurance rates are higher than the size of a payout following an accident, it might be time to trim the fat. Insurance is a gamble, a form of protection. You pay a small sum of money in the knowledge that you’ll be covered for a large sum if something untoward happens. But if you reach a point when your premiums begin to exceed the potential payout, it’s no longer useful.

2. You Have an Old Car

The lower your car’s value, the less you need full coverage car insurance. If you’re driving around in a car that costs less than $1,000 and you’re paying $2,000 for the pleasure, you may as well be throwing your money down a wishing well.

In the event of an accident, you’ll have a deductible to pay and that deductible could be near the value of the car. In such cases, it will nearly always make more sense to stick with minimum insurance and to just scrap your car if anything serious happens.

3. You Have a Large Emergency Fund

An emergency fund is a sum of money you keep to one side to cover you for emergencies, including job issues, medical bills, broken appliances, and car troubles. If you have such a fund available, you have a few more options at your disposal and can consider dropping full coverage.

It will save you money in the long term and if anything happens in the short term, you still have options and won’t be completely financially destitute.

Bottom Line: When It’s Needed

While there are times when full coverage is unnecessary and excessive, there are also times when it is essential. If you have a new car, for instance, you should get all of the cover you can afford, otherwise, you could be seriously out of pocket following an accident or theft.

Source: pocketyourdollars.com

How to Get Cheap Car Insurance

How to Get Cheap Car Insurance – SmartAsset

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For many people, car insurance is a major expense category in the household budget. And because it’s against the law to drive without car insurance, it’s not a budget item that can be eliminated unless you’re willing to go car-free. That doesn’t mean, though, that you’re stuck paying sky-high rates. Here’s how to get cheap car insurance. 

Learn about personal loan rates. 

How Insurance Companies Set Car Insurance Rates

Like health insurance, car insurance comes with both premiums and deductibles. The premiums are what you pay the insurance company every month to maintain your coverage. The deductible is what you’ll pay when you start making claims, up to a certain annual cap of, say, $1,000.

It’s worth noting that most people who say they want cheap car insurance mean that they want car insurance with low monthly premiums. But, as with health insurance, there’s a risk to having a policy with low premiums and a high deductible. In the event of a serious accident, you’ll have to meet that deductible. So, one way to get lower premiums is to opt for a higher deductible, but this is only a safe strategy if you have enough liquidity to cover your deductible in the event of an accident.

When car insurance companies set insurance premium rates they take several factors into account. These include applicants’ age, gender and driving history, as well as the type of car the applicant drives and the driver’s state of residence. While you can’t change your age, there are other steps you can take to get favorable rates from car insurance companies.

Types of Coverage

Insurance companies charge more for comprehensive car insurance than they do for basic coverage. In most states you’re required to have liability insurance to cover any damage you do to another car or driver. The extent of that coverage requirement varies by state. In most states, you’re not required to have insurance to cover damage to your own car, or injuries you might suffer in an accident.

If you choose to add insurance coverage for yourself, you can opt for comprehensive coverage or collision coverage. Collision coverage, as the name indicates, covers damage from an accident with another car or an object, and in the event that your car flips. Comprehensive coverage covers things like theft, vandalism and natural disasters, too.

So, while you’ll almost definitely need to buy liability coverage to cover other drivers’ damages, you might not need to buy physical damage coverage for your own vehicle. It will depend on the terms of your lease if you’re leasing a car, and on your own assessment of the risks you face.

If you’re buying a valuable new car, you’ll probably want comprehensive coverage. If you’re paying cash for an older, used vehicle, you can probably get away with a more basic level of coverage. Whatever insurance option you choose for yourself, be sure to comply with state laws relating to liability insurance for any damage you might do to another driver. Once you have a car insurance policy, carry proof of insurance with you in your vehicle at all times. 

How to Get Cheap Car Insurance Rates

In the long term, one of the best ways to get cheap car insurance is to be a safe, responsible driver. The worst drivers have high rates because the insurance company needs financial compensation for the high likelihood that it will have to pay out in the event these drivers get in an accident. If you have a spotless driving record, keep it up. If you have some accidents or tickets in your past, they shouldn’t drive your rates up forever. If it’s been a few years since your last incident, you can try calling your insurance company and asking for a lower rate, using your recent, safe driving record as a bargaining chip.

Another way to get cheap car insurance is to use the same insurance company for more than one type of insurance and get a discount for your loyalty. For example, you can contact the insurance company that provides your homeowners insurance, life insurance or motorcycle insurance and ask if the company can give you a good deal on car insurance. If you have more than one car, you can bundle the insurance coverage on both vehicles.

Your credit score will also affect your car insurance rates, just like it affects the rates you’re offered when shopping for a mortgage. If your credit has improved since you last bought car insurance, you may be able to negotiate your way to cheaper car insurance. And if you pay your car insurance premiums and bills on time and in full, you’ll build up goodwill with your insurer and might qualify for promotional rates.

If you don’t drive very much during the year, you might get cheaper car insurance from a usage-based plan than you would from regular car insurance. Track your mileage before you start shopping for car insurance and see if your low mileage makes you eligible for a better deal.

If you’re under 25, you’ll pay higher premiums, all things being equal. That’s because insurance companies judge young drivers to be riskier drivers. You can get lower rates by joining your parents’ plan, or by using your good grades to get a discount on rates, if your insurance company offers that option. Once you reach your mid-20s there’s no reason to keep paying the high rates that insurance companies levy on young drivers. You can ask your insurance company to lower your rate, or shop around for insurance from another provider.

Finally, the type of car you drive can affect your car insurance rates. Big, powerful and flashy cars are more likely to trigger high car insurance rates because the insurance company assumes you’ll be more likely to speed in that kind of vehicle, and that the vehicle will be a target for theft. Vehicles with high repair costs (such as foreign-made cars) may be more expensive to cover, too. In some states, having a used car will mean lower rates because rates are affected by your car’s replacement value. But in other states, rates are based on vehicles’ safety features, so having an older car won’t necessarily help you get cheap car insurance. If your car has special safety and/or anti-theft features, you may qualify for cheaper car insurance on that basis.

Bottom Line

If you don’t have a vehicle or you’re thinking about getting a new (or used) car, it may be worth doing some research to find out which kinds of cars will get you the lowest car insurance rates. And if you’re paying a lot for car insurance now, you may be able to get cheaper coverage by negotiating your premiums or switching providers.

Photo credit: ©iStock.com/andresr, ©iStock.com/ipopba, ©iStock.com/kate_sept2004

Amelia Josephson Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia’s work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.
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How to Calculate Square Feet, Even If Your Home Is a Hexagon

If you’re selling your home or looking to buy, one concept that’s crucial to understand is how to calculate square feet. Having to do a square footage calculation may be giving you panicked thoughts about being late to homeroom, but  there’s a huge difference between a home that’s 400 square feet (tiny) and one that’s 4,000 (McMansion), and not just in terms of how much space you’ve got to stretch your legs.

A home’s square footage is a crucial element in determining the price of a home you’re trying to buy or sell, how much you’ll pay in taxes if you live there, and what kinds of renovations are possible in your future. Plus, a home’s square footage can be surprisingly subjective.

Since most people don’t have a square foot calculator in their back pocket, here’s what you need to know to ace any square footage calculations that crop up in your future.

Watch: How to Calculate Your Home’s Square Footage (It’s Surprisingly Tricky)

How to calculate square feet

You probably know how to calculate the square footage of a simple room without any funny shapes. Just break out your measuring tape—or a laser measure—to get its length and width. Multiply the width by the length and voila! You have the square footage. Say a room is 20 feet wide by 13 feet long, then 20 x 13 = 260 square feet.

How to calculate square feet
How to calculate square feet

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How to calculate the square footage of an entire home

While measuring a single room is no big deal, people get kind of intimidated when it comes to calculating the square footage of an entire home. While homes can initially seem “daunting to measure, they’re just a collection of small boxes,” says Mario Mazzamuto of SF Bay Appraisal. Don’t sweat it if a room has an outcropping. Simply break that area down into a smaller box, and measure each box individually. Add up each box’s square footage to get the room’s total area. So if your living room, bedroom, bathroom, and hallway are  500, 400, 200, and 100 square feet respectively, that means the total is 500 + 400 + 200 + 100 = 1,200 square feet total.

Even complicated floor plans are just a series of rectangles you can add up.
Even complicated floor plans are just a series of rectangles you can add up.

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If you have a round kitchen and a triangular rumpus room, fear not. Just check out vCalc’s handy calculator that will tell you how to calculate square feet no matter what polygon’s thrown your way. Once you choose a shape, the calculator will prompt you for the measurements needed to compute square footage.

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Take the square foot calculation with a grain of salt

Now that you know how to calculate the square footage of a home, it’s time to bust your bubble with a big caveat: A square footage calculation is surprisingly subjective based on who’s doing the measuring. For instance, you measured the actual, livable square footage between the interior walls. But many architects use their own square foot calculation method, measuring the square footage from the exterior walls.

This explains why there are often discrepancies between your square foot calculations and those of a real estate agent, builder, or other sources. (looking for an agent? Here’s how to find a real estate agent in your area.)

“Many MLS services require a listing’s square footage to come from a specific source,” says Robin Kencel of Connecticut’s Stevens Kencel Group. So while you can make your own estimate, you may need to hire a certain professional to come up with a number that can be used on your listing; check with your Realtor or town’s building department to determine who that is.

As a general rule, “the square footage extends through the Sheetrock and framing to the exterior of the wall,” says Mazzamuto. Generally, to do the same for your measurements, add 6 inches per measurement, he says.

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Watch: The Features That Help a Home Sell Fastest

Looking to sell your home? Claim your home and get info on your home’s value.

Source: realtor.com

What You Need to Know About Virtual Open Houses in the COVID-19 Era

In 2019, the real estate industry celebrated 100 years of open houses. Over the course of those decades that real estate professionals have been hosting open houses, they have evolved, and in some cases, disappeared. Since the arrival of the COVID-19 crisis, the real estate industry has scrambled to evolve once again. That includes if, and how, open houses are conducted. At the guidance of the National Association of Realtors, open houses during this time should look different and those marketing properties have found new ways to make touring the home virtually accessible.

The traditional open house is what we’re all widely familiar with. It’s hosted by a real estate agent and potential home buyers are allowed to come and go while they tour the property. However, since the COVID-19 outbreak, the National Association of Realtors has advised suspending in-person open houses. While this is simply a guidance to brokers, many state and local governments have also enacted “shelter-in-place” orders which deem in-person open houses not permissible.

Virtual Open Houses: A Quick Guide

What is the Difference Between a Virtual Tour and a Virtual Open House?

Many programs exist to provide 24/7, 360-degree virtual tours to buyers. While a virtual tour is the first step any prospective homebuyers should take, if interest is there for that property, a guided tour would be the next step. The difference between virtual tours and virtual open houses are that a real estate professional will guide you through the open house while virtual tours are completed on your own. Virtual tours can be completed from the listing page of a property without any prior scheduling. Virtual tour software goes beyond photography and provides 3-D, walking virtual tours of a property. This allows potential buyers to feel like they are literally standing in the middle of the room touring the home, but without having to leave the comfort of their own home.

Young woman sitting on bed in bedroom and having video call via laptopYoung woman sitting on bed in bedroom and having video call via laptop

Virtual open houses can help provide more insight to potential homebuyers. They’re usually scheduled after you took a virtual tour or looked through the listing’s photos and felt interested enough to see the property in all its glory. Buyers can schedule a virtual open house with an agent directly from the Homes.com listing page. As in-person open houses and home tours are suspended, the prevalence of virtual tours will be of paramount importance.

Having these services are a crucial part of an effective real estate marketing plan during this time, so if you’re looking to sell, make sure you can find an agent that has the capability to utilize virtual tours and open houses.

Questions to Ask, or Be Prepared for, During a Virtual Open House

While your agent helps conduct the virtual open house, it’s always good to be prepared in advance with a list of questions for each property you’re going to see (virtually, that is). Start gathering your list after, or during, the virtual tour of that property. You can find a list of questions to start here, but also take into consideration that you’ll want to know the following:

  1. What’s the neighborhood like? Is it safe and walkable? Are there kids in the area and is it in a good school zone? These questions are important to ask local real estate agents, so make sure you’re working with someone who is familiar with the area you’re shopping around in.
  2. Are the current owners living in the home? Is it move-in ready? If the current owners are still living on the property, get an idea for the length of time to help set a basis for when you’ll be moving.
  3. Is the home in a flood zone? If so, what does the cost of flood insurance look like? If you’re in a coastal city or living near a body of water, these questions are pertinent to ask during the virtual open house.

Looking to Sell? Try These Alternatives in Addition to Virtual Open Houses

Despite a pandemic, many homeowners still need to sell their home which requires creativity on the part of the listing agent to market the home effectively and safely. By hiring an experienced and innovative real estate professional to the list a home, homebuyers can be rest assured that Realtors are working to reinvent the wheel and best serve their clients through a host of options.

Professional Photography

While hiring a list agent that understands the value of professional photography over cell phone list photos has always been crucial, the quality of digital images is even more important as more buyers will be searching on sites like Homes.com. By incorporating high resolution professional photography into the marketing plan, homes have statistically sold 32% faster.

A kitchen in a modern farmhouse.A kitchen in a modern farmhouse.

Drone Video

The rule of real estate is location, location, location. Even with the best professional photography and 3D tours of a home, many of these options lack the ability to properly view the location of the home. By incorporating drone images and video into a marketing plan, home buyers can evaluate surrounding conditions, proximity, as well as other factors. In fact, homes with aerial & drone photography sold statistically 68% faster than listings without aerial images.

As Realtors work to promote social distancing and safe practices, they have not slowed in their efforts to effectively assist buyers and sellers. If anything, real estate professionals are working harder than ever to reinvent the wheel and evolve in an ever-changing climate. While open houses and real estate marketing may look different than before, the real estate industry has incorporated multiple tools that adhere to social distancing guidelines without sacrificing the exposure of available properties.


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Jennifer is an accidental house flipper turned Realtor and real estate investor. She is the voice behind the blog, Bachelorette Pad Flip. Over five years, Jennifer paid off $70,000 in student loan debt through real estate investing. She’s passionate about the power of real estate. She’s also passionate about southern cooking, good architecture, and thrift store treasure hunting. She calls Northwest Arkansas home with her cat Smokey, but she has a deep love affair with South Florida.

Source: homes.com

5 States Where Car Insurance Rates Are Rising in 2021

Man shocked by high insurance rates
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The new year may bring higher insurance bills for drivers in five states.

Those states are the only places in the nation where typical car insurance rates will rise in 2021, according to ValuePenguin’s “State of Auto Insurance in 2021” report.

The report found that across the nation, the average rate will fall by 1.7% this year. That marks the first time in more than a decade that auto insurance costs have declined.

In some states, the typical fall from 2020 to 2021 is especially significant. The biggest declines are in Arkansas (4.8%), Ohio (4.3%) and Michigan (4.3%).

However, a handful of states will see typical rates rise in 2021, compared with 2020. Those increases are:

  1. New York: 1.2%
  2. Indiana: 1.1%
  3. Florida: 0.5%
  4. Massachusetts: 0.4%
  5. Rhode Island: 0.1%

In compiling its findings, ValuePenguin analyzed 15 million quotes from ZIP codes from coast to coast.

ValuePenguin notes that falling car insurance rates are the exception rather than the rule in recent years. Nationwide, premiums have jumped by 106% since 2011.

Other findings from the ValuePenguin research include:

  • At a typical annual cost of $7,406, Michigan car insurance rates are 353% higher than the national average. Florida’s rate of $2,795 and Rhode Island’s rate of $2,482 are 71% and 52% higher than the national average, respectively.
  • At the other extreme, drivers in Maine ($865), North Carolina ($976) and Indiana ($987) pay the lowest annual rates in the country. These rates are around 40% lower than the national average.
  • It pays to drive carefully, the research shows. A traffic violation is likely to result in an average premium increase of 117%, ValuePenguin says.

Cutting your car insurance costs

One way to cut your car insurance costs is to shop around. You can do so by gathering quotes from multiple insurance companies on your own, or by using a service like The Zebra or Gabi. Such services gather quotes for you so you can pick the best rate.

Money Talks News founder Stacy Johnson tried Gabi and found it worth his time. He wrote in “How I Found $546 in Car Insurance Savings in Under 10 Minutes“:

“I’m currently insuring two cars with USAA at a combined cost of about $2,400. Gabi said Progressive could give me the same coverage for 22% less, saving me $546. All I had to do is give Gabi the go-ahead and my driver’s license number. Then, Gabi would confirm the rate and even do the switching for me.”

To learn more about shopping for car insurance, read:

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

3 Things Rideshare and Delivery Drivers Should Know About Car Insurance

December 9, 2020 &• 4 min read by Alice Stevens Comments 0 Comments

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Disclaimer

Food delivery and ridesharing are great ways to earn extra income. The market for food delivery has increased as restaurants have had to adapt to COVID-19 precautions, and just about everyone could use some extra income as we continue to navigate life during a pandemic.

If you’re considering joining a food delivery or rideshare company as a driver, you need to be sure you have the right insurance coverage. If you’re in an accident, you want to be able to replace your car or fix it so you can keep working.

As you review your car insurance, here’s what you need to know:

You have a coverage gap

Rideshare and delivery companies offer some insurance coverage while you are on your way to pick up passengers or food and while you are transporting passengers or food. However, when you have your app on and are waiting to accept a delivery, neither your personal car insurance or your rideshare company offers coverage. 

If you are in an accident while you’re waiting to accept a job, you won’t have any insurance coverage. You’ll be on your own for covering the resulting costs and may have to deal with other issues.

Look for an insurance policy to cover the gaps

To protect yourself and cover this gap, you’ll want to purchase an additional policy or a policy that adds rideshare coverage to your personal policy. These policies and riders are commonly called rideshare insurance. However, they are commercial auto coverage policies that offer insurance coverage when you use your car for business.

Choose a reliable and highly rated insurer for your policy. Check the insurer’s financial strength to gauge the company’s financial stability and ability to make claims payments. Reading customer reviews can give you a sense of the customer experience with the insurer, which can also help you find a good company.

As you shop for policies or riders that can be added to your personal auto coverage, you can use companies like Policygenius to compare policies across multiple insurers. The ability to compare quotes and policies quickly and efficiently makes it easier to find a good deal. This can also be beneficial if you’re also shopping for personal auto insurance coverage.

Before you buy a policy, understand how it works:

  • What is the deductible? This is the amount you’ll pay before the insurer starts to pay for covered damage.
  • How much is the premium? This is the monthly fee you pay for insurance coverage.
  • Does the policy have a benefit maximum? This is the most an insurer will pay. Once this limit is reached, the rest of the expenses are your responsibility.
  • What coverage is offered—collision, liability, comprehensive, medical payments, income loss, etc.? Car insurance policies are highly customizable because you can choose how much and what kind of coverage to buy.

Car insurance requirements vary by state. Liability coverage for property damage and physical injury is most commonly required. Some states require additional coverage for uninsured or underinsured motorist insurance or Personal Injury Protection (PIP). PIP coverage offers coverage for lost wages according to your policy’s terms.

Making a claim for lost wages will depend on whether your state is an at-fault or no-fault state. You may need to file a claim with the other driver’s insurance, use your uninsured or underinsured motorist insurance, or PIP coverage.

Keep in mind that you typically have to have the same level of coverage on your personal insurance as you do with your rideshare coverage. Knowing the cost and kind of protection offered by your policy will help you find one and choose coverage that will meet your needs.

Communicate with your personal car insurance carrier

If you’re driving for hire and do not communicate that to your car insurance company, you could lose your coverage. Insurers can end your policy and no longer offer you coverage if you don’t communicate clearly about your car usage. 

While communicating and getting commercial auto coverage added to your policy can cost more, you’ll be better protected if you have the right coverage and won’t have to worry about your insurer rescinding the policy. Communicating with your car insurance company about how you’re using your car will ensure that you have the coverage you need, which will give you peace of mind and benefit you in the long run.

Set yourself up for success

Before you sign up with a food delivery or rideshare service, understand what coverage your company offers and where the coverage gap is. This will help you know what to look for as you evaluate rideshare or commercial auto insurance policies.

If you’re happy with your current auto insurance provider, start by asking them what they offer. You can also compare what your current insurer provides with what other insurers are offering to check that your company is competitive.

Purchasing insurance to cover the gap will give you peace of mind and financial protection if you’re in an accident. It will also protect your car, which is essential to your ability to work as a rideshare or food delivery driver.


Sign up now.

Source: credit.com

What Is Gap Insurance, and What Does It Cover?

What Is Gap Insurance, and What Does It Cover? – SmartAsset

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When purchasing or leasing a new car, you have several insurance coverage options. When selecting coverage, you will likely know if you want to have collision coverage or not, but will you know what gap insurance and whether to select that option? If you are driving your owned vehicle or a leased one, and it is totaled, your collision coverage insurance will cover your vehicle’s cash value. The coverage will help you to purchase a another car. However, what if you owe more on your car than it’s worth? That is where gap insurance comes in. Here’s what you need to know about this type of coverage.

What is Gap Insurance?

Gap insurance protects you from not having enough money to pay off your car loan or lease if its value has depreciated, and you owe more on your car than it is worth. It is optional insurance coverage and is used in addition to collision or comprehensive coverage. It helps you pay off an auto loan if a car has been totaled or stolen, and you owe more than its worth. Gap insurance might also be known as loan or lease gap coverage, and it is only available if you are the first owner or leaseholder on a new vehicle.

Some lenders require individuals to have gap insurance. In addition to collision and comprehensive coverage, gap insurance helps prevent owners and leasers from owing money on a car that no longer exists and protects lenders from not getting paid by a person in financial distress.

How Gap Insurance Works

If you buy or lease a new car, you may owe more on the vehicle than it is worth because of depreciation. For example, let’s say you purchase a new car for $35,000. However, a year later, the car has depreciated and is only worth $25,000, and you owe $30,000 on it. Then, you total the car. Comprehensive insurance coverage would give you $25,000, but you would still owe $5,000 on the vehicle. Gap insurance would cover the $5,000 still owed.

Without gap insurance, you would have had to pay $5,000 out-of-pocket to settle the auto loan. With gap insurance, you did not have to pay anything out of pocket and were likely to purchase a new car with financing.

What Gap Insurance Covers

Gap insurance covers several things and is meant to complement collision or comprehensive insurance. Gap insurance covers:

  • Theft. If a car is stolen and unrecovered, gap insurance may cover theft.
  • Negative equity. If there is a gap between a car’s value and the amount a person owes, gap insurance will cover the difference if a car is totaled.

Gap insurance also covers leased cars. When you drive a new, leased car off the lot, it depreciates. Therefore, the amount you owe on the lease is always more than the car is worth. If you total a leased car, you’re responsible for the fair market value of the vehicle. If you lease, you can purchase gap coverage part way through your lease term, although many dealerships require both comprehensive and collision coverage and strongly recommend gap coverage.

What Gap Insurance Doesn’t Cover

Gap insurance is designed to be complementary, which means that it does not cover everything. Gap insurance does not cover:

  • Repairs. If a car needs repairs, gap insurance will not cover them.
  • Carry-over balance. If a person had a balance on a previous car loan rolled into a new car loan, gap insurance would not cover the rolled-over portion.
  • Rental cars. If a totaled car is in the shop, gap insurance will not cover a rental car’s cost.
  • Extended warranties. If a person chose to add an extended warranty to an auto loan, gap insurance would not cover any extended warranty payments.
  • Deductibles. If someone leases a car, their insurance deductibles are not usually covered by gap insurance. Some policies have a deductible option, so it is wise to check with a provider before signing a gap insurance policy.

Reasons to Consider Gap Insurance

There are several situations you should consider gap insurance. The first is if you made less than a 20% down payment on a vehicle. If you make less than a 20% down payment, it is likely that you do not have cash reserves to cover them in case of an emergency and that they will be “upside down” on the car payments.

Additionally, if an auto loan term is 60 months or longer, a person should consider gap insurance to ensure that he or she is not stuck with car payments if the vehicle is totaled.

Finally, if you’re leasing a car, you should consider gap insurance. Although many contracts require it, the vehicle costs more than it’s worth in almost every situation when you lease.

Is a Gap Insurance Worth It?

Gap insurance keeps the amount that a person owes after buying a car from increasing in case of an emergency. Therefore, if someone does not have debt on his car, there’s no need for gap insurance. Additionally, if a person owes less on his car than it is worth, there’s also no need for gap insurance. Finally, if a person does owe more on a vehicle than it is worth, he may still choose to put the money that would be spent on gap insurance every month toward the principal of his auto loan.

If a person owes more on his car than it is worth and would be financially debilitated by having to pay the remainder of his car payments if his vehicle was totaled or stolen, then gap insurance might be a saving grace.

If the extra cost of gap insurance strains your budget then consider ways to keep your vehicle insurance costs down without skipping gap insurance.

The Takeaway

Gap insurance covers the amount that a person would still owe on a vehicle after it is stolen or totaled, and after comprehensive insurance pays out. It prevents people from continuing to owe on a car that no longer exists. While it doesn’t make sense for everyone to purchase gap insurance, it is often smart for people who have expensive vehicles that are worth far more than a person owes. It is also something to consider when you are leasing a vehicle.

Tips for Reducing Insurance Costs

  • If you need a little additional help weighing your insurance options, you might want to consider working with an expert. Finding the right financial advisor that fits your needs can be simple. SmartAsset’s free tool will match you with financial advisors in your area in five minutes. If you’re ready to learn about local advisors to help you achieve your financial goals, get started now.
  • You may want to consider all the insurance options available that are suitable for your unique situation. By doing so, you save money. A free comprehensive budget calculator can help you understand which option is best.

Photo credit: ©iStock.com/ljubaphoto, ©iStock.com/Kileman, ©iStock.com/gustavofrazao

Ashley Chorpenning Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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How Gaps in Coverage Affect Auto Insurance Rates

  • Car Insurance

A lapse in coverage increases your risk and your rates. It may be harder to find suitable and affordable car insurance and may mean that you need to make some sacrifices in order to keep those insurance premiums at an affordable level. But it’s not a complete disaster and is far from the worst thing you can have on your record.

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What is a Gap in Coverage?

A lapse or gap in coverage is a period in which you were not insured. You owned a car during this period but you didn’t meet the state minimum insurance requirements.

In some cases, a gap in coverage can be the result of negligence on your part. You may have allowed your insurance policy to lapse without purchasing a new one or it may have been canceled because you failed to meet your payment obligations.

A lapse in auto insurance coverage can also occur when you are deployed, sent to prison or because you simply didn’t drive during that period. 

If you fall into the first group, your insurer will notify the Department of Motor Vehicles (DMV), telling them that your car insurance policy has lapsed and you are no longer insured. This will expose you to fines and a host of other problems (see our guide on the penalties imposed on uninsured drivers).

As for members of the military, they can suspend their car insurance coverage when they are on active duty, thus avoiding any rate increases and other problems. The same applies to students studying abroad, although in their case, they will need to contact their DMV first.

What Happens Following a Car Insurance Lapse?

Many states require you to have continuous insurance, which means your auto insurance policy has not lapsed for any period of time. As soon as it lapses, your license and registration may be revoked, and you will need to pay a fee to have these reinstated. These fees, as they apply in each state, are listed below, but it’s worth noting that you may also be hit with additional court fees and fines if you are found to be driving without insurance:

  • Alabama: Insurance Lapse Fee = $200 (first offense); $400 (second offense)
  • Alaska: Insurance Lapse Fee = $100
  • Arizona: Insurance Lapse Fee = $50
  • Arkansas: Insurance Lapse Fee = $50
  • California: Insurance Lapse Fee = $14
  • Colorado: Insurance Lapse Fee = $40
  • Connecticut: Insurance Lapse Fee = $200
  • Delaware: Insurance Lapse Fee = $100 + $5 a day
  • D.C.: Insurance Lapse Fee = $150 + $7 a day
  • Florida: Insurance Lapse Fee = $150 (first offense); $250 (second offense); $500 (third offense)
  • Georgia: Insurance Lapse Fee = $25
  • Hawaii: Insurance Lapse Fee = $20+
  • Idaho: Insurance Lapse Fee = $85
  • Illinois: Insurance Lapse Fee = $100
  • Indiana: Insurance Lapse Fee = $150 (first offense); $225 (second offense); $300 (third offense)
  • Iowa: Insurance Lapse Fee = N/A
  • Kansas: Insurance Lapse Fee = $100 (first offense); $300 (second offense)
  • Kentucky: Insurance Lapse Fee = $40
  • Louisiana: Insurance Lapse Fee = $125 to $525 (depending on length of gap)
  • Maine: Insurance Lapse Fee = Up to $115
  • Maryland: Insurance Lapse Fee = $150 + $7 per day
  • Massachusetts: Insurance Lapse Fee = $500
  • Michigan: Insurance Lapse Fee = $75
  • Minnesota: Insurance Lapse Fee = $30
  • Mississippi: Insurance Lapse Fee = $30
  • Missouri: Insurance Lapse Fee = $20 (first offense); $200 (second offense); $400 (third offense)
  • Montana: Insurance Lapse Fee = N/A
  • Nebraska: Insurance Lapse Fee = $500
  • Nevada: Insurance Lapse Fee = $251 to $1,000 (depending on length of gap)
  • New Hampshire: Insurance Lapse Fee = N/A
  • New Jersey: Insurance Lapse Fee = $100
  • New Mexico: Insurance Lapse Fee = $30
  • New York: Insurance Lapse Fee = $8 to $12 per day
  • North Carolina: Insurance Lapse Fee = $50 (first offense); $100 (second offense); $150 (third offense)
  • North Dakota: Insurance Lapse Fee = N/A
  • Ohio: Insurance Lapse Fee = $160 (first offense); $360 (second offense); $660 (third offense)
  • Oklahoma: Insurance Lapse Fee = $400
  • Oregon: Insurance Lapse Fee = $75
  • Pennsylvania: Insurance Lapse Fee = $88
  • Rhode Island: Insurance Lapse Fee = $30 to $50
  • South Carolina: Insurance Lapse Fee = $550 + $5 per day
  • South Dakota: Insurance Lapse Fee = $78 to $228
  • Tennessee: Insurance Lapse Fee = $115
  • Texas: Insurance Lapse Fee = $100
  • Utah: Insurance Lapse Fee = $100
  • Vermont: Insurance Lapse Fee = $71
  • Virginia: Insurance Lapse Fee = $145
  • Washington: Insurance Lapse Fee = $75
  • West Virginia: Insurance Lapse Fee = $100
  • Wisconsin: Insurance Lapse Fee = $60
  • Wyoming: Insurance Lapse Fee = $50

Will My Car Insurance Rates Increase Following a Gap in Coverage?

In addition to the fines mentioned above, you can expect your auto insurance quotes to be a little higher than before, although this all depends on how long the gap in coverage was.

If it was less than 4 weeks, the rate increase may amount to a few extra dollars a month. If it was longer than 4 weeks, you could find yourself paying 20% to 50% more, depending on your chosen car insurance company. 

The exact rate of increase will depend on the state, high-risk status, driving record, car insurance discounts, and age of the driver. Insurance is all about measuring risk and probable claims, and an insurance company will look at everything from marital status to DUI convictions when measuring your risk and underwriting your new policy.

Bottom Line: Getting Cheap Car Insurance Quotes After a Lapse

In our research, we found that Progressive, Esurance, and State Farm offered lower rates than GEICO, even though GEICO typically tops the charts when it comes to insurance costs. You should also get much lower auto insurance rates with providers like USAA, providing you qualify.

To save even more, maintain a high credit score, aim for those good driver discounts, and try to secure bundling discounts, which are provided when you combine multiple different insurance products, such as homeowners insurance and car insurance.

The car you drive is also key. A new car will generally lead to much higher rates than a car that is a few years old, as it will be more expensive to repair and replace.

However, a car that is a few decades old will cost more to insurance than one that is a few years old, as it may lack the safety features and anti-theft features needed to keep rates low.

Source: pocketyourdollars.com