Owned, financed or leased? It affects your car insurance needs

Written by Penny Gusner on February 27, 2014 & Posted in Auto Insurance

Whether it's a new or previously owned vehicle that you're looking to buy, you need to take into account both the cost of the vehicle and the cost of car insurance.

One major factor in what auto insurance coverages you'll need, which in turn affects the rates you'll pay, is how you pay for your vehicle

Buying the car outright. If you've got enough cash to buy a car, then you're able to make your own decisions about what car insurance coverage to place on a car. Do you want minimum state requirements or more?

Typically, if you have assets to protect, such as a house or savings, you'll want to choose higher liability limits. State limits are just enough for you to be legal. Raising your car insurance liability limits will give you better protection and doesn't cost that much more.

Drivers who buy a brand-new car or late-model used vehicle normally will also purchase physical damage coverages of collision and comprehensive.

Collision covers your car if it hits, or is hit by, another vehicle or object, minus your deductible. Comprehensive covers a vehicle for things that are "other than collision," such as theft, fire, and damage from natural occurrences.

Without collision and comprehensive on your vehicle, you'll be left to pay personally for repair costs of your vehicle if no other party is found legally liable for the accident.

Financing the car. Of course, you still need to carry at least state minimum auto insurance, but the financial institution you borrowed money from usually will require you also carry collision and comprehensive.

The car is the lienholder's asset, so your finance company can require you protect the car with physical damage coverages. It can also instruct you to choose deductibles under a certain amount, such as $1,000 or less.

It is still up to you to determine if you want liability limits above minimum state requirements.

Leasing a car. When you lease a car you, the leasing company will mandate that you purchase higher liability limits.

The leasing company's name is on the title of the vehicle, so it wants your liability limits to be higher and less likely to be exceeded. For this reason, leasing companies typically require you buy bodily injury liability limits of $100,000 per person and $300,000 per accident and $50,000 for property damage liability (100/300/50).

Like a finance company, a leasing company will also demand you purchase collision and comprehensive and may limit the deductible amount you can choose.

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