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Overview
Buying a new vehicle can be an exciting experience, but buying auto insurance for a new car rarely is. Car insurance is expensive, and the more coverage one buys, the more it costs, making it tempting to skimp on coverage. It is wise not to be too cheap when buying insurance, however, or you may find yourself with a wrecked car and with no money to fix it or buy a new one.
Liability Coverage is Required
The law requires that vehicles are covered by a base level of liability insurance. Liability insurance protects the driver against damages that he causes while driving their car. The amount of required coverage varies from state to state, but it is often a good idea to get at least $100,000 worth of liability coverage, since many luxury cars cost close to that amount. If you were to crash into a BMW and only had $50,000 of coverage, your insurance might not be able to pay for the full value of the damage, and you could be stuck having to foot the bill.
Collision Coverage
While not required by law, collision coverage is an important component of many auto insurance plans. Collision coverage protects a vehicle against damage caused while driving that is the driver's fault. So if you were to crash into a tree, collision coverage would pay for the damage. Whether collision coverage is needed depends on the car and the driver: If one has the ability to pay for the damage without insurance, they might not need it, but if one is driving a new, expensive car, it is usually wise to get collision coverage.
Comprehensive Coverage
Comprehensive coverage is a portion of auto insurance that protects a car against accidents other than those incurred from colliding with other man-made objects and obstructions while driving. Random events like fires, floods and hurricanes can be covered by comprehensive coverage. Like collision coverage, comprehensive is an optional insurance, but for many people driving new or expensive vehicles, it might be needed to protect the value of their investment. If you could not bear the loss of your vehicle due to a random event, comprehensive coverage should be purchased.
Benefiting From More Liability Coverage
For those who have many assets, more liability coverage may be needed to protect from potential lawsuits. If a wealthy person were to crash into someone and cause that person great injury, the injured person could potentially sue and attempt to collect damages. Since the person incurring the injury will probably be aware that the rich person has deep pockets, it will make him more likely to come after the wealthy person and seek a large monetary settlement. Extra liability coverage can protect against such malicious lawsuits.
Deductibles
Another consideration when deciding how much auto insurance to purchase is how high to make the deductibles. A deductible is an upfront payment that the motorist must make before the insurance company will pay out to cover damage. The higher the deductible, the lower the cost of the auto insurance will be. Considering making an insurance claim increases the cost of the policy, setting higher deductibles is usually a good way to save money on insurance--but don't set the deductible so high that paying it would present an excessive burden. The point of auto insurance is to ease potential financial burdens that result from damage to a vehicle. The amount of coverage needed is that which strikes an acceptable balance between cost and risk.
