Every state has a minimum amount of liability coverage that drivers are required to carry, but your insurance agent will likely also offer you several ancillary or add-on coverages that are optional. Some are worth adding and some are rarely worth the extra cost. Here are five add-ons that you should investigate when buying
auto insurance.
TUTORIAL: Intro To Insurance
1. Gap Insurance
Gap insurance protects you in the event that you owe more money on the vehicle than the insurance company will pay you. Insurance companies use standard valuation measures to determine what your car was worth at the time of the accident; that's the amount they will pay to you. However, if you financed or
leased your car, you may owe more on the loan or lease than what the insurance company gives you. This is the gap and, if it is not insured, it can cost you money out-of-pocket if you get into an accident.
The gap is greatest when you first drive a brand new car off the lot as its
book value depreciates very drastically. However, after two to three years, the rate of depreciation levels off and the lease or loan payments may catch up to it, making the gap disappear. Consider adding on gap insurance on a new car purchase and then dropping it in a few years. (For related reading, see
Beginner's Guide To Auto Insurance.)
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2. Roadside Assistance
Roadside assistance consists of mobile repair and towing services if your car breaks down on the road. Mechanics are equipped to change tires, fill up an empty tank and assess mechanical problems. If they are unable to fix the problem on the side of the road, they will tow the vehicle to the nearest repair facility. This is an important service to have, especially if you often travel alone or with children. If you have roadside assistance through other means, such as AAA coverage or benefits on your credit card account, you will not need to sign up for it with your insurance policy. However, if you do not have it already, it is a worthwhile add-on. (For related reading, see
10 Car Insurance Myths.)
3. Vanishing Deductible
This feature is something that is becoming commonly offered as part of
premium auto insurance policies. When you are comparing policies between companies, it is a benefit worth having. Vanishing deductible reduces your
deductible by a certain amount (usually $50-$100) at the beginning of the policy and then the same amount annually until it reaches zero. Deductibles drop as long as you maintain a clean driving record and have no accidents. If you have an accident, you pay the lower amount rather than your original deductible. More companies are adding this benefit as time goes on so do your homework and check around. (For related reading, see
12 Car Insurance Cost-Cutters.)
4. Personal Injury Protection (PIP)
PIP insurance covers a variety of expenses in the event of an accident, depending on the policy. The main costs it covers are medical expenses for the insured driver, her family and other passengers up to a certain dollar amount. In no-fault insurance states, PIP is required as there is no recovery of medical expenses from the other driver. PIP may also cover funeral or loss-of-income expenses. While your health insurance policy may cover some of these expenses, PIP can fill in and make up for co-pays and deductibles.
5. Uninsured Motorist Coverage
If you do not live in a no-fault state, you run the risk of being hit by an uninsured motorist, in which case, there is no insurance to cover you. This is the purpose of
uninsured motorist coverage. Your own policy will kick in rather than having to sue the other driver and spend copious amounts of time in court. Most standard policies add this coverage in but many discount insurance policies do not. Check your current coverage carefully.
The Bottom Line
There are many bells and whistles available when buying auto insurance. Many of them are unnecessary in most situations and will simply drain money out of your pocket. But there are several that are worth adding on to make sure that you are adequately protected in the event of a car accident. (For related reading, see
15 Insurance Policies You Don't Need.)
by
Angie Mohr is a Chartered Accountant and Certified Management Accountant who has worked with thousands of business and personal finance clients from home-based entrepreneurs to rock bands to celebrity chefs. She is also the author of the Numbers 101 for Small Business series of books which have been translated into several languages and are sold worldwide. Her new book: Money$marts: Teaching Your Kids the Value of a Buck will be released in the fall of 2011.
Angie also freelances for several newspapers and magazines, both in print and online. She is passionate about gardening, cooking and bringing more local foods into our diet. She is Canadian through and through but lives by the ocean in Savannah, Georgia with her husband, two children, six cats and innumerable chickens.
