A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 19, 2021

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If you have had the same car for a while then you might have forgotten that your insurance is tied to the model of vehicle you drive.

A common time to explore what kind of insurance rates are offered for different kinds of vehicles is when you are buying another one.

Or, if this is your first-ever car purchase, congratulations, you learned how to save a lot on insurance over the lifetime of your car.

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Cost of Ownership

Such a model-specific expense on insurance premiums brings up an excellent part when you are buying a car. It is called the cost of ownership and points to long-term expenses you will carry over the lifetime of your ownership of a particular type of vehicle.

The make is the manufacturer, while the model is a specific product name, or particular car that an auto maker puts out every year. Any make will get a particular gas mileage, which the manufacturer has already determined for both highway and city driving.

In addition, if you have to buy special premium gasoline or diesel, such details are also included in the details about the car you are buying.

Factor in the following:

  1. Tires
  2. Maintenance
  3. Any ad valorem taxes
  4. Fees
  5. Taxes when you buy the vehicle
  6. Financing
  7. Insurance
  8. Fuel

Some pieces of information that may slink under the radar until a repair comes into eye-line are more difficult to predict. For instance, today’s sports cars are increasingly closer to being race-ready than predecessors.

While they are street legal, they may require super-expensive tires. If you are investing in a luxury car or a sports car, find out what kind of tires they take before you settle on a vehicle. If price is an issue, that is.

Another area that may add or shrink the tab is if you live in a state where they collect an annual ad valorem tax. Such states tally up the annual bill based upon your car’s value.

Financing is one area that is not quite car-specific so much as value-specific. If you plan on borrowing 50,000 dollars you will have to pay more monthly than if you are just financing 6,000 dollars.

In addition, you may pay varying interest rates on the money you borrow to buy a car. The reason the interest rates varies depends upon two basic factors.

First off, it depends upon overall economics of the economy, or how cheaply or how expensive borrowing is for everyone.

Interest rates are determined roughly by the Federal Reserve Banks interest rates, which it sets.

When companies, such as car dealers, make a deal with an individual, they pass along the costs of money onto the consumer, you. So, if interest rates are at 2.5 percent, the financing company may offer you 3 percent interest, so they make a profit on your borrowing.

In addition, how affordable the credit is will depend upon your own credit score. Credit scores basically evaluate your credibility. It indicates your personal track record of responsible borrowing, and how timely you are in paying recurring bills, such as loan repayment and utilities.

Many credit reports, which detail items used in factoring your credit score, contain errors. In general, checking your report at least annually is a good practice. This will help you ensure that you are protecting your borrowing ability.

Others recommend keeping a monitoring alert on credit reports to enable you to find out sooner if your identity is stolen. The U.S. government authorizes one free credit report yearly to empower citizens to stay in the know on credit.

Common mistakes on credit reports are confusing you with someone else of the same name, attributing incorrect addresses to you, all the way to reporting that indicates loans as past due even if paid, or in collections. Take the time to review yours before shopping for a car.

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Comparing Insurance Costs

Once you have nailed down your credit, if you plan on borrowing, make it a point to shop around for your insurance. Even after you have decided on a model of car, and the right price to pay for it, save more money by comparing quotes for vehicle insurance.

Most states require insurance, and even if they do not, it makes sense to protect yourself and buy it. Whether you have many assets and a lot to lose financially, or nothing at all, there are compelling reasons to purchase insurance.

You may live in a state where you simply need to prove that you have the resources to pay, such as by holding a bond, or having a deposit on hold with your department of motor vehicles. California is one state where this is acceptable.

In other states, such as Michigan, they do not care who is at fault for causing an accident. They require drivers to maintain PIP, or personal injury protection. This aspect of insurance covers rehabilitation, funeral costs, medical costs, and almost any injuries and recovery that ensues from a vehicle accident.

Other states are more concerned about who causes an accident, in which case you would purchase liability coverage for bodily injuries you may cause to others as well as damages to their property.

Protecting Your Assets

The difficult in purchasing auto insurance is in determining the limits to buy for coverage. You have no idea what types of injuries you might cause someone in an accident, so it is hard to predict how much coverage to buy.

Many people will suggest you buy only as much coverage as you hold assets. Seems smart, but still leaves you open to pay for left over balances.

Even if you do not have much in the way of assets, it stands to reason it would be wiser to purchase the insurance industry recommended minimums of 100,000 per injured person, and and 300,000 dollars per accident coverage.

State minimums are notoriously low, and will automatically put you in a position as underinsured.

They leave you open to wage garnishment, long and drawn out lawsuits, and other uncomfortable situations.

The insurance companies may deny you insurance in the future based upon your past responsibility. It makes sense to buy proper insurance.

Of course, never go without either. Being uninsured puts you on the radar with police, state laws, and with the insurance carriers.

It’s more costly to go without if you are caught.

With technology where it is at, it is far more likely that a cop can determine when you do not have insurance and pull you over, and ticket you for not having it.

When you finance or lease your vehicle you are required to carry comprehensive and collision until you have paid off your vehicle.

Even after the loans are over, you may want to keep these two portions of coverage, because they protect your car and pay for damages, theft, and other incidents. In particular, if your car retains value or is a particularly reliable vehicle, you definitely want to keep the insurance on it.

  1. Determine creditworthiness of insurers
  2. Establish the limits you want for coverage
  3. Buy the industry standard for bodily injury liability and property damage liability, at the least
  4. Decide if you want rental car reimbursement if your car ends up in an accident and in the shop for repairs
  5. Figure out if you want roadside assistance for a few bucks a month as well.

Deductibles are another area where consumers often get into a personal push and pull.

Should they keep them low or high? You will be required to come up with the deductible every time you need a particular line of insurance. If you have a lot of mishaps in one year, that can get expensive fast.

Additionally, yes, you can pull the deductible out of your benefits, but it may call upon you to pull money out of pocket to finish up repairs and to pay to other parties.

Car buying is an exciting time for every driver. Make the most of it by taking the time to evaluate all aspects of ownership. It will help ease you into owning a new model of vehicle.

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