Do You Have Cash Value or Replacement Value for Your Car Insurance? |
Posted: June 21, 2018 |
You may not think much about the details of your car insurance policy until you need to use it. You know you have “full coverage” or comprehensive and collision insurance. However, you may not realize you have options when it comes to coverage for your vehicle.
What is Cash Value?
If you have cash value for your vehicle, which many people do, it means the insurance agency will calculate the value of the vehicle at the time of the accident. A car that is one or two years old will have lower value than one that was just purchased. A model that is ten years old will have a much lower cash value than a two- or three-year old vehicle.
The problem with cash value is depreciation. Your vehicle often depreciates faster than what you can pay down a loan if you financed it. It won’t take as much for the insurance adjustor to total your vehicle or pay the cash value instead of paying for the repairs. Generally, they figure if the damage is estimated at about 80 percent of the cash value, then they will total it out. Older vehicles bring less than newer models, and you may end up with less money than you need to buy another car.
What is Replacement Value?
When you have replacement value coverage, it means you will receive a payment that will replace the vehicle regardless of its market value. This type of coverage might be good if you owe more than what your car is worth or if you have an older vehicle and would need to get another one after an accident.
Replacement coverage is often more expensive than cash value because the insurance company may have to pay out more in an accident. Because of the increased risk for a higher claim, you’ll likely pay higher premiums. For this reason, many car insurance quotes in Colorado Springs or elsewhere in Colorado focus on cash value.
Why You Would Choose Replacement Value
Since you know cash value coverage is probably going to save you money, you may wonder why you would want replacement coverage. If you have a car loan with a high interest rate and a long term, you may want to know you could pay it off if something should happen to your car. You also might want to consider it if you can’t afford to pay cash for a new vehicle after yours would be totaled.
You may want to stick with cash value and use the savings to keep for a new vehicle in the future. This may be the better option if you can save money or can afford a new vehicle on your own. However, you may want to consider replacement value if you want the security of knowing that you could get another car and not have a loan to pay off for the car that was wrecked.
Before you purchase a car insurance policy, make sure you know what coverage you can get and what you need.
John Smith works for John Smith Insurance Agency which provides car insurance quote Colorado Springs. Affordable rates and superior service for all home, auto and business/commercial insurance needs.
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