Getting insurance for your auto is a minefield. There are so many different types of coverage to pick from, it can be difficult to know what is truly necessary and what is not worth your hard earned dollars.
For individuals who rely on their vehicle, and who could not afford to simply buy a new one should it be totaled in an accident, it is worth taking out more comprehensive insurance.
There are different ways in which to ensure your vehicle is fully insured. For example, it can be done either by taking out full collision and comprehensive insurance or by purchasing a specific Total Loss Policy.
A Total Loss Policy works in a similar way to gap insurance, except that it does not agree to pay off any loan or finance balance. If the worst should occur, the policy will provide a down payment towards a new vehicle, usually subject to a maximum amount of $5,000. However, this means that if there is more money still owed on your loan than the insurer has valued the car at, you are responsible for paying the difference.
In many cases, the Total Loss payout will not be available until the finance charges have been settled on the old vehicle – a difficult situation if you do not have the cash immediately. In most cases, Total Loss payouts do not provide the insured with a cash lump sum, but a credit note towards their next purchase, making the payout rather inflexible.
Supporters of Total Loss coverage claim it is very useful to have a ready made down payment on your next vehicle, especially if you rely on your auto to get around or to work. However, critics have suggested that run of the mill collision and comprehensive insurance will provide an equally good level of coverage.
Opting for more than just basic personal liability coverage with your insurer, means a payout if your vehicle is totaled; either in an accident or by some other means such as a fire, vandalism or adverse weather.
However, the downside is that your insurer will simply pay what it believes the car was worth before it was totaled. Thus, leaving those with a higher outstanding loan balance, having to pay off monthly installments for a car that no longer exists.
For those who are looking for reassurance they will receive some compensation if their auto is totaled, but are trying to keep costs low, conventional insurance may be the better option. However, if there is an outstanding loan and you cannot afford to pay the difference, this can be quite a gamble. On the other hand, those with lower value cars, or little or no finance outstanding may find having a down payment ready and waiting if they lose their car a useful security net to have.
Anyone wanting to ensure all their bases are covered, but are unable to pay the difference off themselves, may be better off considering gap insurance rather than Total Loss coverage. Many garages, especially higher end ones which have BMW cars for sale for example, are likely to offer this type of insurance when you buy your vehicle.