For some people cheap car insurance means finding the absolute rock-bottom price at all costs. What they don’t often realize is that the lowest possible rate is for a policy that only covers the state minimums for liability, personal injury, and property damage. You’re not going to find a policy which covers collision damage and fire & theft for just a couple of hundred dollars per year. However, that doesn’t mean you can’t get a good price if you add the extras to your insurance.
Something that comes to mind here is the question of what happens if you total your vehicle. If all you have is a minimum liability policy, you’ll be left out in the cold with no car and no replacement check. In order to receive payment for a totaled vehicle you have to have a policy that includes collision coverage. These types of policies cost of a more but they are worth it to many people.
Replacement Value or Actual Cash Value
When you’re searching for collision coverage you need to understand how insurance companies determine what to pay for a totaled vehicle. In this regard there are really just two choices: the replacement value policy and the actual cash value policy. Replacement value is based on what it would cost to replace your vehicle with the same make and model, of the same year, in roughly the same condition. Insurance companies determine this simply by looking at the Kelly Blue Book and other NADA resources.
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Actual cash value is a policy in which the insurance company pays you what it would cost to replace your vehicle exactly as is. To help you understand the difference, think of it in terms of a 1972 Mustang. Under normal conditions, such a car would be worth very little on today’s market. But let’s say you invested thousands of dollars in restoration efforts and raised the car’s value by $10,000 or $12,000. An actual cash value policy would pay you for all the money you put into it, as determined by the real market value of such a car.
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