Choosing the right form of auto insurance is essential, and it can be very hard to do. Though you may know to buy comprehensive, collision, and liability insurance, you may not realize you have a few other decisions to make. For example, should you choose cash value or replacement value coverage? That depends on the vehicle and its worth to you. Here are a few things to think about when making this decision.
What Is Replacement Value in Car Insurance?
When an accident happens, your car insurance agent will determine first if your policy should pay your claim. If so, the agent then needs to determine the amount they will pay out. This depends on the type of policy you have.
If you have cash value coverage, the policy pays you the amount of money the car was worth just before the incident happened. That means that the car’s value is likely lower than when you bought it. It also means you may get less for your car than what you owe on it.
If you have replacement value, the policy pays you the amount of money it may cost to replace the vehicle with one of the same make and model, age, and features. That may be more expensive for the insurance company to do. That is why replacement value coverage tends to cost more than cash value coverage.
Why Should You Consider Replacement Coverage?
Let’s say you own a classic vehicle. Perhaps you own a vehicle that has a lot of added features and customization on it. The value of the car is significantly higher even though the car may be older.
In these situations, the value of the car might even rise year over year, depending on the condition and type of vehicle. Replacement value coverage, then, is likely going to be valuable here. It can minimize your losses should something occur that leads to a complete loss of the car. Keep in mind, you need to let the auto insurance agent know the value of the car prior to an incident occurring.
Auto insurance does not have to be hard to manage. Be sure the value of the policy always matches, at least, the value of your vehicle. Contact us to learn more about auto insurance.