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Buying car insurance: comprehensive or third party?

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Of all the financial products sold in the U.S, car insurance often is compulsory to have. But the question is, when should we buy a comprehensive car insurance and when should we go for cheaper car insurance like third party insurance, liability insurance, collision insurance, uninsured motorist protection, personal-injury or medical protection, no-fault insurance, and gap insurance. Here is the comparison and the differences between comprehensive car insurance and third party insurance.

Comprehensive car insurance vs. third party insurance

The average price of comprehensive car insurance is in between $1500 to $2000 (see what is the average price of car insurance). Therefore, if it is unnecessary, more than ten thousand could be saved over 5 years. But here is the thing now. Early morning you have dressed up and going to the car park prepare to go for work, but you couldn’t find the car where you parked it properly last night. In this case, if you are having comprehensive car insurance, need no worry. But if you are having third party car insurance, then problems may come. If the car lost, you may still have to continuously pay the car loan until it is finished.

Here we worked out few considerations where one should go through and decide whether comprehensive car insurance is better or third party.

  1. Auto theft rate. Check the auto theft rate in your state or cities, if it is high likeCalifornia, it is recommended to have comprehensive car insurance. Any cars inCalifornia will have 1/178 chances to be stolen. If you are staying in the state with least auto theft, third party may work for you.
  2. Car park. Car park plays an important role. If you are staying in landed property with secure car park, most of the time you don’t need comprehensive insurance. If your work place provide a secure car park. It is even better.
  3. Car age. Most of the people who buy a new car will go for comprehensive or first party insurance. This is because the car is too new to be stolen. After a year or two, some owner will convert it to third party insurance or cheaper car insurance. For those who buy a used car under $10,000 dollars, most of them prefer third party insurance because over 5 years you may already save $10,000.

Case Study 1

This is a case study taken from an insurance company. Alexander was staying at a cheap apartment that cost him $800 dollars a month. The apartment is cheap but they do not have a safe place to park the car. The parking is not fully covered and nearby there are tress. The risk that the car gets stolen is very high, thus, Alexander decided to go for comprehensive insurance for his car at the price of $1600. Within two years, nothing happen, Alexander had paid $3200 for the insurance. Now he decided to move to a better place with the monthly payment of $1350. The new place has a fully covered car park with 24-hour security guard to take care of the car. Now Alexander is thinking to change it to third party which will just cost him $250 a year. These calculations have gone into his mind:

Cost during his stay at cheap apartment

  • Yearly house payment: $800 * 12 = $9600
  • Yearly car insurance: $1600
  • Total cost in two years: $22,400

Cost during his stay at good apartment

  • Yearly house payment: $1350 * 12 = $16200
  • Yearly car insurance: $250
  • Total cost in two years: $16,700

Now compare two different lifestyles. Lifestyle A, stay at cheap place, smaller house, insecure car park, and Alexander has to pay extra for comprehensive car insurance. While Lifestyle B, have better sleep, stay at bigger house, fully covered and secure car park with security guard, he even save $5700 in two years, why not?

In a nutshell, one should consider the risk of saving $2,000 a year is it worth to take to challenge auto theft? This would have to judge and consider base on how much the car really worth.

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