On Consumerism: Auto and Home Insurance: Understanding Your Options | Weekend Magazine
As a young man, a long time ago, I realized one day that I was spending $1,000 a year on collision insurance for my car, even though my car wasn’t even worth $1,000 anymore. So I dropped the collision coverage. And never regretted it.
The last car loan I took was in 2002. After the car was paid off in 2005, I gave up collision coverage and comprehensive coverage. And never regretted it.
This car from 2002 lasted until 2018. So for the last 13 years of its life, I made no car payments and paid minimal insurance.
A longtime friend named Gus owned a car but never drove it. He lived in a huge apartment building in Queens (part of New York) that didn’t offer parking. Driving the car would mean losing the spot on the street where Gus’ car was parked. It can take hours to find another available spot (that’s how densely populated the area is). So Gus never used his car. Like most locals, he traveled by metro.
Why did he own the never used car? Well, he inherited it from his father, and maybe that sentimental value led Gus to keep it.
One day I asked Gus if he had removed the police collision coverage from his never-used car. No, he hadn’t.
Eventually, Gus donated this car to charity and received tax relief. The car had to be towed because it was no longer working. Still, it was fully insured until Gus’ last day of ownership.
My father preferred to rent cars. After three years, he would return the car and rent another one. That way, he explained, he was always driving a new car.
Everyone to his own tastes. We all have our preferences. But we should at least be aware of our options.
Car insurance has many options. The owner decides which options to select. If you rent, the owner is the leasing company. If you are borrowing to buy, the owner is the company financing your loan.
Whether you lease or buy, the lender can repossess the vehicle if you don’t meet the payments. Indeed, until a car is reimbursed, you do not fully own it.
But once the title is yours, you are no longer obligated to insure your car against collision damage. Or against theft. Or against so-called “overall” damage, such as broken windshields. It is now your decision.
Do you own a car? You are then not obliged to insure it in the event of a collision or full coverage. If it’s new enough or valuable enough, you might be wise to insure it. But that is still your option.
My car insurance bill came in last week. I waive collision and comprehensive coverage. (If I didn’t have a garage, I might insure it differently.) The bill is $93 for a six-month term. Which means less than $16 per month.
What is the car insured against? Against damage to other people and their vehicles or other property. Such assurance reassures me.
If I had wanted to, I could even have avoided those $16 per month by canceling the insurance. I do not prefer. Still, it is an option in New Hampshire for the owner not to insure a fully reimbursed car.
The downside is that without insurance, legally you wouldn’t be allowed to drive in a neighboring state because they all require insurance. So unless you still want to keep your car in New Hampshire, you better insure it.
Home loans are just bigger auto loans.
When applying for a mortgage on a house, what is your security for the loan? Usually the house itself.
This is why mortgages, as a rule, require you to take out home insurance. An insured home is far more valuable to a lender than an uninsured home. If you stop paying your mortgage, the lender will eventually have the right to evict all residents and sell the
residence. But if, for example, it has completely burned down, then the lender is left with nothing of value to sell.
Hence home insurance has become a requirement for a mortgage.
Some people mistakenly think that home insurance is compulsory. It’s not.
Yes, it is required as part of your mortgage. But suppose there is no mortgage or the mortgage has been paid off. In this case, the owners are not required by law to insure their accommodation. Homeowners have the option to reduce or remove their home insurance.
I haven’t yet met a homeowner willing to take the risk of going without home insurance, but it’s still an option. A smart consumer knows all the options.
The purpose of insurance should be to give the buyer peace of mind. And to honor his loan contract.
Buy enough insurance to do so. Anything more is strictly optional.
Arthur Vidro is one of Eagle Times’ recurring financial columnists.