When you apply for car insurance coverage, the provider will most likely ask you for a deposit. Some people may not be able to pay this deposit upfront. The cost of owning and operating a vehicle is a good enough reason for this; not to mention the fact that the economy hasn't been good lately. Fortunately for these car drivers, no deposit car insurance policies are available to make it possible for them to get reasonable and much needed coverage.
What is this no deposit car insurance, and how does it work?
The deposit which you are required to pay is more appropriately called a downpayment. To start your policy you are required to pay about 1 month in advance. In most cases, you don't really pay for one month's worth of coverage in advance. Your deposit will be 16% (up to 25%) of your total premium for 6 months. In most cases, that amount equates to one month's worth of coverage.
It's not returned to you at the end of the year or at the end of your policy since it's technically taken from your premium. The benefit of paying an advanced downpayment or deposit on your car insurance is that your monthly premiums will go down.
Let's take a look at an example. Say your 6-month car insurance policy costs $600. Your provider would probably ask for $200 downpayment. Starting the next month, you will be paying $100 per month for the next 4 months ($400 spread evenly across 4 months). This way, you're always a month ahead on your premium payments. Furthermore, you give out smaller payments after you pay your deposit.
How does a no deposit car insurance policy help me?
Insurance companies that provide car insurance with no deposit are very rare. These policies are designed to disregard the deposit or downpayment and have the customer pay off the premium on its regular rate.
Let's go back to our example. Since you will no longer be required to pay part of the premium, you will still pay $100 per month; but it would take you longer to fully pay for your insurance. Oftentimes, car insurance providers that offer no deposit monthly car insurance often charge extra fees, increasing the overall cost of your coverage.
Not everyone will be able to avail of car insurance no deposit required policies. The companies that do offer this type of insurance may use your credit rating as basis for qualification. If you have bad credit, most likely, you'll get denied.
Do I get better savings with no deposit car insurance?
The savings that you will get from no deposit car insurance policies will be short-lived. After all, they are designed to make it easier for you to start a policy; they do not guarantee that you won't be paying a lot monthly on your premiums. If you are happy with your current car insurance provider, it wouldn't be sensible for you to switch to another provider simply because they offer no deposit policies. Think of the deposit as an investment on your coverage - one that you won't regret for months to come.
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