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Author: rookieJoe Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Re: New passive investor looking 4 strategy crit Date: 2/6/2004 3:38 PM
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>>The insurance company could care less what you paid for the car, or if you owe more than the car is worth.

Yup.

>>Many insurance companies will give you 'replacement' costs in the first year.

I think mine just pays wholesale book value.

>>After that, they give you wholesale book value. REgardless of what you paid.

Yup that's my point. They pay wholesale, but the lender is owed the principle.

A hypothetical situation using some round numbers... Choice A: $20,000 at 0%, B (with rebate): 17,000 at 5%. Lets after a year it is totaled, and depreciated wholesale value (what the ins co. pays) is 13,000.

If the vehicle were financed using choice A, it might have a remaining principle around 16,000, while choice B might have had a remaining principle of around 14,000.

If the vehicle was financed with choice A, you owe the lender 3,000 in addition to the insurance payout. But if the vehicle was financed with choice B, you owe 1000 in addition to the insurance payout.

So I view the rebate options as providing some level of "insurance" against owing more than it is worth. Its not worth paying an extra 100 per month, but if the rebate option is a couple dollars per month more, I would do it.

With the exception of the first year for people with the type of insurance coverage you mentioned... Do you agree, or am I missing something?

-Joe
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