Tag Archive | "auto insurance"

Auto Insurance: 3 Things You Should Know

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Auto Insurance: 3 Things You Should Know

While I was attending college, we had a visiting lecturer for my financial planning course who discussed the various types of insurance. In particular, he gave us a crash course on auto insurance.

Driving KeysI was astounded by how little we all actual knew about our own auto insurance. It’s like that commercial from awhile back where a lady asks various random people, “What should my deductible be? $500? $1000?” Not fully understanding is a problem common to many financial instruments…unfortunately.

#1 Let’s start with the basics – Risk

At it’s heart, insurance is the transfer of risk. For example, I have a wife and two kids. I know that they are going to get sick several times a year. Instead of bearing the “chance” of a financial crisis because I can’t pay the medical bills, I transfer that chance to a health insurance company in the form of premiums. In other words, I pay them to take the chance that our medical bills become really expensive. At the same time though, the health insurance company is taking the chance that my medical bills will be really low. So, don’t think of risk as being a negative thing – it’s not. Risk is just the probability that a certain outcome, both positive or negative, will occur.

In terms of auto insurance, you need to determine how much “risk” you want to transfer. Take a moment to evaluate your financial situation. Can you afford $1000 worth of damages to your car? Hopefully the answer to that question is yes since you have at least $1000 in an emergency fund.

#2 Accident lawyers are always smiling for a reason – Insufficient Coverage

Have you ever seen an ad for an accident law firm where every lawyer is not smiling ear to ear? Do you know why they smile from ear to ear? Because they make so much money from accident settlements. So they don’t care what your situation is. They are coming for you if you cause an accident.

So how much risk do you want? In my state, the required minimum coverage is 25,000 / 50,000 / 50,000. It’s very important that you understand what those numbers mean and how they can ruin your life. If I have 25k / 50k / 50k, then my insurance company will pay out up to $25k to any one individual in a car accident that I cause with a maximum payout of $50k. And the maximum property payout is also $50k. So really read those numbers as: Maximum Individual Payout / Maximum Total Payout / Maximum Property Damage Payout.

To help illustrate the amount of “risk” that I would be baring, I’m going to use several scenarios.

Scenario 1

I hit a minivan with five scouts in it and they all spend three days in the hospital. A three day stay will probably run about $10k each. So I now owe $50k in medical bills. Of course, that doesn’t cover the minivan damage itself – estimated at $30k. So my auto insurance fortunately covered the medical bills but I am still left with a $30k bill for the minivan.

Scenario 2

Let’s say that I don’t even hurt anyone, but I happen to hit a 2011 Cadillac Escalade. MSRP starts at $62,495 on a new Escalade and I just totaled one. My insurance company pays out $50k and I’m left owing $12k+. Personally, I don’t have that much under my mattress.

Scenario 3

You cause an accident involving three average cars and four people take a trip to the hospital. I could do the math, but I bet you get the point. It’s very easy to rack up a large bill even in a simply accident.

But I’m just a college kid, they won’t come after me.

Oh yes they will!

Attorneys will not only consider your current financial situation but also your future earning power. If you are a college kid who will be graduating with a good degree, then they expect that you’ll be making decent money in the years to come. So they will have the court garnish your wages. Meaning, you’ll end up paying for years.

More coverage is pretty inexpensive

Assuming you don’t have a terrible record, auto insurance is very inexpensive. For example, after learning all of this myself, we changed our coverage to $250k / $500k / $500k for an extra $9 a month. Meaning, I can sleep a lot easier for only $9 a month. I want more things like this in life.

#3 Always kill Bambi – Acts of God

Please no one tell my two year old I said that. Imagine for a moment, though, that you are driving down the road and a deer jumps out in front of you. You of course swerve to miss it and crash into the barricade or a tree. As far as the insurance company is concerned, the collision was your fault. However, if you hit the deer, then that was an Act of God and you are not responsible.

Not being responsible will matter when you renew your insurance. If you now have an accident on your record where you were found at fault, then your rates will increase. So no offense to anyone, but always kill Bambi.

There is a lot more to purchasing the right insurance policy, but hopefully this brief overview gives you a good starting point for evaluating your current coverage. For more information on financial planning topics, sign up for our RSS Feed and receive new posts directly in your favorite RSS reader.

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Freedom Week: Financial Emancipation Proclamation

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Freedom Week: Financial Emancipation Proclamation

To celebrate the birth of our nation and the freedoms that we are afforded, I am writing three posts this week with a twist. Each post is based on an influential document which has given us rights.

So far this week, I have posted the Financial Declaration of Independence and Financial Bill of Rights. Today’s post, adapted from President Lincoln’s declaration which challenged slavery head-on, is the Financial Emancipation Proclamation. Without further ado:

Financial Emancipation Proclamation

Financial Emancipation Proclamation

On this second day of July, in the year of our Lord two thousand and ten, all persons held as slaves within any State of Debt or living without the benefit of a Budget shall now be in rebellion against Credit Cards, Living Paycheck to Paycheck, and Overspending, and shall be now and henceforward, and forever frugal; and the people of the Unites States, banded together, will recognize and maintain our own freedom, and will do no act or acts to enslave ourselves, regardless of marketing schemes and any efforts creditors and stores may make to entice us to empty our wallets and bank accounts.

That the people will, on this second day of July, by proclamation, designate the debts, if any, in which we the people shall use the Debt Snowball Method to speedily eliminate said debts; and heeding the call by Dave Ramsey, and other financial experts, shall on this day cut, melt, or in other words destroy by any means the credit cards by which we have amassed the greatest consumer debt on record; in the absence of credit cards, we will institute budgets based on our available cash, after fair taxes, charitable donations, and savings contributions, that will allow us to control overspending and live without fear of eminent bankruptcy.

Now, therefore we, the People of the United States, by virtue of the power vested in us as citizens of a free nation and granted by Nature’s God, do, on this second day of July, in the year of our Lord two thousand and ten, and in accordance with our money saving purposes do publicly proclaim, from this day forward, to commit to solemnly live by, resulting in peace of mind and financial independence, the following, to wit:

Refined Budgets, Sound Cash Management, Adequate Life Insurance, Sufficient Auto and Home Insurance, Debt Avoidance, Frugality, Bargain Hunting, Retirement Account Funding, College Savings, Stock Speculation Avoidance, Affordable Home Owning, Index Mutual Funds, Estate Planning, and Tax Planning.

Signed this 30th day of June, 2010,

Adam Williams and the Rabbit Funds team

Sign the Financial Emancipation Proclamation by leaving a comment in the comments section below and follow Rabbit Funds on Facebook for more great financial planning info.

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When was the last time you shopped for car insurance?


When was the last time you shopped for car insurance?

When was the last time you checked rates for your car insurance? Have you moved to a new state or purchased a home? A number of factors may qualify you for a lower rate with a different carrier.

Vintage GuyWith the purchase of a new car several months ago, we decided to shop for a lower rate on our car insurance. We had been with Geico for about two years, who was the cheapest at the time.

We actually bought and sold a couple of cars while with Geico, but never shopped the rates. More than ever, I’ve been determined to reduce not only debt but our fixed monthly expenses like insurance. So I checked Progressive, Allstate, American Family, and all the usual suspects.

I was able to find a rate that was a little cheaper than Geico, but only by a matter of dollars.

The day I was going to sign up with American Family, I recalled hearing that a local company, Bear River, offered extremely competitive rates. With nothing to lose, I called them up.

In “15 minutes,” I saved a lot more than 15%. I was able to get a rate reduction of 28%! I also reduced my home insurance by about 29%. The really cool thing was that our coverage actually increased as well. We went from a $1000 deductible to $500.

So if you haven’t checked in a while, you might be able to save some cash by taking 30 minutes today and shopping around. Oh, and do you like my vintage pic of a guy shopping online?

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Insurance Series: C.L.U.E. Report

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Insurance Series: C.L.U.E. Report

C.L.U.E. Report from ChoiceTrust.comInsurance Series – Over the next several weeks, I will cover four of the major types of insurance, as well as surrounding issues, that you should have or re-evaluate if you already have. This is post #2 – C.L.U.E. Report.

I wrote last week about some of the issues surrounding home owner’s and renter’s insurance. I briefly mentioned C.L.U.E. Reports, what they are, and how to order one. However, I don’t think that I really did the topic justice. A C.L.U.E. Report is the equivalent of a credit report for your insurance history. I am a firm believer in actively managing your credit and monitoring your credit report. The same principle applies to your “insurance report” as it can negatively impact your financial situation.

What is a C.L.U.E. Report and how do insurance companies use it?

ChoiceTrust, which is owned by LexisNexis, is the “credit” bureau of insurance. Your free C.L.U.E. Report is much like a credit report in that it maintains a seven year record of your (1) personal property loss history and (2) inquiry history. They also calculate a score based on your loss history. Insurance companies use actuarial tables to determine the risk of a given consumer. Therefore, insurance companies pull your report to see how frequently you make insurance claims and the severity. Both of those factors, frequency and severity, are then used to determine how risky you are and what your insurance premiums should be.

C.L.U.E. Reports are available for both your personal property (i.e. home owner’s insurance) and automobiles.

How can you use the report as a consumer?

Offering your C.L.U.E. Report to prospective home buyers is a great way to let them know that you have taken good care of the home (whether that be few losses or always taking care of problems as they arose).

How do you obtain one?

Unfortunately, you are supposed to order your report by mail. Follow this link to download and print the order form. After printing it, just follow the instructions on the form. If you “do not have Internet access” (then you probably aren’t reading this post), but you can call 1-866-527-2600 to order it by phone. Which means, even if you do have the Internet, you can still call and order it.

You will be required to send photocopies of sensitive documents such as your driver’s license or social security card. So please use security envelopes.

How often should you check your C.L.U.E. Report?

Just as with credit reports, your C.L.U.E. Report may contain false or inaccurate information. Meaning, an annual review is probably sufficient. Or, if you plan to change insurance providers in the near future, you should probably order one with enough time to fix any mistakes. If you do happen to find any errors and wish to dispute them, you can do so through ChoiceTrust.

So, get off your duff and order one!

(This post was featured in the 82 St Edition of Money Hackers)

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