A new series of low-speed crash tests shows that fender benders can be wallet busters.
The Insurance Institute for Highway Safety has released cost estimates for the kind of accident that can happen in a parking lot or commuter traffic, when cars are traveling 6 miles per hour.
It found only three midsize cars -- the Mitsubishi Galant, Toyota Camry, and Mazda 6 -- came away with damage of $1,500 or less from each of the four crash tests that checked for damage from front, rear, front corner and rear corner collisions. The Institute tested 17 midsize cars in the low-speed test.
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Meanwhile, four vehicles saw damage of $4,000 or more from a low-speed front-end collision.
The Volkswagen Passat had the most expensive repair bill at $4,594, followed by the Pontiac G6 from General Motors, which cost $4,588 to fix.
Next was the Nissan Maxima with $4,535 in damage, and the Hyundai Sonata, which ended up with a $4,312 repair bill.
The Institute is a nonprofit group funded by the nation's insurers which aims to reduce the losses -- deaths, injuries, and property damage -- from vehicle accidents.
It was critical of changes in the federal government's low-speed crash standards, which it said were weakened in 1982 during the Reagan administration. It said the older vehicles performed much better.
To demonstrate, it included a 1981 Escort from Ford Motor in the test, and it had by far the lowest repair costs. The front corner and rear corner crashes produced no damage, and the cost to repair the front accident was only $86, while the rear collision repair bill came to $383.
Friday, June 29, 2007
Need a Tow? Watch Your Insurance Bill
Imagine you're having a really bad week: Monday, your tire blows out. Tuesday, you lock your keys in the car and Friday, your car battery dies.
Lucky for you, you added an emergency roadside assistance extension to your insurance policy. Think your problems are solved? Think again.
Using an insurance policy's roadside assistance program may seem like an ideal, inexpensive way for consumers to protect themselves against unexpected breakdowns and embarrassing lock-outs.
But buyer beware: insurers keep track of your roadside assistance claims and in some cases, you may find yourself paying a higher premium if your car blows a tire one too many times.
Auto insurers such as Allstate, State Farm, Geico and Progressive offer policyholders the opportunity to add roadside emergency services to their existing policies at a fraction of the cost of independent motor club programs, such as American Automobile Association (AAA) or Allstate Motor Club -- which are open to all consumers and can cost between $45 to over a $100 a year.
By comparison, those insurance policyholders that have added on emergency roadside services through their carrier can receive basic assistance such as towing services, jumpstarts, tire changes, lockout services or gas delivery for as little as $3 to $10 for a six-month policy period -- an attractive price for services you hope you won't have to use too often.
But what you may not know is that many insurers consider roadside assistance claims as one predictor of risk, which can impact premiums.
"Insurance companies have a huge amount of data at their disposal which they use to find correlations to loss history," said George Yates, president of Dayton Ritz & Osborne, a Long Island-based insurance agency.
"If an insurance company could determine eye color correlates with loss history, they'd use it to determine rates. It doesn't always make sense logically and may not always be politically correct but if they can determine a correlation, they'll use it."
Insurers consider a bevy of risk variables when attempting to quote a price on a policy, said Insurance Information Institute spokeswoman Loretta Worters.
"The type of car you drive, your driving record, where you live, your credit history...all that information helps companies measure risk so that they can charge customers a fair premium," she said.
While a one-time jumpstart is unlikely to raise any red flags for insurers or send underwriters running to raise rates, consumer usage of the emergency roadside service will be compared to other variables when insurers are determining a risk profile for a policyholder.
Keeping an eye on towing claims
Spokesmen for State Farm and Allstate -- two of the largest auto insurers in the country -- said their companies take note of roadside emergency claims but the use of those services would only impact a policyholder's premiums if there were multiple claims alongside a number of other risky variables.
"The chance that one of those claims would have an impact premium-wise is probably very minimal," said State Farm spokesman Dick Luedke. "But there is a correlation between those claims and auto insurance risk."
And consumers should know that, in some cases, any claims made under the add-on roadside assistance coverage can be reported as a towing and labor claim.
Towing claims are reported to a national database run by Atlanta-based ChoicePoint, which provides insurers with claims information on consumers to help insurers process insurance applications.
Insurers generally use that information to double-check their applications and make sure an applicant has been forthcoming with their accident and towing claims history. From there, insurers can make pricing determinations.
Richard Collier, senior vice president and general manage of insurance data services at ChoicePoint, said the company does not include autoclub -- such as AAA or Allstate Motor Club -- claims in its database. He said ChoicePoint attempts to keep roadside service claims out of the database and has advised insurers not to submit any claims made under "autoclub type" services.
But Allstate spokesman Mike Siemienas said the company considers all usage of its roadside services -- from jumpstarts to tire changes to gas delivery -- as towing claims.
And that may put consumers at a disadvantage if an insurer sees a towing claim but can't determine whether that claim was made because a car was towed after an accident or if it was made because a driver got a flat tire.
While insurers won't reject an applicant or cancel an existing insurance policy due to towing and labor claims, those types of claims -- particularly if there are a number of them -- may impact a policyholder's premiums, according to the Insurance Information Institute.
Shop around
For those interested in roadside assistance coverage, which can be desirable protection to have in case the unexpected happens, it pays to shop around.
Not all insurers use roadside assistance as a pricing variable. Spokesmen for Progressive and Geico said the companies don't consider usage of their roadside assistance programs in determining rates.
And Geico spokesman Kevin Grenier said the company is also putting a halt to reporting any towing claims to ChoicePoint.
Motor clubs such as AAA and Allstate Motor Club -- which is run by Allstate but is not affiliated with the auto insurance coverage -- may be a good bet for some consumers.
Motor Clubs are pricier but they provide a wider range of services than just basic towing and breakdown help.
AAA provides discounts on car rentals and hotels as well as other travel-related services while Allstate Motor Club also provides members with services such as legal defense for moving violations and arrest bonds.
An added perk? Consumers can rest assured that any claims made will be kept private.
Lucky for you, you added an emergency roadside assistance extension to your insurance policy. Think your problems are solved? Think again.
Using an insurance policy's roadside assistance program may seem like an ideal, inexpensive way for consumers to protect themselves against unexpected breakdowns and embarrassing lock-outs.
But buyer beware: insurers keep track of your roadside assistance claims and in some cases, you may find yourself paying a higher premium if your car blows a tire one too many times.
Auto insurers such as Allstate, State Farm, Geico and Progressive offer policyholders the opportunity to add roadside emergency services to their existing policies at a fraction of the cost of independent motor club programs, such as American Automobile Association (AAA) or Allstate Motor Club -- which are open to all consumers and can cost between $45 to over a $100 a year.
By comparison, those insurance policyholders that have added on emergency roadside services through their carrier can receive basic assistance such as towing services, jumpstarts, tire changes, lockout services or gas delivery for as little as $3 to $10 for a six-month policy period -- an attractive price for services you hope you won't have to use too often.
But what you may not know is that many insurers consider roadside assistance claims as one predictor of risk, which can impact premiums.
"Insurance companies have a huge amount of data at their disposal which they use to find correlations to loss history," said George Yates, president of Dayton Ritz & Osborne, a Long Island-based insurance agency.
"If an insurance company could determine eye color correlates with loss history, they'd use it to determine rates. It doesn't always make sense logically and may not always be politically correct but if they can determine a correlation, they'll use it."
Insurers consider a bevy of risk variables when attempting to quote a price on a policy, said Insurance Information Institute spokeswoman Loretta Worters.
"The type of car you drive, your driving record, where you live, your credit history...all that information helps companies measure risk so that they can charge customers a fair premium," she said.
While a one-time jumpstart is unlikely to raise any red flags for insurers or send underwriters running to raise rates, consumer usage of the emergency roadside service will be compared to other variables when insurers are determining a risk profile for a policyholder.
Keeping an eye on towing claims
Spokesmen for State Farm and Allstate -- two of the largest auto insurers in the country -- said their companies take note of roadside emergency claims but the use of those services would only impact a policyholder's premiums if there were multiple claims alongside a number of other risky variables.
"The chance that one of those claims would have an impact premium-wise is probably very minimal," said State Farm spokesman Dick Luedke. "But there is a correlation between those claims and auto insurance risk."
And consumers should know that, in some cases, any claims made under the add-on roadside assistance coverage can be reported as a towing and labor claim.
Towing claims are reported to a national database run by Atlanta-based ChoicePoint, which provides insurers with claims information on consumers to help insurers process insurance applications.
Insurers generally use that information to double-check their applications and make sure an applicant has been forthcoming with their accident and towing claims history. From there, insurers can make pricing determinations.
Richard Collier, senior vice president and general manage of insurance data services at ChoicePoint, said the company does not include autoclub -- such as AAA or Allstate Motor Club -- claims in its database. He said ChoicePoint attempts to keep roadside service claims out of the database and has advised insurers not to submit any claims made under "autoclub type" services.
But Allstate spokesman Mike Siemienas said the company considers all usage of its roadside services -- from jumpstarts to tire changes to gas delivery -- as towing claims.
And that may put consumers at a disadvantage if an insurer sees a towing claim but can't determine whether that claim was made because a car was towed after an accident or if it was made because a driver got a flat tire.
While insurers won't reject an applicant or cancel an existing insurance policy due to towing and labor claims, those types of claims -- particularly if there are a number of them -- may impact a policyholder's premiums, according to the Insurance Information Institute.
Shop around
For those interested in roadside assistance coverage, which can be desirable protection to have in case the unexpected happens, it pays to shop around.
Not all insurers use roadside assistance as a pricing variable. Spokesmen for Progressive and Geico said the companies don't consider usage of their roadside assistance programs in determining rates.
And Geico spokesman Kevin Grenier said the company is also putting a halt to reporting any towing claims to ChoicePoint.
Motor clubs such as AAA and Allstate Motor Club -- which is run by Allstate but is not affiliated with the auto insurance coverage -- may be a good bet for some consumers.
Motor Clubs are pricier but they provide a wider range of services than just basic towing and breakdown help.
AAA provides discounts on car rentals and hotels as well as other travel-related services while Allstate Motor Club also provides members with services such as legal defense for moving violations and arrest bonds.
An added perk? Consumers can rest assured that any claims made will be kept private.
10 Answers for Health Insurance Options
As medical care has gotten more complicated, so has the variety of medical insurance options. You've got FSAs, or flexible spending accounts, and HRAs, or health reimbursement accounts, and even HSAs, health savings accounts. Which is best for you? Or should you ignore them all and just buy a medical discount card?You'll need to do some homework, particularly if it's all new to you. Check out Bankrate's story, "Sorting out your medical insurance options," to get a full picture.To help you sort it out, here are the answers to 10 questions you should consider before you make your choice.10 questions about FSAs, HRAs, HSAs and medical discount cards: FSA 1. Who pays? Employee, company or both. 2. How much money goes into them? Company sets limit. Employees decide how much to put into them within that limit. 3. Who owns it? Company. 4. Does the money in it generate interest? No. 5. Can you take it with you when you leave the company? No. 6. Do you have to repay anything if you leave the company before the end of the year? No. 7. Does unused money "roll over" and get added to account at the end of the year? IRS says no. 8. How does the IRS treat employee contributions? Usually not taxed. 9. How does the IRS treat reimbursements for medical treatment? Not taxed. 10. Can the money be used for nonhealth-care purposes? No. HRA1. Who pays? Company. 2. How much money goes into them? Company sets limit. 3. Who owns it? Company. 4. Does the money in it generate interest? No. 5. Can you take it with you when you leave the company? No. 6. Do you have to repay anything if you leave the company before the end of the year? No. 7. Does unused money "roll over" and get added to account at the end of the year? Up to company. 8. How does the IRS treat employee contributions? Does not apply. Employees do not contribute. 9. How does the IRS treat reimbursements for medical treatment? Not taxed. 10. Can the money be used for nonhealth-care purposes? No.HSA1. Who pays?Employee, company or both. 2. How much money goes into them? IRS sets limit. Company and employee each chooses how much to put in within that limit. The 2006 limit is $2,700 for individuals, $5,450 for families. People 55 or older can add $700. 3. Who owns it? Employee. 4. Does the money in it generate interest? Yes (tax free). 5. Can you take it with you when you leave the company? Yes. 6. Do you have to repay anything if you leave the company before the end of the year? No. 7. Does unused money "roll over" and get added to account at the end of the year? Yes. 8. How does the IRS treat employee contributions? Usually not taxed. 9. How does the IRS treat reimbursements for medical treatment? Not taxed. 10. Can the money be used for nonhealth-care purposes? Yes, but there is a tax penalty.MEDICAL DISCOUNT CARDS1. Who pays? Employee, but some companies do supply them. 2. How much money goes into them? Prices generally range from $10 to $40 a month, with different providers offering different discounts for health, dental and vision care. Some also offer prescription drug discounts. 3. Who owns it? Employee. 4. Does the money in it generate interest? There is no money in it. 5. Can you take it with you when you leave the company? Yes, if you paid for it. No, if it is a company-supplied card. 6. Do you have to repay anything if you leave the company before the end of the year? No. 7. Does unused money "roll over" and get added to account at the end of the year? There is no money in it. 8. How does the IRS treat employee contributions? Money spent on cards is taxed, but consult your tax preparer. 9. How does the IRS treat reimbursements for medical treatment? There are no reimbursements. 10. Can the money be used for nonhealth-care purposes? No
Health Care: Cut Your Costs with These Simple Steps
Don't stand by while health care costs keep rising -- an estimated 8% this year and next for most companies, about three times the cost of inflation. Employers and workers are finding that an aggressive, proactive approach can limit annual increases to about 2.5%.
More from Kiplinger's Personal Finance:• Health-Care Reform: It's Coming• Save Big With Generics• Health Savings Account Answers
What can you do? There's no magic bullet, no single step or trick that will work right away for all employers or workers. But a series of small, incremental steps can make a big difference, according to a recent survey by Watson Wyatt Worldwide of businesses that have limited cost increases in recent years.
Keep these basic principles in mind:
Prevention is crucial. Be aggressive in persuading employees to get regular checkups and enroll in disease management programs. Getting workers to care for their illnesses will lower the odds of expensive complications later on.
Give wage earners a stake in lowering costs. Financial incentives are a smart investment if they reduce the number of costly illnesses.
Pay attention to those most at risk, such as employees who smoke, are overweight or who have chronic problems, such as diabetes or heart conditions.
More specifically, many companies are finding that it pays to provide free prevention services, such as flu shots and mammograms. Some also cover the entire cost of drugs for low-income employees with chronic illnesses so they're more likely to take medicines that can control their disease. Marriott International pays for many generic drugs and cuts the cost of many brand-name medicines in half.
Other businesses reward pregnant women for joining prenatal nutrition programs. A premature birth with complications can cost a firm millions of dollars. Fiserv Inc. offers savings bonds to women who go for regular checkups and attend classes, with a big gift certificate when the baby is born.
Also popular are plans that offer incentives for weight-loss, fitness and stop-smoking regimens. IBM, for example, pays up to $300 a year to participants. Employers should be careful, though, to reward all workers for healthy lifestyles. Otherwise, they could inadvertently create morale problems and prompt complaints of unfair treatment.
The key to all efforts is making sure workers have the tools they need, including access to information. Provide specific data on the quality and cost of doctors in your area so employees can be smart consumers. Internet-based systems let them compare the prices and success rates of specific health care providers.
Another option is to charge for spousal coverage if the spouse works and is eligible for other insurance. A typical surcharge is $100 a month.
Health Savings Accounts are also effective in cutting costs. They're tax deductible when combined with a high-deductible insurance policy.
Most of these ideas will work for all businesses, but big firms have additional options. Some provide on-site clinics to make preventive care convenient, and many mine claims data for trends on illnesses. The data can help determine which disease management plans are needed.
More from Kiplinger's Personal Finance:• Health-Care Reform: It's Coming• Save Big With Generics• Health Savings Account Answers
What can you do? There's no magic bullet, no single step or trick that will work right away for all employers or workers. But a series of small, incremental steps can make a big difference, according to a recent survey by Watson Wyatt Worldwide of businesses that have limited cost increases in recent years.
Keep these basic principles in mind:
Prevention is crucial. Be aggressive in persuading employees to get regular checkups and enroll in disease management programs. Getting workers to care for their illnesses will lower the odds of expensive complications later on.
Give wage earners a stake in lowering costs. Financial incentives are a smart investment if they reduce the number of costly illnesses.
Pay attention to those most at risk, such as employees who smoke, are overweight or who have chronic problems, such as diabetes or heart conditions.
More specifically, many companies are finding that it pays to provide free prevention services, such as flu shots and mammograms. Some also cover the entire cost of drugs for low-income employees with chronic illnesses so they're more likely to take medicines that can control their disease. Marriott International pays for many generic drugs and cuts the cost of many brand-name medicines in half.
Other businesses reward pregnant women for joining prenatal nutrition programs. A premature birth with complications can cost a firm millions of dollars. Fiserv Inc. offers savings bonds to women who go for regular checkups and attend classes, with a big gift certificate when the baby is born.
Also popular are plans that offer incentives for weight-loss, fitness and stop-smoking regimens. IBM, for example, pays up to $300 a year to participants. Employers should be careful, though, to reward all workers for healthy lifestyles. Otherwise, they could inadvertently create morale problems and prompt complaints of unfair treatment.
The key to all efforts is making sure workers have the tools they need, including access to information. Provide specific data on the quality and cost of doctors in your area so employees can be smart consumers. Internet-based systems let them compare the prices and success rates of specific health care providers.
Another option is to charge for spousal coverage if the spouse works and is eligible for other insurance. A typical surcharge is $100 a month.
Health Savings Accounts are also effective in cutting costs. They're tax deductible when combined with a high-deductible insurance policy.
Most of these ideas will work for all businesses, but big firms have additional options. Some provide on-site clinics to make preventive care convenient, and many mine claims data for trends on illnesses. The data can help determine which disease management plans are needed.
Four Ways to Save on Car Insurance
When was the last time you reviewed your car insurance? If you are like most people, it was probably when you first purchased the policy and you have had it automatically renewed ever since.
If that is the case, or if you haven't reviewed your insurance in the past year, you are likely spending more than you need to on your auto insurance.
You should review your car insurance on a yearly basis. Many people like their current insurance company and don't want to switch. But even if you are perfectly satisfied with the insurance company, bringing in competitive offers from other insurers can help you negotiate a better rate. If you are willing to switch companies, you can likely save even more money.
Here are a few steps you can take to save money on your auto insurance:
1. Use the Internet
The Internet has greatly evened the playing field when it comes to insurance. It has increased competition between car insurance companies and given consumers a much easier way to compare rates and analyze coverage that insurance companies offer.
There are a wide variety of insurance comparison sites that you can use to compare rates. Simply use any search engine and plenty will show up. It pays to use several since they may contain different car insurance companies in their engines. All you need to do is input your information and if a better deal appears, you're on your way to saving money.
If you don't want to switch car insurance companies, take in your lower quote and explain that you don't want to switch, but have received a better offer. Your insurance agent will do everything in his or her power to get you a competitive price. From there you can choose whether to stay or go to the other company. Either way, you will be paying less on your insurance premiums.
2. Raise Your Deductible
Another way to lower your car insurance premiums is to raise your deductible -- the amount you have to pay before your insurance kicks in to cover a claim.
If you have $1,500 worth of damage to your car and a $500 deductible, you must pay the first $500 and the insurance company would pay the rest. While a lower deductible may sound preferable, it means you'll pay much more for the insurance -- even if you don't use it.
You should raise your deductible as high as possible, as long as you will have the money to cover it should you ever have an accident. Moving your deductible from $500 to $1,000 can knock up to 30% off your yearly car insurance payments.
3. Drop Collision and/or Comprehensive Coverage
You also need to take into consideration what your car is worth. If your car is older, you may be carrying too much collision insurance, which covers damage to the vehicle sustained in an accident, or comprehensive coverage, which covers the cost of the car if it is stolen or damaged in some other way.
If the car has a Kelley Blue Book value of $2,000 or less, you may want to drop these coverages altogether. It's important to run the numbers and compare what you will pay for the insurance vs. how much you could get back if you ever have to make a claim. Between the insurance payments and the deductible, you'll likely come out ahead without any collision or comprehensive coverage for an older, less valuable car, even if something happens to it.
4. Get a List of Discounts
You may be surprised at the number of things that can get you a discount on your auto insurance, many of which you probably never knew about. That is because many insurance agents won't always tell you all the discounts available unless you specifically ask for them.
Since each insurance company is independent of the others, some may offer specific discounts that others don't. Here is a list of some of the possible discounts:
Safe drivers: If you have had a safe driving record, it can qualify you for a discount.
Courses: Some companies have approved defensive-driving courses you can take to brush up on your driving skills that will entitle you to a discount. These courses can sometimes cost you a few dollars, but the savings outweigh the expense and can be applied to several years of insurance bills. Much like defensive-driving courses, a driver's education class may also qualify you for a discount.
Anti-theft and recovery devices: Some anti-theft devices, like steering wheel locks, will get you a discount on your insurance. Likewise, devices like LoJack or OnStar that help locate a stolen vehicle also can lessen your premium.
Seat belts: By signing a paper that indicates that you always wear your seat belt when driving, you can get a discount.
Passive restraint systems: If your car comes with passive restraint systems, you may be eligible for a discount.
Multiple vehicles: If you insure more than one vehicle with the company, the vehicles after the first car usually will be eligible for a hefty discount.
Multiple products: Most insurance companies offer more than just car insurance. If you also buy homeowner's, renter's or life insurance from the same company, you will usually get a discount.
Policy renewal: If you have been with the same company for a number of years, you may qualify for a discount when renewing your policy.
Senior citizens: Many car insurance companies offer discounts for senior citizens.
Low mileage: If you don't drive a lot, you can qualify for a discount.
Good students: Students that meet a certain grade-point average may get a discount.
Military service members: Those who serve in the armed forces can often get a discount.
Low-risk occupations: If you work in a job that is deemed a "low-risk" occupation by the insurance company, you may get a discount.
Professional organizations and clubs: If you belong to certain organizations such as AAA or AARP, you may qualify for a discount.
Credit score: Insurance companies have found a correlation between credit scores and claims. If you improve your credit score, you'll likely get a discount on your insurance.
Dependable cars: While this won't necessarily save you money at the moment, the type of car you own can have a dramatic effect on the cost of your insurance and is something to consider the next time you purchase a car. Choosing a safe, dependable car that doesn't have a lot of costly repairs can save you a lot in insurance payments over the years. Your insurance company can provide you with a list of cars that are the least expensive to insure.
By taking the time to review your car insurance rates yearly, you'll make sure that you save money and aren't paying more than you need to be.
If that is the case, or if you haven't reviewed your insurance in the past year, you are likely spending more than you need to on your auto insurance.
You should review your car insurance on a yearly basis. Many people like their current insurance company and don't want to switch. But even if you are perfectly satisfied with the insurance company, bringing in competitive offers from other insurers can help you negotiate a better rate. If you are willing to switch companies, you can likely save even more money.
Here are a few steps you can take to save money on your auto insurance:
1. Use the Internet
The Internet has greatly evened the playing field when it comes to insurance. It has increased competition between car insurance companies and given consumers a much easier way to compare rates and analyze coverage that insurance companies offer.
There are a wide variety of insurance comparison sites that you can use to compare rates. Simply use any search engine and plenty will show up. It pays to use several since they may contain different car insurance companies in their engines. All you need to do is input your information and if a better deal appears, you're on your way to saving money.
If you don't want to switch car insurance companies, take in your lower quote and explain that you don't want to switch, but have received a better offer. Your insurance agent will do everything in his or her power to get you a competitive price. From there you can choose whether to stay or go to the other company. Either way, you will be paying less on your insurance premiums.
2. Raise Your Deductible
Another way to lower your car insurance premiums is to raise your deductible -- the amount you have to pay before your insurance kicks in to cover a claim.
If you have $1,500 worth of damage to your car and a $500 deductible, you must pay the first $500 and the insurance company would pay the rest. While a lower deductible may sound preferable, it means you'll pay much more for the insurance -- even if you don't use it.
You should raise your deductible as high as possible, as long as you will have the money to cover it should you ever have an accident. Moving your deductible from $500 to $1,000 can knock up to 30% off your yearly car insurance payments.
3. Drop Collision and/or Comprehensive Coverage
You also need to take into consideration what your car is worth. If your car is older, you may be carrying too much collision insurance, which covers damage to the vehicle sustained in an accident, or comprehensive coverage, which covers the cost of the car if it is stolen or damaged in some other way.
If the car has a Kelley Blue Book value of $2,000 or less, you may want to drop these coverages altogether. It's important to run the numbers and compare what you will pay for the insurance vs. how much you could get back if you ever have to make a claim. Between the insurance payments and the deductible, you'll likely come out ahead without any collision or comprehensive coverage for an older, less valuable car, even if something happens to it.
4. Get a List of Discounts
You may be surprised at the number of things that can get you a discount on your auto insurance, many of which you probably never knew about. That is because many insurance agents won't always tell you all the discounts available unless you specifically ask for them.
Since each insurance company is independent of the others, some may offer specific discounts that others don't. Here is a list of some of the possible discounts:
Safe drivers: If you have had a safe driving record, it can qualify you for a discount.
Courses: Some companies have approved defensive-driving courses you can take to brush up on your driving skills that will entitle you to a discount. These courses can sometimes cost you a few dollars, but the savings outweigh the expense and can be applied to several years of insurance bills. Much like defensive-driving courses, a driver's education class may also qualify you for a discount.
Anti-theft and recovery devices: Some anti-theft devices, like steering wheel locks, will get you a discount on your insurance. Likewise, devices like LoJack or OnStar that help locate a stolen vehicle also can lessen your premium.
Seat belts: By signing a paper that indicates that you always wear your seat belt when driving, you can get a discount.
Passive restraint systems: If your car comes with passive restraint systems, you may be eligible for a discount.
Multiple vehicles: If you insure more than one vehicle with the company, the vehicles after the first car usually will be eligible for a hefty discount.
Multiple products: Most insurance companies offer more than just car insurance. If you also buy homeowner's, renter's or life insurance from the same company, you will usually get a discount.
Policy renewal: If you have been with the same company for a number of years, you may qualify for a discount when renewing your policy.
Senior citizens: Many car insurance companies offer discounts for senior citizens.
Low mileage: If you don't drive a lot, you can qualify for a discount.
Good students: Students that meet a certain grade-point average may get a discount.
Military service members: Those who serve in the armed forces can often get a discount.
Low-risk occupations: If you work in a job that is deemed a "low-risk" occupation by the insurance company, you may get a discount.
Professional organizations and clubs: If you belong to certain organizations such as AAA or AARP, you may qualify for a discount.
Credit score: Insurance companies have found a correlation between credit scores and claims. If you improve your credit score, you'll likely get a discount on your insurance.
Dependable cars: While this won't necessarily save you money at the moment, the type of car you own can have a dramatic effect on the cost of your insurance and is something to consider the next time you purchase a car. Choosing a safe, dependable car that doesn't have a lot of costly repairs can save you a lot in insurance payments over the years. Your insurance company can provide you with a list of cars that are the least expensive to insure.
By taking the time to review your car insurance rates yearly, you'll make sure that you save money and aren't paying more than you need to be.
Do you need life insurance now?
If you're saving money regularly now, will you still need your life insurance policy when you retire? And will the same policy you have today meet your needs after you leave your job? It's better to answer these questions sooner rather than later.
"This is not something to be thinking about the day before you retire," says Bruno Graziano, a senior analyst with CCH, a tax consulting firm in Riverwoods, Ill. Before you can figure out the future of your policy, however, it's important to understand the assets you have today.
Lilfe insurance checklist Understanding these points will help you determine if life insurance is necessary during retirement.
7 tips to determine your life insurance needs
1. Term insurance: cheap until you get older
2. Permanent insurance: a costly alternative
3. Understand federal estate tax rules
4. Shop around
5. Look beyond employer insurance
6. Don't expect insurance to replace retirement savings
7. Consider your settlement options
1. Term insurance: cheap until you get olderLife insurance is generally defined as either term or permanent, and there are several flavors of the latter, including universal, whole life and variable life. It's important to understand the basics of each type of product as well as their advantages and disadvantages.
With term insurance, a policyholder purchases insurance and pays premiums for a set period, typically 10-20 years. If the policyholder dies within that period of time, a death benefit is paid to the policy's beneficiaries. When the policy ends, it can usually be renewed for another term. However, as the policyholder gets older, the rates for term insurance usually increase and may become cost-prohibitive.
According to Bruce Udell, author of "Advanced Estate Planning, Simple Solutions to Complex Problems," 65-year-olds who want to buy policies with 20-year terms should expect to pay about three to four times more for coverage than if they were 50 years old. The advantage of term insurance is that even though premiums increase with the age of the policyholder, they are still cheaper than permanent life insurance.
A term policy purchased during the working years could be timed to expire when the insured is ready to retire. Once the term is over, however, there's no death benefit, and your beneficiaries don't receive any payout.
"One of the things you always have to look at with term insurance is what happens when the clock stops," says Ben Jacoby, a senior financial adviser with Brinton Eaton Wealth Advisors in Morristown, N.J. If you have enough money saved to fund your own expenses and your children are grown and aren't dependent on your income, then you probably don't need another policy.
"From an income protection standpoint, I don't see a need for most people to have life insurance at the point of retirement," says Brad Levin, a certified financial planner with Householder Group, a financial planning company in Encino, Calif. "If they do, they're probably going to need a policy for just a few years anyway. It would be cheaper for them to just find another term policy."
Term policyholders will likely have the option to convert their existing term insurance into a permanent one. To determine if it's worth it, check the language of your contract to find out when you can do it, how much more you'll pay in premiums, and if you'll need a medical exam to prove that you're healthy.
2. Permanent insurance a costly alternativeIf you anticipate that you will need insurance for several years longer than what term insurance offers, another option is to purchase a permanent policy. It could be kept for life as long as the premiums are paid. However, the premiums are much higher than comparable term insurance rates.
The premium is higher because part of it is placed in a special savings fund known as the policy's "cash value." Over several years of payments, the cash value amount adds up and earns interest.
"Eventually, you could stop paying the premiums and the cash value should support the policy for the rest of your lifetime," says Levin. This would be one less expense in a fixed income retirement.
"On the other hand, if the policy performed well according to expectations, you as the policyholder could be able to start taking loans against the cash value of the policy on a tax-free basis." As an example, a life insurance policy with a death benefit of $100,000 might build up a cash value of $25,000 after several years. The policyholder could then borrow some of that money, effectively generating an additional stream of retirement income. It's important to note that the death benefit could be significantly reduced if a loan is taken out, and withdrawing the entire cash value would effectively cancel the policy.
In order to keep the death benefit, the policyholder would have to repay the loan with interest. The insured would once again be making payments on the policy.
3. Understand federal estate tax rulesPermanent insurance can be a good estate planning tool for high net worth individuals if structured properly.
"The federal estate tax currently kicks in for estates above $2 million," and life insurance payouts figure into the equation, says Graziano. "Although the death benefit from a life insurance policy is excluded from the recipient's income, unless the policy is owned in the correct manner, the proceeds will be included in the estate for tax purposes."
Owning it "in the correct manner" means not owning it at all. "The life insurance policy should be in an irrevocable trust or owned by your children or somebody other than you, so that it's not taxed in your estate," says Udell.
If you already own a policy, transferring it to a trust after the fact is possible, but it can be tricky. "If the insured dies within three years of the transfer, the insurance proceeds are going to be drawn back into his estate just as if the policy had never been transferred," says Graziano. Work with an estate planning professional for specific advice. Other insurance products may be suggested, such as survivorship insurance (also known as second-to-die insurance), that are appropriate for estate planning.
4. Shop aroundNo matter how old you are, it's a good idea to periodically compare your life insurance policy to others on the market. "Every now and then the National Association of Insurance Commissioners changes the interest rates that are required to be used for guarantees in life insurance policies," says Udell. "It behooves you to shop your policy every five years, especially if you currently have cash value insurance. If you are in good enough health, you could get a cheaper policy."
Before making a switch, check the terms and conditions of your current policy. You'll probably have to pay surrender charges, and you might owe taxes after the transaction.
If you have a cash value policy, monitor its performance just as you monitor the funds in your retirement accounts. "Get an 'in-force ledger' from your insurance company every single year to make sure the policy is performing the way that it was illustrated," says Udell. "Otherwise, if the policy earns a lower interest rate than was projected at the beginning, the cash value could run out, and you'd have to start over with a new policy."
An alternative option is to buy insurance that has a guaranteed payout, but the premiums would be higher.
If you want another policy, you might be able to exchange it for your old one tax-free. "There are some mechanisms in the tax code that allow you to exchange a life insurance policy for another or for an annuity, similar to a 1031 exchange in real estate. For life insurance, it's called a 1035 exchange," says Udell.
5. Look beyond employer insuranceThe cheapest life insurance available may be the group insurance sponsored by your employer, but it shouldn't be your only source of coverage. "Employer insurance is clearly a benefit, but you don't want to depend exclusively on it. When you leave the company, you may not have the right to convert that group policy to an individual policy," says Udell. "You'll want to buy some term insurance of your own. Otherwise, you're basing your insurance program and the financial security of your family on this employer's plan."
6. Don't expect insurance to replace retirement savings If you don't have a lot of money saved for retirement, don't expect a cash value policy to be your only savings strategy. It takes several years for cash value insurance to build up a substantial savings. If you're older and hope to retire in a few years, it's probably best to buy a term insurance policy to protect your dependents and fund a retirement account to build wealth.
"It's not financially beneficial for someone in their late 50s to purchase a cash value policy just for asset accumulation purposes," says Levin. "The cost of insurance is going to be higher and there's not going to be a lot of time to let the cash value build up significantly.
"If you're not financially ready for retirement, you'll be better off maximizing an investment vehicle that's not an insurance policy -- like a 401(k), IRA or Roth IRA."
7. Consider your settlement optionsAfter retirement, if you don't need your life insurance policy, you could sell it in a "life settlement" transaction. According to the Life Insurance Settlement Association, a life settlement is the sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit. The original owner of the policy is typically someone who is age 65 or older. The policy would eventually pay the investor the benefit. "For a person who's over age 70, they could receive around 20-25 percent of the policy's face value," says Graziano. So someone might receive $250,000 cash to sell a policy that has a $1 million death benefit.
Not everyone believes third party life insurance settlements are a good idea. "They are very controversial," says Jacoby. "They're getting a lot of states' attention these days, both from an ethics point of view and an abuse point of view."
The problem occurs when a person takes out a policy with no intention of receiving the benefit. They just buy it to cash out with an investor. "Most policies do not have a specific prohibition of them," says Jacoby, but insurance companies may include language in future policies prohibiting third party sales. Settlements are regulated by state insurance departments, so different rules apply by state.
A third party life settlement is not to be confused with a viatical settlement. The latter is an existing policy owned by a terminally ill client who would presumably use the money for medical expenses and final estate planning. Generally speaking, life insurance settlements are offered to individuals who do not have catastrophic medical problems.
Life insurance isn't for everyone. As you approach retirement, be sure to evaluate whether or not you still have a need for it. It's probably best to get an opinion from a disinterested third party, such as a fee-based financial planner who does not sell insurance products at all.
"This is not something to be thinking about the day before you retire," says Bruno Graziano, a senior analyst with CCH, a tax consulting firm in Riverwoods, Ill. Before you can figure out the future of your policy, however, it's important to understand the assets you have today.
Lilfe insurance checklist Understanding these points will help you determine if life insurance is necessary during retirement.
7 tips to determine your life insurance needs
1. Term insurance: cheap until you get older
2. Permanent insurance: a costly alternative
3. Understand federal estate tax rules
4. Shop around
5. Look beyond employer insurance
6. Don't expect insurance to replace retirement savings
7. Consider your settlement options
1. Term insurance: cheap until you get olderLife insurance is generally defined as either term or permanent, and there are several flavors of the latter, including universal, whole life and variable life. It's important to understand the basics of each type of product as well as their advantages and disadvantages.
With term insurance, a policyholder purchases insurance and pays premiums for a set period, typically 10-20 years. If the policyholder dies within that period of time, a death benefit is paid to the policy's beneficiaries. When the policy ends, it can usually be renewed for another term. However, as the policyholder gets older, the rates for term insurance usually increase and may become cost-prohibitive.
According to Bruce Udell, author of "Advanced Estate Planning, Simple Solutions to Complex Problems," 65-year-olds who want to buy policies with 20-year terms should expect to pay about three to four times more for coverage than if they were 50 years old. The advantage of term insurance is that even though premiums increase with the age of the policyholder, they are still cheaper than permanent life insurance.
A term policy purchased during the working years could be timed to expire when the insured is ready to retire. Once the term is over, however, there's no death benefit, and your beneficiaries don't receive any payout.
"One of the things you always have to look at with term insurance is what happens when the clock stops," says Ben Jacoby, a senior financial adviser with Brinton Eaton Wealth Advisors in Morristown, N.J. If you have enough money saved to fund your own expenses and your children are grown and aren't dependent on your income, then you probably don't need another policy.
"From an income protection standpoint, I don't see a need for most people to have life insurance at the point of retirement," says Brad Levin, a certified financial planner with Householder Group, a financial planning company in Encino, Calif. "If they do, they're probably going to need a policy for just a few years anyway. It would be cheaper for them to just find another term policy."
Term policyholders will likely have the option to convert their existing term insurance into a permanent one. To determine if it's worth it, check the language of your contract to find out when you can do it, how much more you'll pay in premiums, and if you'll need a medical exam to prove that you're healthy.
2. Permanent insurance a costly alternativeIf you anticipate that you will need insurance for several years longer than what term insurance offers, another option is to purchase a permanent policy. It could be kept for life as long as the premiums are paid. However, the premiums are much higher than comparable term insurance rates.
The premium is higher because part of it is placed in a special savings fund known as the policy's "cash value." Over several years of payments, the cash value amount adds up and earns interest.
"Eventually, you could stop paying the premiums and the cash value should support the policy for the rest of your lifetime," says Levin. This would be one less expense in a fixed income retirement.
"On the other hand, if the policy performed well according to expectations, you as the policyholder could be able to start taking loans against the cash value of the policy on a tax-free basis." As an example, a life insurance policy with a death benefit of $100,000 might build up a cash value of $25,000 after several years. The policyholder could then borrow some of that money, effectively generating an additional stream of retirement income. It's important to note that the death benefit could be significantly reduced if a loan is taken out, and withdrawing the entire cash value would effectively cancel the policy.
In order to keep the death benefit, the policyholder would have to repay the loan with interest. The insured would once again be making payments on the policy.
3. Understand federal estate tax rulesPermanent insurance can be a good estate planning tool for high net worth individuals if structured properly.
"The federal estate tax currently kicks in for estates above $2 million," and life insurance payouts figure into the equation, says Graziano. "Although the death benefit from a life insurance policy is excluded from the recipient's income, unless the policy is owned in the correct manner, the proceeds will be included in the estate for tax purposes."
Owning it "in the correct manner" means not owning it at all. "The life insurance policy should be in an irrevocable trust or owned by your children or somebody other than you, so that it's not taxed in your estate," says Udell.
If you already own a policy, transferring it to a trust after the fact is possible, but it can be tricky. "If the insured dies within three years of the transfer, the insurance proceeds are going to be drawn back into his estate just as if the policy had never been transferred," says Graziano. Work with an estate planning professional for specific advice. Other insurance products may be suggested, such as survivorship insurance (also known as second-to-die insurance), that are appropriate for estate planning.
4. Shop aroundNo matter how old you are, it's a good idea to periodically compare your life insurance policy to others on the market. "Every now and then the National Association of Insurance Commissioners changes the interest rates that are required to be used for guarantees in life insurance policies," says Udell. "It behooves you to shop your policy every five years, especially if you currently have cash value insurance. If you are in good enough health, you could get a cheaper policy."
Before making a switch, check the terms and conditions of your current policy. You'll probably have to pay surrender charges, and you might owe taxes after the transaction.
If you have a cash value policy, monitor its performance just as you monitor the funds in your retirement accounts. "Get an 'in-force ledger' from your insurance company every single year to make sure the policy is performing the way that it was illustrated," says Udell. "Otherwise, if the policy earns a lower interest rate than was projected at the beginning, the cash value could run out, and you'd have to start over with a new policy."
An alternative option is to buy insurance that has a guaranteed payout, but the premiums would be higher.
If you want another policy, you might be able to exchange it for your old one tax-free. "There are some mechanisms in the tax code that allow you to exchange a life insurance policy for another or for an annuity, similar to a 1031 exchange in real estate. For life insurance, it's called a 1035 exchange," says Udell.
5. Look beyond employer insuranceThe cheapest life insurance available may be the group insurance sponsored by your employer, but it shouldn't be your only source of coverage. "Employer insurance is clearly a benefit, but you don't want to depend exclusively on it. When you leave the company, you may not have the right to convert that group policy to an individual policy," says Udell. "You'll want to buy some term insurance of your own. Otherwise, you're basing your insurance program and the financial security of your family on this employer's plan."
6. Don't expect insurance to replace retirement savings If you don't have a lot of money saved for retirement, don't expect a cash value policy to be your only savings strategy. It takes several years for cash value insurance to build up a substantial savings. If you're older and hope to retire in a few years, it's probably best to buy a term insurance policy to protect your dependents and fund a retirement account to build wealth.
"It's not financially beneficial for someone in their late 50s to purchase a cash value policy just for asset accumulation purposes," says Levin. "The cost of insurance is going to be higher and there's not going to be a lot of time to let the cash value build up significantly.
"If you're not financially ready for retirement, you'll be better off maximizing an investment vehicle that's not an insurance policy -- like a 401(k), IRA or Roth IRA."
7. Consider your settlement optionsAfter retirement, if you don't need your life insurance policy, you could sell it in a "life settlement" transaction. According to the Life Insurance Settlement Association, a life settlement is the sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit. The original owner of the policy is typically someone who is age 65 or older. The policy would eventually pay the investor the benefit. "For a person who's over age 70, they could receive around 20-25 percent of the policy's face value," says Graziano. So someone might receive $250,000 cash to sell a policy that has a $1 million death benefit.
Not everyone believes third party life insurance settlements are a good idea. "They are very controversial," says Jacoby. "They're getting a lot of states' attention these days, both from an ethics point of view and an abuse point of view."
The problem occurs when a person takes out a policy with no intention of receiving the benefit. They just buy it to cash out with an investor. "Most policies do not have a specific prohibition of them," says Jacoby, but insurance companies may include language in future policies prohibiting third party sales. Settlements are regulated by state insurance departments, so different rules apply by state.
A third party life settlement is not to be confused with a viatical settlement. The latter is an existing policy owned by a terminally ill client who would presumably use the money for medical expenses and final estate planning. Generally speaking, life insurance settlements are offered to individuals who do not have catastrophic medical problems.
Life insurance isn't for everyone. As you approach retirement, be sure to evaluate whether or not you still have a need for it. It's probably best to get an opinion from a disinterested third party, such as a fee-based financial planner who does not sell insurance products at all.
How Much Policy Do You Need?
One tried and true way to reduce your auto insurance premium is to hike the deductible on your collision coverage and skimp on your liability coverage. Sometimes this can make sense, but often it's not worth the extra risk. In this section we'll explain several of the coverages you're likely to be offered as you shop for insurance (some are mandatory). Then we'll help you figure out how much to carry of each type.
Bodily Injury LiabilityThis coverage, which is required in most states, compensates the driver of the other car and its passengers in the event you get into an accident. It also covers the passengers in your car. The main consideration here is protecting your assets against lawsuits that arise from auto accidents. "But I'm a careful driver," you say. It doesn't matter. You can get sued even if the accident is not your fault.
Bodily injury liability is sold in standard increments that designate both how much coverage you have per person in an accident, with an additional limit per accident. For example, if you buy bodily injury worth $100,000/$300,000, each of the people you injured could be compensated $100,000, but only up to $300,000 per accident.
How much coverage you need is a function of what assets you have to protect. If you make $30,000 a year and rent your apartment, $50,000/$100,000 should suffice. But if you make more than $75,000 a year, own a house worth $150,000 and have $40,000 in mutual funds, you should consider at least $100,000/$300,000 of coverage. Our Net Worth Calculator can help you estimate just how much coverage you should get.
How much you'll pay to increase your bodily injury liability coverage depends on several factors, including your age, marital status and driving record. It also depends on where you live. For example, in rural Cortland County, New York, a 35-year old married male would pay an average of $86 annually to boost his coverage from $25,000/$50,000 to $100,000/$300,000, according to the New York State Department of Insurance. In New York City, however, where the frequency of bodily injury is much higher, that same man would have to shell out an average of $240 more a year.
One more option: If you have substantial assets, buy $300,000 in bodily injury on your auto policy and $300,000 on the liability portion of your homeowners policy. Then spend another $150 to $300 for a $1 million umbrella policy, which covers you against all manner of liability claims. Should you want still more coverage, the cost for an additional $1 million in coverage is minimal: It's typically $75 to increase your coverage to $2 million, and then $50 for each million after that, according to the Insurance Information Institute. Back to Top
Property Damage LiabilityThis coverage will pay for the repair and replacement of the other guy's car or property in the event of an accident. State-required minimums are as low as $5,000, but if you total somebody's Lexus, that won't begin to cover the damage.
You're better off with a minimum of $50,000 for each vehicle you own. And to be truly safe, you should have a total of $100,000 coverage. Back to Top
Personal Injury ProtectionThis is definitely one coverage you can skimp on. PIP coverage pays for the medical and funeral costs associated with an accident for you and your family — regardless of whose fault it was. But if you already have separate health, life and disability policies, you can probably forgo this one altogether. Check those policies first, but chances are those sort of expenses are already covered. Back to Top
Uninsured or Underinsured MotoristThis coverage pays for medical and funeral costs for you and your family in the event you get in an accident with either a hit-and-run driver or a driver who doesn't have enough auto insurance. These policies usually cover bike and pedestrian accidents, too. Given the prevalence of uninsured drivers nationally, this coverage is essential. On average, it costs less than $40 a year for $100,000 worth and will make up for anything your medical insurance doesn't cover. Back to Top
Collision and ComprehensiveCollision reimburses you for the full cost of repairs or replacement of your car after an accident. Comprehensive covers you in the event your car falls victim to a natural disaster, vandalism or theft. With either coverage, the lower the deductible you choose, the more the policy will cost you. We recommend that you always choose the highest deductible you can afford ($1,000 is fine). After all, the purpose of insurance is to protect you against big losses, not to make you whole to the last dollar. If you have an older car, you might drop this coverage altogether.
Collision and comprehensive — which can account for 30% to 40% of your total premium — are cash-value coverages. That means if your car is damaged, the most you'll recoup is the Kelley Blue Book value, which declines precipitously as your car ages. Here's a good rule of thumb: If the cost of your collision and comprehensive is more than 10% of your car's Blue Book value, it probably makes sense to drop these coverages and save a tidy sum. With most cars, you should approach this limit as the car turns five years old. Understand, however, that if you eliminate the coverages, you'll have to foot the repair bill if you get in an accident that's your fault, or if the car is totalled or stolen. Back to Top
ExtrasWhile insurance companies will try their hardest to sell you any number of extras to go along with the essentials, most of them aren't worth it. Consider rental-car reimbursement, which pays a paltry $15 or so a day while your car is in the repair shop after a collision. Not only is the reimbursement small, the odds you'll need it are remote. The chances are at least even that the other guy will be at fault, and his insurance will pay the full cost of this. Another dubious extra is towing coverage. It costs $25 or more per year on a policy, money you'd be better off putting toward an auto-club membership that would be exponentially more useful. One extra that is worthwhile: Full glass coverage. Auto glass is expensive and an errant stone can ruin a $500 windshield in the blink of an eye. Back to Top
Bodily Injury LiabilityThis coverage, which is required in most states, compensates the driver of the other car and its passengers in the event you get into an accident. It also covers the passengers in your car. The main consideration here is protecting your assets against lawsuits that arise from auto accidents. "But I'm a careful driver," you say. It doesn't matter. You can get sued even if the accident is not your fault.
Bodily injury liability is sold in standard increments that designate both how much coverage you have per person in an accident, with an additional limit per accident. For example, if you buy bodily injury worth $100,000/$300,000, each of the people you injured could be compensated $100,000, but only up to $300,000 per accident.
How much coverage you need is a function of what assets you have to protect. If you make $30,000 a year and rent your apartment, $50,000/$100,000 should suffice. But if you make more than $75,000 a year, own a house worth $150,000 and have $40,000 in mutual funds, you should consider at least $100,000/$300,000 of coverage. Our Net Worth Calculator can help you estimate just how much coverage you should get.
How much you'll pay to increase your bodily injury liability coverage depends on several factors, including your age, marital status and driving record. It also depends on where you live. For example, in rural Cortland County, New York, a 35-year old married male would pay an average of $86 annually to boost his coverage from $25,000/$50,000 to $100,000/$300,000, according to the New York State Department of Insurance. In New York City, however, where the frequency of bodily injury is much higher, that same man would have to shell out an average of $240 more a year.
One more option: If you have substantial assets, buy $300,000 in bodily injury on your auto policy and $300,000 on the liability portion of your homeowners policy. Then spend another $150 to $300 for a $1 million umbrella policy, which covers you against all manner of liability claims. Should you want still more coverage, the cost for an additional $1 million in coverage is minimal: It's typically $75 to increase your coverage to $2 million, and then $50 for each million after that, according to the Insurance Information Institute. Back to Top
Property Damage LiabilityThis coverage will pay for the repair and replacement of the other guy's car or property in the event of an accident. State-required minimums are as low as $5,000, but if you total somebody's Lexus, that won't begin to cover the damage.
You're better off with a minimum of $50,000 for each vehicle you own. And to be truly safe, you should have a total of $100,000 coverage. Back to Top
Personal Injury ProtectionThis is definitely one coverage you can skimp on. PIP coverage pays for the medical and funeral costs associated with an accident for you and your family — regardless of whose fault it was. But if you already have separate health, life and disability policies, you can probably forgo this one altogether. Check those policies first, but chances are those sort of expenses are already covered. Back to Top
Uninsured or Underinsured MotoristThis coverage pays for medical and funeral costs for you and your family in the event you get in an accident with either a hit-and-run driver or a driver who doesn't have enough auto insurance. These policies usually cover bike and pedestrian accidents, too. Given the prevalence of uninsured drivers nationally, this coverage is essential. On average, it costs less than $40 a year for $100,000 worth and will make up for anything your medical insurance doesn't cover. Back to Top
Collision and ComprehensiveCollision reimburses you for the full cost of repairs or replacement of your car after an accident. Comprehensive covers you in the event your car falls victim to a natural disaster, vandalism or theft. With either coverage, the lower the deductible you choose, the more the policy will cost you. We recommend that you always choose the highest deductible you can afford ($1,000 is fine). After all, the purpose of insurance is to protect you against big losses, not to make you whole to the last dollar. If you have an older car, you might drop this coverage altogether.
Collision and comprehensive — which can account for 30% to 40% of your total premium — are cash-value coverages. That means if your car is damaged, the most you'll recoup is the Kelley Blue Book value, which declines precipitously as your car ages. Here's a good rule of thumb: If the cost of your collision and comprehensive is more than 10% of your car's Blue Book value, it probably makes sense to drop these coverages and save a tidy sum. With most cars, you should approach this limit as the car turns five years old. Understand, however, that if you eliminate the coverages, you'll have to foot the repair bill if you get in an accident that's your fault, or if the car is totalled or stolen. Back to Top
ExtrasWhile insurance companies will try their hardest to sell you any number of extras to go along with the essentials, most of them aren't worth it. Consider rental-car reimbursement, which pays a paltry $15 or so a day while your car is in the repair shop after a collision. Not only is the reimbursement small, the odds you'll need it are remote. The chances are at least even that the other guy will be at fault, and his insurance will pay the full cost of this. Another dubious extra is towing coverage. It costs $25 or more per year on a policy, money you'd be better off putting toward an auto-club membership that would be exponentially more useful. One extra that is worthwhile: Full glass coverage. Auto glass is expensive and an errant stone can ruin a $500 windshield in the blink of an eye. Back to Top
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