Maria Grant - THE INSIDER'S GUIDE TO AUTO INSURANCE

THE INSIDER'S GUIDE TO AUTO INSURANCE

THE INSIDER'S GUIDE T 'S GUIDE TO AUTO INSURANCE

Maria Grant

Table Of Contents

Introduction

Insurance Terms Explained

Standard Coverage

Other Coverage Options

What’s Required and How to Get It

What Coverage Is Right for You?

Protecting Yourself Against Lawsuits

Factors That Affect Your Premium

Ways to Lower Your Premium

10. What Happens When You Have an Accident or Claim

11. After the Accident

12. When Not to File a Claim—and When You Must 54

13. What Happens If Your Car Is Stolen

14. Insurance Coverage Beyond Your Personal Vehicles

15. How to Handle Common Problems

16. Questions and Answers

17. DOs, DON’Ts, and Things to Consider

18. In Case You’re Not Convinced…

About Maria Grant Imagine, if you will, having the opportunity to hire a real estate agent that the national banks trust to list and re-sell their foreclosures. That opportunity is here right now when you choose Maria Grant as your listing agent. Maria Grant, who has held the REO (real estate owned) specialist certification, specializes in acquiring, refurbishing, and reselling foreclosed residential and commercial properties in Houston and the surrounding areas. She has skills and training in the foreclosure process that distinguish her from other agents: conflict resolution, managing the rehabilitation process, hiring and managing contractors, repositioning properties for re-sale, maximizing value, and managing the process for quick closings. Her attention to detail sets her apart. If you are looking for a listing agent invested in your success, then look to Maria Grant. She has a history of selling properties within 5% of the list price, because she uses cutting-edge tools to assist you in pricing your property right from the beginning. Maria has been in the real estate business since 2001 as an investor and since 2005 as a Realtor. As an investor, Maria continues to provide affordable housing, build student housing, and rehab commercial properties. As an agent, Maria has taught other agents how to acquire and manage REOs. Maria's passion for teaching also manifests in her volunteer activities, which include sponsoring a child in Nicaragua and helping new families orient to private schools. She also has a history of teaching life skills to teenagers in juvenile detention centers.

Maria's compassion for others shows in her clinical practice as a pediatric physical therapist. Dr. Maria Grant treats pediatric patients weekly, in addition to selling and investing in real estate. Overall, Maria will win you over with her unique negotiating skills, commitment to execution, attention to detail, and passion for what she does to better your community

CHAPTER 1 Introduction

Do you remember when the hooky-playing teens in Ferris Bueller’s Day Off accidentally sent Cameron’s dad’s classic red Ferrari through a big glass window and into the ravine? Did you find yourself hoping his dad had the right kind of insurance to cover all that damage? Well, by the time you’ve finished this book, you’ll know exactly what insurance coverage he would have needed—and what he would’ve been on the hook for if he didn’t have any (or all) of the coverage options necessary for this particular (and extremely cringeworthy) accident. But, of course, this book isn’t about showing you coverage options for fictional scenarios. The goal of this book is to help you find the right auto insurance to protect yourself and the people you love. Talk about peace of mind, right? And we both know it’s not just about great coverage—it’s also about making sure you’re paying the lowest amount possible for that coverage. That’s why I’m so happy you’re reading this book. Within these pages, you’ll find everything you need to know about auto insurance:

• What to look for in policies • What all those technical terms mean • How to lower your premium (and what causes it to change)

• What’s involved in the claims process (just in case!) • And how to deal with any other issues that may come up You’ll also learn why your best bet is working with an indirect insurance professional like me. (And don’t worry, I’ll explain what exactly “indirect” means in the coming pages.) Now, before we move on, I want to tell you a real-life story about why it’s so important to have the right insurance—not just the least expensive. (As in all stories in this book, names have been changed for privacy.) Parker was driving on the freeway when another driver unexpectedly pulled over into his lane, causing a crash. Parker’s car was totaled, and he suffered multiple bone fractures. The other driver didn’t have insurance, so Parker reached out to his insurance. That’s when he found out his policy didn’t cover the total cost of the accident. This meant he would have to continue making payments on a car he couldn’t drive. In addition, he had some expensive electronics in the car that were also damaged beyond repair. His insurance didn’t cover them at all, so he had to find the money to pay to replace them, as well—to the tune of thousands of dollars. Parker’s is a cautionary tale of why it’s crucial to make sure that you have the right amount of coverage—and that you understand what your policy covers. This sometimes means that paying a slightly higher premium is worth it for your peace of mind and financial security. But don’t worry—there are a lot of factors that go into your premium cost, and I’ll explain all the ways you can bring them down in future chapters. By the time you finish this book, you’ll know how to get the coverage you need for the lowest possible price!

So, let’s get started, shall we?

CHAPTER 2 Insurance Terms Explained erms Explained

Before we move forward, you need to understand the basic terminology of auto insurance. I’m going to cover a lot of items here, but know that there’s also a glossary at the end of the book you can reference in case you forget.

Your Policy: What Is It and What’s in It?

So first up, what exactly is a policy? It’s simply the contract between you and the insurance company you’ve chosen. After you sign it, you will officially be the policyholder. (Note: If you go to Appendix A, you’ll find a sample policy.) The policy will list your coverage, which is everything the insurance company will pay for. It will also state your deductible, the amount you’re required to pay before the insurance company will pay. The policy will also include limits, the maximum amount the company will give you. (Each type of coverage has its own limit.) And, of course, your policy will show your premium, which is how much your policy costs. Depending on your policy, your premium may be paid all at once, every six months, or monthly. One important note about premiums: The premium you pay is actually a combination of premiums. Most insurance policies are made up of a variety of coverages, such as collision, bodily injury, and more, all of which I’ll go over in the next chapter.

Money-Saving Tip: Automate It

Some companies offer a discount if you set up an electronic funds 4

transfer (EFT). This means your payment gets automatically taken from your bank account or credit card. You may also qualify for a discount if you pay the whole premium upfront. So, who decides what your premiums will cost? An underwriter factors in all the variables, from your age to your car’s age to your location and more. (Again, all will be explained in detail later.) He or she will look at the risk, the chance that there will be a loss of some kind, and figure out the rate, a term which is often used interchangeably with “premium” but is actually different. The rate is what it costs the insurance company per exposure . The exposure unit is the item—in this case, your car—that is being exposed to loss. It factors in how much it will cost if your car gets destroyed. Your premium is your rate multiplied by the number of exposure units. I know that might be a little confusing, so let’s use some easy math to explain this: Say each exposure unit is $1000 for collision coverage for a rate of $10 a year. You have a car worth $10,000. First, the underwriter will figure out the total number of exposure units by dividing 10,000 by 1000, which equals 10. He or she multiplies that 10 (exposure units) by $10 (rate per unit) and gets $100, the amount you would pay for your customized collision coverage premium. Make sense? I hope so. One thing I want to make clear is that this is the place where your premiums can change. For example, if you cause an accident, your rate per unit will possibly go up. If you go a long time without any accidents or tickets, your rate may go down. Much of this depends on your insurance company.

Terms to Know About Claims

Next up, I want to go over the terminology involved with claims. A claim is the official request you give to the insurance company to ask that you be reimbursed for a loss. A claims adjuster (also

known as an insurance adjuster) is the person who will confirm the loss and figure out how much money the company will pay you. If there was an accident, the adjuster will look at the first party (you) and the third party(ies) (anyone else involved). One factor reviewed will be comparative negligence. This is the percentage of fault the involved parties have. Another factor is negligence—not being careful enough while driving. The adjuster will also look at the actual cash value which was your car’s worth before the accident. He or she may look at the book value as well. This is the average sale price for your car if it were in good condition and just serves as a guide. Of course, this person will also have to investigate how much value your car lost because of the damage. This is called appearance allowance. If fixing your car costs more than it’s worth, it’s considered a total- loss claim—in other words, your car’s been “totaled.” When the adjuster has finished his or her work, he or she will inform you how much money you’ll be given. However, if you don’t agree on the amount, you can ask for an appraisal based on the appraisal clause found in most policies. (Be sure to check if it’s in yours!) An insurance company can also request an appraisal. Now, I mentioned having to pay the deductible if you file a claim. However, subrogation involves you transferring your rights, so the other driver’s insurance company pays your insurance company. This process sometimes (but not always!) covers your deductible. However, it could take at least six months for the process to be completed.

Types of Insurance Agents

You can get your auto insurance in several different ways. The first is directly through an exclusive agent (also called a captive

agent) who represents only one company and might be salaried, might work on commission, or a combination of the two. The second is indirectly through an independent agent who represents multiple companies, which means he or she can look for the best deal for you. The third way is also indirect—through brokers who serve as go-betweens between their clients and insurance companies. Both independent agents and brokers work on commission. The distinction between independent agents and brokers can get a little confusing, so here’s a little help:

Independent Agents:

• represent insurance companies • work with a limited number of companies • can often sign up clients for exclusive policies • paid by commission

Brokers:

• represent buyers • work with a greater number of companies • usually don’t have access to exclusive policies • paid by the insurance provider’s quote, plus the commission

The process is different, depending on which route you choose. If you decide to buy directly, you’ll have to put in the time and effort to compare different insurance companies’ policies. Also, if any issues come up after you’ve set up the policy, it’s possible you’ll have to go through customer service rather than speaking directly to the agent who helped you set up your policy. If you decide to buy indirectly using an agent or broker, they’re 7

generally self-employed and will set up policies only with the companies they represent. The difference between the two is that agents have contracts with multiple insurance companies and brokers don’t have any contracts. Also, buyers may have to pay brokers’ administrative fees, which they wouldn’t with an independent contractor. There are distinct advantages to getting your auto insurance indirectly with a professional like me. Because I work with more than one company, I can help you easily compare your insurance options. I’m also not tied to only one company, which means you’ll have options, some including deals, which I can often offer because I sell multiple products. Lastly, I’m an expert at what I do, and helping my customers is my top priority. This means I’m here for you in whatever way you need me to be—answering any questions you have, assisting you throughout the claims process, and providing explanations and support with any other issues that may come up. Speaking of providing explanations, now that you know all the basic auto insurance terms, you’re ready to dig in, right? In the next chapter, we’ll go over what exactly is in a policy, the different types of insurance coverage, and more.

CHAPTER 3 Standard Coverage You now know the policy is the contract between you and the insurance company, but what exactly is in it? The first item is the declarations page. This includes all the basics: your name and address, the policy’s time period, your premium amount, the coverages included in your policy, and each coverage’s limit per claim. The core of the policy is the insurance agreement, in which your insurance company agrees to make payments, where appropriate—either to you or on behalf of you. It also details the people who are covered by the policy, definitions of terms within the agreement, and any exclusions. Lastly, your policy contains conditions. These are explanations for everything involved in filing a claim, including getting proof, how long you have to file a claim, and more. It also states the cancellation terms, both for you and for the company. To see an example of what a policy looks like, check out Appendix A.

Horror Story: Motorcyclist’s Medical Bills

Bill was riding his motorcycle when he was hit by a distracted driver, Jon, totaling his $18,000 motorcycle and, even worse, causing serious physical injuries that wound up costing $87,000. Jon had insurance, but his property damage limit was $15,000, and his bodily injury limit was $50,000. This meant Jon had 10

to come up with $40,000 to pay for the rest—$3000 for the motorcycle and $33,000 for medical expenses. So not only do you need the right kind of insurance, but you also need to make sure your limits are high enough. What kind of insurance is there that would cover these items and more? Read on.

Types of Insurance

Standard Insurance

There are five main types of coverage:

1. collision 2. comprehensive 3. liability 4. medical payments (including personal injury protection) 5. uninsured motorists

Collision insurance covers car repairs after a traffic accident. While this is often considered optional coverage, many car loan and lease agreements list collision insurance as a requirement. Comprehensive insurance is another type of loan or lease agreement required. Its coverage can vary but may include natural disasters, fire, vandalism, theft, falling objects, and damage done if you hit an animal. Liability is the most common coverage requirement. It pays for any accidents you cause and only covers the other party. Liability includes bodily injury and property damage coverages.

Bodily injury coverage sometimes has two limits. One is per person and the other is if multiple people are injured. For example, a policy may include a $15,000 bodily injury limit per person and a $25,000 total bodily injury limit (for everyone hurt). There’s a separate limit on property damage. However, it is also possible to have a single liability limit that covers everything. One important thing to keep in mind when looking at limits is that the minimum set by most states sometimes isn’t enough to cover the actual damage. If that happens, you’ll be required to pay the difference out of pocket. This is why I strongly urge my clients to get more than minimum coverage. The general recommendation is $100,000 for bodily injury and $300,000 per accident.

Pro Tip: Cover Your Butt

I’m repeating this here because it’s absolutely crucial: Ensure your policy covers more than the minimum liability requirement so you can avoid having to pay damages out-of-pocket. Medical payments coverage covers you and your family if you’re in a car, on a bike, or are a pedestrian hit by a car. This helps you and your passengers with medical payments, dental care, and funeral costs. This coverage is required in some states but not others. One thing to think about when weighing the option is if you have health insurance and long-term disability insurance. If you do, you’ll already be covered in an accident, so I recommend only buying the minimum medical payments coverage required by your state. The other kind of medical insurance is personal injury protection (PIP). It’s also called no-fault insurance. PIP is required in no- fault states; in fact, these are the only states where PIP is offered. Like medical payments coverage, PIP helps with your medical

bills. It also pays for your income loss while you recover from an accident. Keep in mind that states requiring PIP have minimum coverage limits, but those minimums don’t always cover everything you need. You can get over the minimum amount, but, of course, that will mean paying more upfront. The good news about PIP is that policyholders often get paid not only more quickly but also more fairly.

What Is a No-Fault State?

If you live in one of the dozen no-fault states, it means that it doesn’t matter who caused the accident—you file a claim with your insurance company, which will pay your medical expenses, any lost earnings, and for pain and suffering caused by an accident. It also often means that your right to sue the other driver is limited and can only be done if the situation exceeds a severity of injury threshold. This threshold may be descriptive (verbal) or monetary. That said, every no-fault state works in a different way. Some use verbal thresholds, some use monetary. Some states have a choice no-fault law, which means drivers can keep the right to sue by refusing the threshold. In add-on states, drivers get the same payment from their insurance company, regardless of fault, just like traditional no- fault states, although that kind of first-party coverage is often an option and may not be as beneficial as in states where it’s required. The major difference is that in add-on states, there are no lawsuit limitations. If your state doesn’t have any lawsuit constraints, you’re in a tort liability state, also known as an at-fault state.

Uninsured motorist (UM) coverage takes care of what the other driver’s insurance would’ve paid if he or she actually had insurance. It also covers you in the case of a hit-and-run or if the other driver’s insurance covers only part of what you need. UM covers any physical injuries to you and your passengers, including medical costs, pain and suffering, and even lost wages. While some companies offer a single limit, others have split limits, with one for bodily injury or death per person and one for the total amount per accident. Some states have a minimum amount of UM coverage required. As with other coverage, this minimum may not be enough for some situations. We can talk about your specific needs and decide on the amount that’s right for you. But auto insurance is required in most places, so you shouldn’t have to worry about this, right? Unfortunately, not everyone is as responsible as you. According to the Insurance Research Council (IRC), about 14% of drivers in the United States don’t have insurance, despite the legal obligation. Uninsured motorist property damage (UMPD) is a related insurance that covers your car and property if the other driver lacks insurance or doesn’t have enough coverage. What does UMPD cover? Your home and property and your personal items, such as any electronics that get damaged in an accident. Like UM, this is not usually required by the state, and only some states or companies may offer it. One thing to know with UMPD is that when you file a claim, you’re considered a third party. This means your insurance acts as if it’s paying from the other driver’s liability coverage. Underinsured motorist (UIM) t (UIM) coverage is important to consider because so many drivers who do have insurance stick with the

minimum amount required by their state, which often isn’t enough to cover the damage. UIM can cover bodily injury and/or property damage. Bodily injury (UIMBI) coverage is required by some states, but property damage (UIMPD) coverage is required less often and is not even offered in some states. Uninsured motorist coverage can be a little confusing, so I want to make sure you understand this point: in some instances, if the other driver is at fault, your coverage limits must be higher than theirs to get benefits. How does this work? Here’s an example where the other driver is fully at fault: • The other driver has the state minimum of $40,000 bodily injury liability coverage. • You have underinsured motorist bodily injury coverage of $20,000. • You got badly injured in the accident, and your medical costs reach $75,000. Since your UIMBI is less than the other driver’s coverage, you would get $40,000 from their insurance, but you wouldn’t get the extra $20,000 from your UIM. However, if your UIMBI coverage is more than the other driver, you would collect for the damages: • The other driver has the state minimum of $40,000 bodily injury liability coverage. • You have underinsured motorist coverage of $75,000. • You got badly injured in the accident, and your medical costs reach $75,000. As in the other situation, the other driver’s insurance would cover the $40,000, and your UIM would cover the difference. Of

course, if you had a setback and your medical costs went on to exceed $75,000, you would not get more money because you would’ve reached your limit.

Horror Story: Everything’s Gone

Rod was killed when a car hit him head-on. The other driver’s lawyer said they had insurance but no proof that they did. However, when Rod’s mother went to file a claim, the insurance company said the car wasn’t covered. Not only did Rod’s family suffer the unimaginable by suddenly losing their loved one, but they also had the stress of a ton of expenses with no insurance payments to help cover even a little of the cost.

This is why UM and UIM coverage is crucial.

One thing to keep in mind about uninsured and underinsured motorist coverage is that it follows you , not your vehicle . This means that if you get into an accident when you’re a passenger in a friend’s or relative’s car, your policy will still cover you. Of course, if the person is underinsured, their insurance will pay up to their limit, but if there are expenses that they can’t afford out- of-pocket, that’s when your coverage will kick in.

CHAPTER 4 Other Coverage Options age Options

The five main types of coverage I discussed in the previous chapter are certainly important—and often required. However, even if you have them all, you might still be on the hook for paying out-of-pocket for certain things. In order to minimize the amount you might have to pay directly, you should know about other options insurance companies often provide. While the following insurance isn’t necessarily required, I do sometimes recommend them to my clients as a way to protect their cars and their wallets. After talking with you about your particular situation, I’ll recommend which of these options (if any) would be advantageous and which you’re better off skipping. If you have comprehensive insurance, theft is probably already covered. But if you’ve decided against comprehensive, theft insurance is definitely something to consider. Keep in mind that if you’ve customized your car, those customizations will be covered only if you declare it and pay a bit more on your premium. Umbrellainsurance is like a second round of coverage that’s used if you exceed your main liability insurance limits. It’s recommended if you have assets that are over $300,000. It tends to work with a combination of liability insurance, including auto, homeowners, and boat insurance. Some companies require you to get homeowners and auto insurance with them to get the umbrella policy. Mechanical breakdowninsurance covers exactly what the name implies. Essentially, it’s similar to extended warranties offered 18

by dealerships, but this insurance tends to be cheaper than the warranties. Keep in mind that not all insurance companies offer this optional coverage. Towing and labor coverage are often offered, but I rarely recommend it. It covers the cost of towing your car to the auto shop. However, towing costs an average of $25-$75, so if you can afford to pay that, consider skipping this and saving $10-$15 on your premium. Also, if you buy or lease a car from a dealership, it’s possible there might be a towing coverage benefit, at least for a certain amount of time. Auto clubs such as AAA also offer towing as well as many other benefits, so consider looking into those before deciding on adding towing and labor to your insurance policy. Gap insurance can provide peace of mind if you have a lease or loan. Sometimes cars get totaled in accidents and their fair market value is less than what you owe. This insurance allows you to get the money your car was worth so you won’t owe anything. Loan/Lease payments coverage is similar to gap insurance. However, it’s set at a certain percentage of the car’s estimated value. If you love your car and don’t want to give it up, you might want to consider auto replacement coverage. It pays for repairs even if the repairs cost more than the car is worth. This is usually an option that comes with collision and comprehensive insurance and tends to cost around 10% of the total of the two. If you’ve added parts to a purchased car, you might want to consider custom parts and equipment coverage. This covers things like electronics, engine parts, and custom aesthetic features such as a spoiler.

Rental reimbursement coverage is an option that pays for a rental

car while yours is getting repaired after damage. (It doesn’t cover a rental car for normal maintenance or fixes or if you rent a car solely for travel purposes.) This coverage has two kinds of limits: per day and per accident. It lets you get a car similar to yours, but if your car is going to be in the shop for a while, ask for a car that costs less so you won’t have to worry about exceeding that per- accident limit.

Pro Tip: Take a Temporary Downgrade

If you have rental reimbursement coverage, ask for a car that costs less than your daily limit. This means it’ll take longer to reach your per-accident limit, so you’ll be less likely to have to pay anything out-of-pocket. It’s important to note that rental reimbursement does not cover your rental car if something should happen to it. However, your collision and comprehensive coverage might, so before you rent the car, check with your insurance company. You may also have a credit card that covers you, so look into those benefits as well. (Keep in mind this is usually a secondary coverage and may come with some exclusions, so read all the details.) Lastly, know that your rental company’s rate includes basic liability coverage. This means you’re covered for minor accidents and damage, but not major ones. For more details about coverage for rental cars, read Chapter 13, which focuses on insuring cars other than your regularly used personal vehicles.

What’s Not Covered

Even with all these options, there are some things a regular auto insurance policy just doesn’t cover. One is purposefully hitting another car, person, or property (not that you’d even think of doing that!).

It also doesn’t cover driving your car for work purposes. If you drive for a company like Lyft or if you deliver food or packages, you need a commercial auto policy. It’s not just a matter of making sure you’re covered — using your car for business purposes while just carrying your regular insurance coverage may void your policy. In addition, a general policy won’t necessarily cover any items in your car or another vehicle with two or three wheels. However, you can add coverage that does insure these things.

Horror Story: Without ALL Her Wheels

Ann was hit head-on by Caden, who was texting at the time. Ann broke over two dozen bones, and her new van and her wheelchair in it were both in horrible shape. Caden was uninsured, and Ann quickly discovered that while she had insurance, it didn’t cover all the repairs her van needed. It also didn’t cover her wheelchair at all. This means not only was she on the hook to pay for a car she couldn’t drive, but she also had to figure out a way to pay for a replacement wheelchair, which cost about $30,000. So now you’ve got two horror stories showing the importance of UM and UIM insurance—are you convinced yet? Just remember that if you have other equipment you regularly keep in your car, you want to make sure that’s covered, too. If you have comprehensive insurance, it may be covered, but it’s obviously important to make sure—and to get different or additional coverage, when necessary.

CHAPTER 5 What’s Required and Ho ed and How to Get It o Get It Every state has a different requirement when it comes to auto insurance, and laws tend to change over time. The best ways to find out what coverage you legally need are to ask your agent or broker, check out your state’s DMV or BMV website, or visit the National Associate of Insurance Commissioner’s website. While you could certainly use a search engine, as well, I don’t recommend this, since not every website will have the most recent information.

What Insurance Is Required Where

Each state has its own minimum insurance requirements. Some states just require proof of financial responsibility. If a driver is in an accident and doesn’t meet his or her state’s requirements, his or her license and registration will probably be suspended. At the time of this book’s publishing, the only two states that don’t require any kind of insurance are New Hampshire and Virginia, although most residents of both states do choose to get some type of coverage. (I’m sure you can understand why at this point.) New Hampshire requires at-fault drivers to pay up to $25,000 for property damage and up to $50,000 for liability. Virginia requires drivers to pay $500 to the state if they opt out of insurance. However, they’re still liable if they cause an accident. Also, as of the time I wrote this book, thirty states have a bond option. Instead of buying insurance, drivers can buy a bond, and they carry a card with them to prove this when they’re driving, much like an auto insurance card. Its money can be used only 22

for accident-related expenses. If a driver does need to use the money, he or she must also pay the interest, just like in a loan. Even if I didn’t work in insurance, I would highly recommend that everyone get the appropriate coverage for their particular circumstances. It’s simply the best financial protection in case of an unfortunate accident and, because of that, it really does bring peace of mind.

Getting Insurance

I know this all probably seems like a lot, right? That’s why I’m here to help. When I talk with my clients, I always listen to what’s important to them so I can make sure their policies cover them the way they need to be covered. I also don’t want their policies to cover anything unnecessary, because I don’t want my clients paying even a penny extra for something they don’t need. When you’re ready to get a quote, there are a few things you’ll need, regardless of how you plan to get your insurance. Be sure to have all this information on hand before reaching out to any agent, broker, or insurance company: • your driver’s license number • your Social Security number • your car’s make, model, and VIN • your driving history for the last five years, including any accidents or citations • your current policy’s limits and deductibles But how do you know exactly which insurance is best for you? And how do you make sure you don’t overpay? Keep reading for all the answers.

CHAPTER 6 What Coverage Is Rig age Is Right for You? Horror Story: The Case for Comprehensive Coverage A Michigan man named Gary was driving his car up the road when, out of nowhere, a tree fell on him. A man named Preston had been cutting down the tree and neither he nor his friend thought to stop or even watch for traffic. Gary’s car required $10,000, and the insurance company declared it a total loss. It was a 13-year-old car with about 200,000 miles on it, but Gary kept it in as good condition as he could. Unfortunately, Gary didn’t have comprehensive insurance, which likely would’ve covered the damage, and he didn’t have the money to fix his car—the family’s only vehicle. He tried filing a homeowner’s insurance claim, but Preston wasn’t the homeowner. The insurance company said the homeowner himself wasn’t negligent and refused payment. Instead, the insurance company said they should file a claim with Preston’s insurance, but he didn’t have any. The last course of action was to sue Preston, but it would likely cost more for the legal fees than they could get in court. Why? Preston had no insurance and not a lot of money. Even if the courts said he had to pay for everything, if he didn’t have $10,000, there was nothing that could be done. So now the car that was crucial for getting Gary and his wife to work and their kids to school is just sitting in their driveway, 24

rusting away.

What Insurance Do You Need?

The first step to figuring out the right coverage for you is knowing your state’s requirements. However, this is something that will be automatically included in every policy, so you won’t need to worry about this. If you’re curious, I’m happy to answer any questions you have about this. Next, think about what you can afford—both when considering your premium and also what might happen should you become involved in an unfortunate accident. One thing to keep in mind is the age and value of your car. If collision or comprehensive insurance isn’t required by your state and you have an older car, you definitely want to look at the costs. Why? Because insurance companies look at the book value of your car in the current market and will only cover that cost. So, for example, if your car is worth $4000 but needs $7,500 worth of repairs, your insurance company will only cover that $4000 (minus your deductible). All that said, keep in mind the horror story I told above. Since you never know what situations you’ll run into—or that will run into you—having an open discussion about finances with your agent will help you determine what to do about this kind of coverage. There may be other options to consider, as well. Another thing to look at is whether you need medical coverage. It’s not required in many states, and it’s possible your health insurance will cover the same thing. You don’t want to be paying twice for essentially the same thing! There is one exception, though. If you often have people in your car who aren’t in your immediate family—say, if you drive carpool for work, medical coverage will cover them if there’s an accident—something your

health insurance won’t do.

One optional coverage I always recommend considering is uninsured motorist coverage. It’s a low-cost add-on that gives you better coverage, and I think it’s often worth the slightly higher payment. Again, auto insurance coverage is a highly personalized decision. There are a lot of things to consider, which is why I place such emphasis on open discussions with all my clients. We review their unique circumstances and decide which coverage is truly optional, which is completely unnecessary, and which would serve them best in the long run.

CHAPTER 7 Protecting Yourself Ag ourself Against Lawsuits Horror Story: Your Car, Your Fault Madison had her parents’ car while she was at college. She caused an accident that involved multiple cars. Thankfully, there were only some minor injuries; however, the drivers and passengers in other cars all filed lawsuits for negligent infliction of emotional distress. The total amount they sought was around $150,000 in damages. However, because the car was still in Madison’s parents’ names, they’re the ones at the receiving end of the suits, so they and their insurance must fight and/or pay. One way that Madison’s parents could’ve protected their assets is by making sure the car was in their daughter’s name—and only hers. Not that any parent wants their child to deal with this situation, but, in this case, Madison would have far fewer assets. Plus, since she caused the accidents, she should be the one held liable. With the exception of no-fault states, which make it harder to sue based on the thresholds I discussed earlier, it’s not uncommon for lawsuits to happen following an accident. And if you have a higher income, an expensive car, wealthy parents, or potential higher income because you’re in medical or law school, your chances of being sued go up. Plaintiffs can go after all your personal assets, including your bank accounts, any property you own—automobile and real estate—and so much more. 28

Umbrella Insurance

Earlier, I discussed one way to protect yourself—umbrella insurance. It goes above and beyond the coverage in your auto insurance. On average, coverage costs $300 per year per $1 million. Depending on your situation, spending $300 to make sure you don’t have to pay hundreds of thousands of dollars can be well worth it! And if you have one or more teens in your family who drive, umbrella insurance can be an excellent idea, since you’ll be held liable if they cause an accident.

Titles

Another thing to consider is titles. As seen in the horror story at the beginning of this chapter, each car in your family should be titled to only one person’s name. If you’re a parent to a teenager, you’ll be liable, and there’s nothing you can do to change that. However, I strongly urge you to sell or give them the car when they turn 18 and ensure they’re the sole title holder.

Tenants by the Entirety

Speaking of a different title aspect, it’s important to look at how you title your assets. Some states have a joint ownership form called “tenants by the entirety.” If you’re married and can take advantage of this, I strongly urge you to. How does it protect you? If you cause an accident in a car titled only to you and get sued, the other driver can’t touch any money in an account with a “tenants by the entirety” title. This is because your spouse owns 100%, as well. That said, “tenants by the entirety” titles vary by state, and some apply to real estate and not cars. Further, if your state doesn’t offer tenants by the entirety, there may be other joint ownership

options, although they may not be as protective.

Trusts

Another option is that you can put your assets into a trust. The trust often must be irrevocable to be safe. This means that while you determine the terms of the trust, you can’t control the assets. Another person—a trustee—disburses the assets, and you can’t get those assets back. There are options for trusts in the United States as well as in other countries. Keep in mind that trusts can cost a lot of money to set up, but, depending on your assets, it may be worth the expense.

Retirement Accounts

If you don’t already have a retirement account, now’s a good time to start one. Not only is it a good idea for your future, but these accounts are often at least partially protected.

Personal Business Options

If you have a business, you can use it to protect your personal assets by forming a corporation, limited liability company (LLC), or limited partnership (LP). If you are a sole proprietor or are in a general partnership, there’s generally no coverage. If you’re interested in pursuing this option, you’ll need to do a bit of research to learn about the laws in your state. A lawyer or accountant can also help you determine the best route.

CHAPTER 8 Factors That Affect Your Premium Why do premiums vary from company to company? Why do they vary by person? There are a lot of reasons, described below.

Company-to-Company Variations

In general, insurance companies need to stay competitive so that customers buy their policies, but the bottom line is that all companies have to ensure they cover everyone’s costs. They also have to factor in their own expenses, like employee raises and healthcare. Sometimes they have to raise premiums across the board because overall costs rise. One reason that premiums differ between companies is that each company has a different way of factoring risk based on their history and their calculations. For example, company A notices that males over 78 years old are in more accidents than other age groups. Company B notices the same thing but recognizes that this is only some of the men over 78 and has a formula for figuring out which of those men are more likely to fall into this category.

Person-to-Person Variations

This is where most of the factors, well, factor in. In general, people who file more expensive claims will get higher premiums. On the flip side, people who file less expensive claims — or fewer claims overall — will be given lower premiums. When an underwriter is figuring out your premium, he or she will look at a variety of factors to determine what’s called your 32

insurance score. The exact combination and how much weight is given to each will depend on the company. The factors may include: • Your credit score. A higher score means a lower premium. • Your age and the age of the people in your family. Younger drivers tend to have higher premiums, and teenagers can double or triple their premiums depending on whether they use your car or have their own. • Your driving history, including speeding tickets, driving violations, driving under the influence, driving on a suspended license, accidents, and claim history. (If your insurer deems you a risky driver, your premiums will likely skyrocket.) • Your gender, although some states have a law requiring equal pricing. • Your car’s make, model, age, worth, safety features and ratings, and the cost to replace parts. Sporty cars, new cars, expensive cars, and cars with worse crash ratings cost more to insure. • Where you park and drive your car. City cars cost more because there’s more likelihood of them getting in an accident. • Whether you use your car for work, personal reasons, commuting, or farming. • How much you drive per year. • Your profession. (More dangerous or stressful jobs often lead to higher premiums, as does a job that requires a lot of driving.) • If you’re married. (Married couples tend to pay less.) • How likely your car is to be stolen or vandalized. 33

• The limits and deductibles you choose. Higher limits mean an increase in coverage costs, and higher deductibles mean a decrease in premium costs. Let’s take a look at these factors in a closer-to-real-life situation. We’ll use two imaginary families: the Smiths and the Joneses. Each family has two parents who are all the same age and a 17-year-old who drives. All the parents work. They live next door to each other in a typical suburb, and each family has three cars. Their state has a law against charging one gender more than the other. Seems like they should have roughly the same insurance, right? Wrong. (Although you probably knew that since you’ve been reading this book.) Check out the chart below. The bolded items mean that the item tends to cost more*.

THE SMITHS

Parent 1’s commute: 45 minutes

Parent 2’s commute: 0 minutes (works from home); however, parent 2 drives a lot for work.

Teen driver: Good student, gets good student discount

Car makes and models:

Parent 1: 2019 Toyota Prius

Parent 2: 2016 Subaru Outback

Teen: 2017 Honda Civic

Parking: Parents park in a two-car garage, teen parks in the

driveway or on the street

Work:

Parent 1: elementary school teacher

Parent 2: pharmacy rep

Teen: tutors other students

Parent 1’s driving history: 1 speeding ticket

Parent 2’s driving history: Car vandalized while parked in iffy neighborhood

Teen’s driving history: 1 minor at-fault accident

Parent 1’s credit score: 720

Parent 2’s credit score: 521

THE JONESES

Parent 1’s commute: 20 minutes

Parent 2’s commute: 10 minutes

Teen driver: So-so student, just misses a good student discount.

Car makes and models:

Parent 1: 2015 Toyota Prius

Parent 2: 2013 Ford Mustang

Teen: 2015 Jeep Wrangler

Parking: Everyone parks in a three-car garage

Work:

Parent 1: ER doctor

Parent 2: graphic designer

Teen: delivers pizza

Parent 1’s driving history: 2 speeding tickets

Parent 2’s driving history: 1 significant at-fault accident

Teen’s driving history: No problems

Parent 1’s credit score: 703

Parent 2’s credit score: 692

I want to point out that there are reasons I’m using more versus less rather than actual figures for this chart and not declaring which family would pay more. First, this exact same scenario would almost definitely cost different amounts depending on which insurance company is used. Do you remember why? It all has to do with how the company does its underwriting. Secondly, while most married couples combine insurance, some may choose to have separate coverage. For example, the Smiths might consider this due to parent 2’s low credit score. Obviously, this would affect the overall amount the families pay in premiums. In addition, one or both of the families might have accident forgiveness, rendering those accidents irrelevant when it comes to premium costs.

Lastly, actual figures are based on a combination of all these different factors and then some, so it’s not parent 1 versus parent 2 as the chart appears. (I did this solely as an effort to bring clarity and simplicity to this basic example of a complex issue.) Instead, it’s a combination of the two adults’ factors — and, of course, their teens contribute as well. So now you know all the different aspects that go into the cost of your premium. Some of these you can change, such as the type of car you have, and some things you can’t, such as your commute — unless you change jobs. Also, some things change over time, like your credit score. Luckily, while there are a lot of considerations for premium costs, there are also many ways to save money! Keep reading to learn more.

CHAPTER 9 Ways to Lower Your Premium

Money-Saving Tip: Shop Around

Have you ever been surprised by an unexpected premium increase? If so, what did you do? A lot of people end up paying more for their insurance simply because they feel loyalty to the company. Or maybe because they just don’t want to spend their time researching and making the switch. If this is you, I get it. But I also like the idea of you saving money. That’s why I’m here — to research other options for you and see where you can save. Keep in mind that this doesn’t mean you have to switch — maybe the rate is comparable to what other companies are offering. But you won’t know until you ask. And speaking of asking, if this does happen to you, be sure to check with your insurer to find out why the increase happened in the first place. Maybe there’s an error or a way to bring the cost back down. The simplest way to lower your premium is to choose a higher deductible, which I mentioned in the previous chapter. However, you need to make sure you can afford to pay it all at once if something happens. The same thing applies to choosing a plan with lower coverage. If you can afford to pay anything your plan doesn’t cover, this can be an option.

Next, get multiple policies through the same insurance company, which often leads to a multi-policy discount. This includes coverage for more than one car as well as other kinds of insurance, such as homeowner, renters, boat, etc. You also want to look at the kind of car (or cars) you have. If your vehicle is older — roughly 10 years old or so — you may be able to skip the collision and comprehensive coverage depending on your state’s insurance laws. And if you’re in the market for a new car, whether it’s brand new or used but new-to-you, keep in mind that the type of car will have an effect on your insurance, too. For example, sports cars cost more to insure than SUVs and cars with more safety features are cheaper to insure. I also suggest doing a little research into the most commonly stolen cars, as those also require more to insure. As I’ve said, one factor that can cause your premiums to go up is getting tickets. Many companies will lower your premiums if you take a Driver’s Education course after getting a ticket. If you don’t drive a lot, one possible option is getting pay-per- mile or usage insurance. However, this is only available in a handful of states. With this type of coverage, you pay a flat rate per month plus a per-mile rate. So, for example, your monthly payment may be $35, and your per-mile rate may be $3.50 per mile. As with all other insurance, your base rate is determined by a variety of factors similar to traditional insurance. Another aspect to consider is your financial health. If you have a low income, your state may offer a low-cost insurance plan. Also, your credit score is always a factor when it comes to premium costs, so to lower your payments, do your best to keep that score as high as you can!

Pro Tip: Credit Score Scrutiny

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