Adventures in Auto insurance

I conducted an experiment a few months back to test a long-held theory. The ubiquitous funny advertisements with the green lizard have led me to believe I could save money by calling up my automobile insurance provider and asking them to reduce my costs. (FWIW I don’t use that company. I have a different one, and I’m loyal to mine.)

Gecko

Long story short, it worked. At the end of my phone conversation with my provider I’ll pay $20.07 less per month. To state some obvious math, that’s $240.84 per year. 

I think my choices are prudent for me, but they are not free-lunch choices. I made a series of calculated gambles based on what I know about insurance in general, my particular car, and my personal financial situation.

This all started from a conversation over coffee with a reader two weeks ago. He mentioned that since the 1980s he’d declined to pay for collision insurance on his car, and that he calculates having saved at least $30,000 since then as a result. That got my attention. I realized I haven’t deeply studied the different components of auto insurance. Maybe you haven’t either. Now’s your chance to get a little nerdy with me.

For starters, auto insurance is required by law in every state. The required part of auto insurance is liability insurance. That’s for when you damage someone else’s body, car, or property. In Texas you’re allowed to buy a minimum of $25,000 in coverage per person or car, and $60,000 per incident. I pay to insure well over the minimum amounts and I didn’t mess with this liability part of my auto insurance policy. 

The second part of auto insurance – which turns out to be optional in some cases – is collision insurance. That’s the amount you’ll receive if your car gets damaged.

Here’s where insurance theory and two other personal finance theories came into play. I’ll hit you with all three theories. First, insurance is expensive, so buy the least you can while still avoiding catastrophic financial risk. Second, don’t buy too much car. Third, try to buy so little car that you can avoid having a car loan. This third part is admittedly rarely achieved, but something to strive for. Because if you can eliminate your car loan, you have more options with collision insurance.

If you have a car loan, your lender makes you buy collision insurance, naturally, because the car acts as collateral for your loan. A smashed up car makes for poor collateral. If you don’t have a car loan, however, you can decline collision insurance. 

I don’t have a car loan. I also don’t have a valuable car. In combination, that means I’m not terribly worried about losing many thousands of dollars in value if I wreck it. During this process I looked up trade-in value for my 11 year-old Hyundai Elantra with 95,000 miles and learned it’s worth $1,800 to $2,500. I don’t expect my insurance company to shower me with much more than that amount, in the event of a total wreck. And I’m not dropping $7,000 in repairs into this automotive beauty in that event either. Both of these factors mean I should keep my collision insurance to a minimum. I declined to pay for any collision insurance this week, because that suits my particular circumstance. 

A fourth rule of personal finance came into play on the issue of comprehensive coverage. The rule is that it helps to have money in order to save money.

collision

I saved a small amount when I upped my comprehensive coverage deductible from $500 to $1000. A few definitions might be helpful to explain what this means. Comprehensive coverage protects me if something other than another motorist hits me, such as hail damage, a tree falling, or flooding. The deductible is the amount I’m on the hook for, in the event of needed repairs. My upping the deductible is really a result of being able to handle the financial hit if a bad thing happens. If I didn’t have either savings or decent lines of credit, I wouldn’t be able to responsibly increase my deductible. But I do, so it’s cool. That’s the “it takes money to save money” thing.

A few other fine-print things I considered during my auto insurance conversation.

I continue to pay for vehicle damage if I’m hit by an uninsured motorist, although I lowered my coverage to the Texas state minimum of $25,000. As I mentioned, my car ain’t worth $25,000, so I’m probably over-covered there.

I continue to pay $1.65 per month for towing and labor. Between a history of dead batteries and flat tires, it feels like I need a tow or jump start more than once a year. So I’m getting my full money’s worth there, if history is any guide.

I also learned that our household auto insurance premiums won’t jump in six months when my eldest gets her learner’s permit. But they will jump in 1.5 years – quite a bit – when she gets her full license. I could hear the empathetic pain over the phone in the auto insurer representative’s voice when I told her my daughter’s age.

So that will be a future auto insurance cost increase. In the meantime, I was happy to squeeze out a bit in savings while I could.

A version of this ran in the San Antonio Express-News and Houston Chronicle.

See related posts:

Book Review My Vast Fortune by Andrew Tobias

Buying a Car Part I – Not Getting Fleeced


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Savings on Auto Insurance

I conducted an experiment last week to test a long-held theory. The ubiquitous funny advertisements with the green lizard have led me to believe I could save money by calling up my automobile insurance provider and asking them to reduce my costs. (FWIW I don’t use that company. I have a different one, and I’m loyal to mine.)

Long story short, it worked. At the end of my phone conversation with my provider I’ll pay $20.07 less per month. To state some obvious math, that’s $240.84 per year. 

I think my choices are prudent for me, but they are not free-lunch choices. I made a series of calculated gambles based on what I know about insurance in general, my particular car, and my personal financial situation.

This all started from a conversation over coffee with a reader two weeks ago. He mentioned that since the 1980s he’d declined to pay for collision insurance on his car, and that he calculates having saved at least $30,000 since then as a result. That got my attention. I realized I haven’t deeply studied the different components of auto insurance. Maybe you haven’t either. Now’s your chance to get a little nerdy with me.

For starters, auto insurance is required by law in every state. The required part of auto insurance is liability insurance. That’s for when you damage someone else’s body, car, or property. In Texas you’re allowed to buy a minimum of $25,000 in coverage per person or car, and $60,000 per incident. I pay to insure well over the minimum amounts and I didn’t mess with this liability part of my auto insurance policy. 

The second part of auto insurance – which turns out to be optional in some cases – is collision insurance. That’s the amount you’ll receive if your car gets damaged.

Here’s where insurance theory and two other personal finance theories came into play. I’ll hit you with all three theories. First, insurance is expensive, so buy the least you can while still avoiding catastrophic financial risk. Second, don’t buy too much car. Third, try to buy so little car that you can avoid having a car loan. This third part is admittedly rarely achieved, but something to strive for. Because if you can eliminate your car loan, you have more options with collision insurance.

(Not meant as an advertisement. Just the pictures was BIG!)

If you have a car loan, your lender makes you buy collision insurance, naturally, because the car acts as collateral for your loan. A smashed up car makes for poor collateral. If you don’t have a car loan, however, you can decline collision insurance. 

I don’t have a car loan. I also don’t have a valuable car. In combination, that means I’m not terribly worried about losing many thousands of dollars in value if I wreck it. During this process I looked up trade-in value [LINK to Kelly Blue Book https://www.kbb.com]  for my 11 year-old Hyundai Elantra with 95,000 miles and learned it’s worth $1,800 to $2,5000. I don’t expect my insurance company to shower me with much more than that amount, in the event of a total wreck. And I’m not dropping $7,000 in repairs into this automotive beauty in that event either. Both of these factors mean I should keep my collision insurance to a minimum. I declined to pay for any collision insurance this week, because that suits my particular circumstance. 

A fourth rule of personal finance came into play on the issue of comprehensive coverage. The rule is that it helps to have money in order to save money.

I saved a small amount when I upped my comprehensive coverage deductible from $500 to $1000. A few definitions might be helpful to explain what this means. Comprehensive coverage protects me if something other than another motorist hits me, such as hail damage, a tree falling, or flooding. The deductible is the amount I’m on the hook for, in the event of needed repairs. My upping the deductible is really a result of being able to handle the financial hit if a bad thing happens. If I didn’t have either savings or decent lines of credit, I wouldn’t be able to responsibly increase my deductible. But I do, so it’s cool. That’s the “it takes money to save money” thing.

A few other fine-print things I considered during my auto insurance conversation.

I continue to pay for vehicle damage if I’m hit by an uninsured motorist, although I lowered my coverage to the Texas state minimum of $25,000. As I mentioned, my car ain’t worth $25,000, so I’m probably over-covered there.

I continue to pay $1.65 per month for towing and labor. Between a history of dead batteries and flat tires, it feels like I need a tow or jump start more than once a year. So I’m getting my full money’s worth there, if history is any guide.

I also learned that our household auto insurance premiums won’t jump in six months when my eldest gets her learner’s permit. But they will jump in 1.5 years – quite a bit – when she gets her full license. I could hear the empathetic pain over the phone in the auto insurer representative’s voice when I told her my daughter’s age.

So that will be a future auto insurance cost increase. In the meantime, I was happy to squeeze out a bit in savings while I could.

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Book Review: My Vast Fortune by Andrew Tobias


Andrew Tobias published  My Vast Fortune – The Money Adventures of a Quixotic Capitalist in 1997, the year I started to become interested in finance and the same year I managed to scrape together $5,000 in personal ‘net worth.’

I only discovered Tobias a few weeks ago, however, and I’m busy trying to make up for lost time.

Had you asked me a month ago to name all the writers I’ve read who are both sophisticated about finance and very funny, my list would have looked like this: Michael Lewis.

Now it’s a two-person list, Lewis and Tobias.[1]

In My Vast Fortune, a book less popular than his best seller The ONLY Investment Guide you’ll EVER Need, Tobias indulges in financial anecdotes from his life, fuel enough for a couple of useful investment ideas, but mostly just great stories.

Tobias combines impressive writing skills – he published his first best seller at age 23 – with great entrepreneurial zeal.  His writing serves to make the zealousness hilarious.

Real estate investing adventure

After Tobias makes the investment error of purchasing a distressed property sight-unseen in Miami, he compounds that error in subsequent years by purchasing a neighborhood’s worth of properties on the edge of blighted, drug-infested neighborhoods.  A series of property managers seemingly work miracles for him fixing up the properties, only to succumb themselves to vice.  At the time of publishing, Tobias isn’t sure whether the plunge into slum-lording will ever ‘pay,’ but it sure does make good material.

As serious as the experiences must have been, Tobias weaves his “I keep making terrible investment decisions” narrative into an entertaining and useful section of the book.

Tobias’ obsession with auto-insurance

Half-way through My Vast Fortune, Tobias hijacks the narrative, diverting us to the warzone of a political fight he picked in the 1990s over auto-insurance policy in California.

In a Chapter titled “Ralph Nader is a Big Fat Idiot,” Tobias explicitly links Nader’s opposition to “no fault” auto insurance – Tobias’ admitted obsession – to Nader’s deep, unholy links with the national trial lawyer lobby.

Tobias ultimately lost an expensive campaign for 3 related ballot referendum questions in California as he got outmaneuvered, as well as libeled, by Nader’s political associates.

Even though Tobias admires Nader’s principled advocacy for consumers, and would support much of his liberal political agenda, his take-down of Nader and Nader’s allies in the fight rings true.

While Nader personally avoided Tobias’ pleas for dialogue, Nader’s allies smeared Tobias’ campaign and lied about his motives, all the while fighting for trial lawyers, whose financial interest was served by the status quo.

What’s interesting to me, historically, is that this Ralph-Nader-as-horribly-misguided-bully narrative pre-dates Nader flipping the balance of the 2000 election in the Bush vs. Gore debacle.    Little did Tobias know at the time of publishing My Vast Fortune that Nader would be the root cause of horrific wars of choice in the Middle East, the shredding of constitutional principles of habeus corpus a policy of torture, and the financial meltdown of 2008.  I’d love to have been a fly on the wall as Tobias followed Bush vs. Gore and the subsequent 8 years, reflecting on the vast path of world-wide destruction wrought by Nader.[2]

Does the auto insurance fight have parallels with health care reform?

Tobias’ lengthy discourse – and it is lengthy! – on no-fault auto insurance and the evils of the trial lawyer lobby got me thinking about a more recent hot political topic.

Why do we often settle for expensive insurance rates, poor coverage in the case of catastrophic problems, and a group of under-insured on the margins of society?  One implication from Tobias’ book: The trial lawyer lobby.

While Tobias focuses on auto-insurance in California, I wonder if the same lessons may be applied, on a grander scale, to health care policy nationwide.  Compared to other developed countries we pay more per capita, have an under-insured underclass, and suffer worth health outcomes.  I wonder what Tobias would say?

While no doubt many self-interested groups keep us from an optimal health care policy, the interests of trial lawyers – preserving the ability to sue hospitals and doctors for catastrophic damages and massive malpractice payouts – must play a role in driving up costs for everyone.

Financial advice

I assume that because he’s given his most important nuggets of personal finance wisdom in The ONLY Investment Guide You’ll EVER Need, his direct advice remains light in My Vast Fortune.

Near the end, however, he can’t help offering a quotable nugget on the importance of saving money.

This gives the sense for how good Tobias is at his craft.

Here’s the trick (if it’s too late for you, please write it on some young person’s forehead – backward, for easy reading in the mirror): A luxury once sampled becomes a necessity.  Pace yourself!

You say you don’t particularly mind not having a remote-control clicker for your TV?  I can state with some assurance, in that case, you’ve never had one.  Touch-tone dialing?  Caller ID?  Microwave ovens?  Seaplanes vaulting Friday-afternoon traffic?  Stock markets that only go up 20 percent or 30 percent a year?  These are things it’s a cinch to be happy without before they’ve been invented; but so awfully hard to be happy without once you’ve gotten used to them.

Pace yourself!  Live a little beneath your means.  Don’t go into hock buying some whizbang&olufsen sound system right out of college; make do with one of those three-in-one $279 mail-order dealies I still use.  Tease yourself with anticipation.  Ease the fingers of your aspiration up the inner thigh of your cupidity.  Tickle your fancy.

Of course money buys happiness.  But both will last longer if you remember the importance of foreplay.

If you haven’t yet read Tobias, add him to the list of finance writers who are both insightful and wickedly funny.

Please see related post: All Bankers Anonymous Book Reviews in one place.

 my vast fortune

 


[1] Someday I’m going to re-check that list, and find to my delight it’s gotten longer: #1: Lewis  #2: Tobias. #384: Anonymous Banker

[2] I’m exaggerating Ralph Nader’s effect of course, because Gore himself should be blamed for not winning that election.  But it’s weird how history turns dramatically on certain pivotal moments and the unintended consequences of certain people’s actions, like Nader’s role as spoiler in the 2000 election.

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