Car Insurance: Deductibles & More

Three years ago when I got my BA degree it was time for me to get my car insurance under my own name. For the sake of comfort and simplicity I stayed with the same insurer that my parents have used as long as I've been alive, State Farm. I also kept the exact same coverage my parents had selected.

Now, after gaining a great deal more financial literacy I think it is time to revisit my car insurance. A little research gave me all of the information I need. First we have a 1999 Chevy Lumina (Kelly Blue Book Private Party value $2,880) and a 2007 Dodge Caliber (Kelly Blue Book Private Party value $10,995). Second, I just turned 25 and should now qualify for lower rates. Third, neither my wife or I have ever had an accident that was turned in to our insurance company.

Our current coverage has all of the basics such as liability, uninsured motorist, and medical payment coverage. We also carry comprehensive on the Caliber (required because of the car loan). Under no circumstances would I recommend skipping any of these coverages, and generally I would buy the highest payout offered.

We also have a few extras like towing and trip interruption coverage. Unfortunately I've goofed up and paid once each for a locksmith and a tow because I didn't realize I had these coverages. We also have roadside assistance for both cars, the Lumina is $3 a month through State Farm, and the Caliber is covered under the manufacturer's warranty. I'm undecided about paying for these coverages. Why should I insure against a risk that will cost somewhere in the range of $50-250. I should be able to pay that out of pocket (aka emergency fund) if it is needed.

The last thing that I learned is that I have very low deductibles. In fact, for the comprehensive I have ZERO deductible and for collision I have the lowest available, $250. When I was first starting out in the "real world" it made more sense to have these low deductibles. I didn't have any savings and even a small problem would hurt my cash situation badly. Now, I basically self insure by having $1,000+ in an online savings account. The math tells me that I should raise these deductibles to at least $500 but maybe even $1,000.

By raising my deductibles and dropping "extra" coverage (which I accidentally paid out of pocket twice already), I would save money on my regular payments. I also learned that by being billed monthly I pay a few dollars extra as a processing fee. In total I can reduce my monthly car insurance bill from $137.00 down to $738.00 twice annually. A $14 a month savings isn't much, but over time (and with a little luck on the road) it could add up.

I haven't decided for sure to make the changes. Reducing the monthly bill about 10% but in exchange doubling my risk exposure still isn't clear cut to me. So, now I am looking for comments and advice about what to do. When I make a decisions Aspire 2 Wealth subscribers will be the first to know. Also, let this post be a reminder for everyone else to take a few minutes and double check your insurance coverage.

[ Read More ]

Life Insurance: How Much?

I know I need more life insurance. I've been planning to get more ever since we bought a house last May. I have a few reasons that I've put it off, but I know I should stop making excuses and do it!

We aren't completely without life insurance at the moment. I have a little more than twice my salary from work. My pension also provides a death benefit that would be about $1,500 a month to my wife. Finally, there would be a small amount of social security that my wife would collect as well. If you add that all up it is in the ball park of $200,000 plus $1,500 a month. That is enough to pay off all of our debt (including the mortgage) and leave my wife a little money each month to get by.

Based on what I have already, I know we are currently ahead of many people out there. However it certainly isn't enough to replace my income. I'd say that it would cover about 40% of my current income and that would leave a lot of strain on those I may leave behind. I'd prefer to be able to cover the mortgage and then leave 80% of our current income less what would have gone to the mortgage. That may seem convoluted. Instead, here is how it works out.

Current Income	$80,000
COL Reduction w/ One Person	80%
Wife's Income	-$10,400
Mortgage	-$15,000
Current Death Benefit	-$18,000
Total Shortfall	$20,600
Annuity Rates	5.6%
Insurance Needed	$365,507

And there we have it. I currently have about $365,500 less life insurance than I need to provide for my wife. Doing a similar calculation based on having children in the future, I will need to add an additional $500,000 per child to help with the costs of raising children and the expense of putting them through college.

Now that I know how much insurance I need, I am that much closer to getting it done. My primary stumbling block at the moment is the hope that my current workout regimen will bring my weight down enough so I can get premium pricing. Based on the quotes I have received this coverage comes in at $390 annually for "super preferred," $462 for "preferred," and $882 for "non-tobacco." I think I may just have to bite the bullet and buy it now even if I don't get the "super preferred" price, and then try hard to lower my premiums through a healthier lifestyle.

I'm currently planning several articles on the topic of insurance. I'll update you on my progress with life insurance and cover other topics like disability insurance and maybe a bit about health insurance. Subscribe to my RSS feed to check back later for more posts. Thanks for reading.

[ Read More ]