 Personal Finance Powerpoint Presentation. Automobile Insurance Part Number Two. Prepare to get financially fit by practicing personal finance. We've been categorizing our financial decisions as short-term or long-term. The short-term decisions being those where we train our gut to trust our gut. The long-term decisions being those where we use the adage of measure twice cut once. We have a more formal process which might look something like this. We're gonna set our insurance schools. We're gonna develop a plan to reach the goals. We're gonna put the plan in action. Then we will review the results and start the process over again. The types of things that we might want to think about with regards to risk mitigation would be things like disability, illness, death, retirement, property loss, liability. We've talked about these in the past but just to get a quick glimpse on those items. We're gonna be talking here about auto insurance or automobile insurance, auto insurance. Most of this is from Investopedia, auto insurance advice from a consumer advocate which you can find online. Take a look at the references, resources. Continue your research from there. This is by Jim Prabasco, updated February 15th, 2022. In prior presentations, we talked about car insurance in general. So you wanna give a decent grasp of car insurance first before possibly going into this more question and answer type of format where we might be able to dive a little bit deeper. We started this type of format in a prior presentation. We're gonna be continuing on it here. So Investopedia asking, you mentioned being on the lot and having gap insurance come up. Does this even come from your insurance company or is it a type of insurance provided by someone else? So we talked last time about gap insurance which you could think about as kind of a part of car insurance but it's not one of the main kind of things or the first things that we would think of with regards to car insurance. And our expert basically indicating that gap insurance might have a specific area where it would be useful to a particular purchaser. However, oftentimes it might not be the most useful thing in general for most people. And therefore it could be a type of insurance to look out for. It could be kind of maybe a scammy kind of area where people are selling insurance where possibly they're not getting a lot of benefit for the purchase of it. So one of the areas to kind of be aware of. Heller here, our expert answering. Interestingly, the lender to Wells Fargo gotten a lot of trouble a few years ago for pushing gap insurance. That was part of their financing deal. I do think there are mainline insurers that offer a gap policy but often it's sold as a standalone product outside your insurer. So if you're hearing about gap insurance it might be more of a standalone thing possibly not bundled up with everything else but if you see it then you wanna take a step back and say, okay, am I in the area where this might be necessary for me? Which might be more of an unusual kind of situation or you might say that it might not be something you're looking for. Some lenders I think offer a form of gap insurance at no extra cost as part of the loan. Usually however, gap insurance is a standalone product through a specialty insurer. Investopedia asking, we haven't talked about deductibles. Can you explain what they are and how they work? So the expert Heller then saying, sure. When we talk about deductibles we're generally talking about the comprehensive and collision part of your policy when it's your fault. So now when we broke out the insurance policies into the different components because you'll recall that the insurance policies have a whole bunch of different components in it and you could take a look at those when we just talked about insurance in general. And so he's saying here that we're generally talking about the comprehensive and collision part of your policy when we're talking about the deductible. So this includes damages such as an accident or damage from a shopping cart in a lot or even if your car is stolen. The deductible is the amount you pay before the insurance company pays. I think of it this way. He says, if you have a $500 deductible and $1,000 in damage to your car you will pay 500 and the insurance company will pay 500. So when you're talking about this kind of insurance you're talking about the type of insurance that's basically on your property. So we got the liability insurance which is on the other person's property in the event that you're at fault in that instance then you have the liability insurance on now we're talking about the insurance against your property and that's when the deductible. So you're trying to recoup your property so you're gonna have to pay some amount upfront and then the rest of it possibly could be covered within the insurance. It's also the amount when you're talking about your property that is less likely to be the required kind of insurance by law because the required insurance is usually the insurance that is for the other person who would be not at fault if you cause some kind of liability problem, bodily injury or property to the other. So the part of pay is the deductible and this scenario if the damage is $499 you pay the full amount. So obviously if the damage is below the deductible the 500 in this case then you would just pay for it. You're going over the deductible and that's the amount that the insurance company would then be picking up and the insurance company pays zero in that case. You can get a lower deductible but your premium will be higher and that's the typical scenario with many different types of insurance here. So if you're saying, okay, well how can I tinker with this thing? Do I want a high deductible? Which means that if I got in an accident for my own when we're talking about the damage to our car then I would have to basically pay that deductible and then anything over and above that would be paid by the insurance company. The higher the deductible the more we're going to be picking up that would mean that you would think it would be lowering the actual insurance that you would have, right? The premiums, the cost of the insurance and of course you can increase your deductible and pay a lower premium. So in Vestopedia asking how do people decide which deductible is best for them assuming they have a choice? So when you're thinking about the deductible now you're thinking about one, do I want insurance basically on my property on my car for example because I might have more of a choice there and that will depend on the size of the car the quality of the car, you know how costly it would be to replace it and so on and so forth. And then of course you've got this deductible versus the premium situation. So experts saying people should always test the value of the premium benefits they get. They should compare how much they're going to save on the front end if they increase the deductible a couple of hundred dollars. So you can do some comparison testing shopping around with different companies to at least see if it's in the ballpark of what other companies are doing. Test it at several different deductibles generally speaking the lower you can keep your deductible the better if the premium doesn't get too high. So clearly you would like to have a low deductible and a low premium if possible but those two things kind of vary so you're trying to find that sweet spot for them. So another thing to watch is the fact that your vehicle goes down in value over time. So clearly when you drive as most people note if you drive you got a new car if you drive it off the lot it's just going down a whole bunch just right there in terms of value. So you got to know how much your car is going to be worth when you're thinking about this kind of insurance on your end of things. It's a worthwhile to be having insurance for the car because they're going to be paying you not possibly not for a new car of the same kind but they're going to be paying you for the value of your car oftentimes. So you got to know if that's going to be worthwhile. So as the value of your car goes down your comprehensive coverage becomes less valuable. Your comprehensive coverage becomes less valuable. So your premium will go down as well but at a certain point having coverage on a car that's only worth a small amount of money may not make sense because obviously if you get an accident and basically your insurance company is covering the car you're not going to get much for the car at that point and you've been paying substantial amounts of premiums possibly for it. So consumer reports say you should consider dropping this kind of coverage when the annual premiums exceed 10% of your car's value. So there's just kind of a rule of thumb that you could go into it. You could say, okay, what's my car worth? How do you know what your car is worth? Well, you could check a look at various websites online and do your blue book kind of valuation on it. That's the baseline that you would think the insurance company would basically be doing and then seeing if your annual premiums are 10% of the car's value as a general rule of thumb, a general heuristic. Investopedia asking, what if you disagree with the amount the insurance company wants to pay? So the insurance company says, oh, okay, here you go. Here's $2,000 for your car. It was like, wait a second. Well, my car is worth more than that. I had a sunroof in my car. So what if you think your car was worth more than the insurance company says? Then Heller Expert saying, as a rule, it is good to keep your maintenance receipts. In the same way, you may take an annual video update of everything in your house, do the same with your car. So you could basically try to say, this is the condition of the car and so on about it. And if you have to have an argument with the insurance company about the value, you would think that the insurance company would be using basically these same tools to have a depreciated value like blue book type of tools of a car, which means that if you keep your car in better condition and it's in better condition than the average value of that model for that age, then the insurance company would, you would think, would kind of be low balling or pay you less than what your car might be worth under that conditions. But anyways, keep an accurate up-to-date record of your car's condition, what's the mileage, what maintenance has been performed. The more you can demonstrate the state of the car before the accident, the stronger your agreement will be to get full value for it. Investopedia asking, do manufacturers or lenders keep records of maintenance and upkeep, especially on newer cars with the ability to transmit data? Experts saying, yes, absolutely. Most provide a website with a readout on all the maintenance, all the work, everything that's been done, the total mileage it transmits to the central computer. So if you buy a new car, one of the things, you can go to different maintenance areas, but one of the nice things that the dealership oftentimes is if you get maintenance there, they've got your whole track record of the maintenance. So that could be beneficial if you've got a good track record in the event that if there's an accident, you need to recoup on it and prove that you're taking care of the car. So there's a way, there's a way I like to think about it just to sort of explain the theory of the case here. Think of a person with a 1992 Mazda Miata who has a true love affair with their vehicle. They maintain it in pristine condition. Another person also happens to have a 1992 Miata because they got it cheap. So they go to the junkyard for parts and just basically keep it running. So clearly one is gonna be worth a lot more than the other because of the care that's been taken. Both cars are 1992 Miatas, but they're not the same vehicle. And so obviously the person who really loves it and maintains it is probably gonna get more for that because it's worth more and they have the documentation. So if you are the one that really loves the car and you're taking care of it, make sure that you have the documentation because otherwise you would think that the insurance company is just gonna go off the blue book. So I like to think of it as you do your part and keep your car in really tip top shape. It's gonna be worth more than if you let it fall apart slowly. Investopedia is saying, asking, you touched on the notion of reevaluating coverage. How often and when should you do this reevaluation? Expert answering. I think there are two types of reevaluation. One is the coverage on your car. The other is the insurer you use. So when we go through our process, we're gonna set the goals. We're gonna put the plan together. We're gonna put the plan in action. We're gonna reevaluate the goals. When we do the reevaluation, we want to think about two main categories. One, the insurance itself. Is it appropriate for us at this new point in time? And two, is the insurance company appropriate at this point in times? He says the auto insurance market is a strange one. It competes through advertising rather than through price. It's kind of an interesting statement because then he says, so we see Gecko and Progressive and State Farm and all these companies duking it out with funny characters and athletes telling us how great they are. Their prices are widely different, he says depending on the market and depending on you and the zip code, you live in. I'd say every two or three years shops your insurance policy. So it's kind of interesting because he first says that they compete mainly on advertising instead of price which leads me to start to think, well maybe the insurance is somewhat static for either regulatory reasons and or because all their calculations are coming to basically the same kind of prices or bottom lines. But then he says that the prices are widely different. So that seems to me like they're actually also competing on price there. It's just that the advertising, I think it's a lot of the attention. So he's saying that the prices are different and therefore, and they could change. And so basically we might want to do every so often every two or three years, do the whole thing over again, try to check our insurance policy compared to other insurance policies and what's the price comparison based on our location and so on and most likely ignore all the other cool stuff, the little lizards and the geckos and whatnot that are running around and do it on a more systematic price based model. So when you shop for a company you also need to reevaluate your coverage. It's not just whether your car's vehicle has declined and you no longer need collision coverage. So that's one thing you can look at and has my cars declined. Do I need the collision coverage? Should I drop it at this point? Your own personal financial situation may have changed and you may want to expand or decrease your liability coverage. So we talked about liability coverage. That's the one where if we're found to be at fault then it could be quite expensive especially with a bodily injury kind of stuff. And if you're in a situation where you don't have any money then you're probably okay to run with less liability insurance because you can't afford it on the first side and on the second side no one's gonna sue you because they don't even have any money. So what's the point? But if you have more money then even if you don't do anything wrong people probably start suing you, right? You're more likely to get sued, you know? So that means you need more liability protection oftentimes, that's just how it is. So simply put, if you lost your job, lost your assets and have spent down your savings you don't have that much in assets to protect and reducing liability coverage to save money. So clearly if you're low on cash then liability protection is gonna be low for those two reasons. You can't afford it number one and no one's gonna sue you because it's not worth their time. Number two, so similarly if your assets have increased you may want to expand your liability coverage. So ask yourself if the coverage you have is enough now that you have more wealth to protect. So Investopedia asking let's explore discounts and also insurance company provided devices to monitor mileage and driving habits because the two go together. First, please talk about discounts. The experts saying about discounts, sure. So there are a couple of different types of discounts. There are sensible such as giving people credit for demonstrated safe driving and not having accidents. So clearly if someone has safe driving it's not even really a discount right there. You're really kind of, it seems like you're just putting that into the calculation of how likely it is that you're gonna be paying out. The risk is going down because you have a safe driver and therefore you would think that it would cost less. We call that a discount. So some companies will give you a discount for sticking with them for a long time. So that's a legitimate discount situation it seems to be because clearly if you're a valued customer you might get a discount there, they call it loyalty discount. Another is a multi vehicle discount which makes sense because most people aren't going to insure one car with one company and a second car with another. Then there's a multi line discount that a lot of companies offer. This is an interesting one. As a consumer advocate it bothers me a little because if you own a home and bundle that with your car insurance you're gonna get a discount. So now of course that would benefit people if they had the home that they can bundle with the car that would be a disincentive to the people that don't have the home, the renters then. So this means that someone who doesn't own a home pays more for car insurance and essentially pays for your discounts. Still it makes sense to ask about multi vehicle and bundling. So clearly if you're in a situation where that might apply to you you might be able to bundle and get a discount in that way. Especially if you are someone who is thinking about buying life insurance or other insurance. You might have some kind of benefit from bundling in that case. So there's also something that you hear from me and my colleagues in the consumer advocacy world a lot which is insurance companies giving discounted rates to people based on things that have nothing to do with their driving. Insurance companies for example sometimes give discounts to people who are architects, engineers, doctors or lawyers. So that's kind of an interesting situation and they can make people, they can make people who are cashiers and janitors and healthcare workers pay more. So I'm not sure exactly what the rationale because you think there wouldn't be a direct correlation. Maybe they're trying to say that there's some kind of indirect correlation between the amount of schooling someone has had versus their insurance to our people getting in more accidents based on their career or something like that. It's kind of a, but it clearly doesn't look like a direct link. So getting a discount if you have a college degree is also a way of saying they're going to have surcharges on people with a high school diploma. So again, if there's no actual correlation, if they're not taking a look at the numbers and saying, well, it looks to me like people with college degrees have lower rates if they think it's a driving factor, that would be more of an argument to me as opposed to just there's no correlation and they're giving a discount does seem weird. So another is the credit score. If you have a high credit score, most companies are going to charge you less than if you have a fair or poor credit score. So there are others that are less known. Some companies give a discount if you are married. Those same companies charge more. If your spouse dies, that is a widow penalty. That's not very nice. There's a good student discount, which can be helpful if you have young drivers in the family since they are more expensive to ensure. There's also a student away from home discount. So if your child is living 100 miles away at college and not accessing your car, you may be able to get a discount off your policy since they're not like a regular driver as if they were living at home and driving the car. So that's kind of interesting. Now again, these are kind of interesting components because you can imagine that maybe there's a statistical correlation that they think is actually a driving factor that lowers risk in some of these cases, but you would think they'd have to kind of prove that or else it doesn't seem logical to make those discounts. But in any case, Investopedia asking, okay, now what about insurer provided devices that monitor your driving habits? That sounds interesting. Heller expert responding, this issue of telematic devices is a fluid situation for consumers. Telematics is premised on the idea that technology allows insurance companies to evaluate your driving and the riskiness of your driving. So it's kind of an interesting situation, but it's kind of scary at the same time because now you've got an insurance company monitoring where you go. Let's see, I don't really like that too much, but I can see why if they were able to do that, then they can see whether you're a safe driver or not and that could lead to, of course, lower insurance costs. So I get the premise of it, but it's still a little disturbing to me. So this includes things like how many miles you drive, this type of things, these are all well documented reasons accidents can happen. The theory of the keys is we can watch your driving and give you a better rate if you demonstrate your safety on the road. In other words, because you're riding shotgun with you, so they can actually kind of get some actual metrics about your actual driving and those going directly to the insurance company so they don't have to depend on you. To do that, again, that totally makes sense if you're trying to lower your insurance policy based on your driving habits, but again, it's kind of like now you've got another big company following, now even they got their following you on the computer, and now they're following you with your phone, maybe, I don't know, now they're following you in your actual car, I don't know. Some people don't like the idea that insurance companies are literally monitoring after every turn. They don't like that the insurance company knows where they go, what time of day they drive. I do find that a little disturbing. As a result, these types of devices have not saturated the market. A minority of customers use them, that's because they are not totally proven yet at this point in time, so they probably don't have the data at this point in time to really change the actuarial tables yet, but you would think if they could compile a significant amount of data, they can get better and more accurate numbers, which can help them lower prices. So it's also because insurance companies have been less than transparent about what they're collecting and how it relates to the rates they charge. No, companies are less than transparent. Do they sell the information to third party users? So there's also the issue of personal privacy and what companies do with the data they collect. They're gonna sell it to Facebook, and then Facebook's gonna sell it to, I don't know. So do they sell it? Do they sell it? So a local market knows we drive past their three times a week. Hey, where did that billboard? Looks like it's, that billboard looks like it's talking right to me. It's like they know I'm driving past this. People want to trust the data is only used to evaluate riskiness. So clearly, if you did have this tool in your car, then if you knew that it was just being used to evaluate this kind of stuff and it wasn't gonna be used in these other kind of ways and sold the third parties or used in the farthest ways, then I could see how it would work. I get the idea. So this is sort of sitting at a kind of fork in the road while the insurance companies and the regulators in our state make sure that this is a product that not only incentivizes safe driving but also protects consumers from corporate abuses. So, or is it going to be just another way in which companies dig into our lives and extract more data that they can monetize? So clearly monetizing data is a huge strategy these days for our companies. So that's a little concerning. So we're hoping that regulators and lawmakers make sure that we end up with a good version of these potentially valuable products and the discounts that come along with them. So in Vestopedia asking, finally, there's the issue of consumer protection when it comes to auto insurance. What your options if you're upset because you think the insurance company got it wrong when you filed a claim. So now you file a claim, you're saying the insurance company is wrong about the claim, I'm upset about it. Where's the recourse there? Heller expert answering. If you're involved in a claim that's not right, there are options. Obviously you can go to the company and plead your case. That's probably be the first step. You'd say, hey, look, I think you're just, I think you're just flat out wrong right here. And ultimately, of course, you can go to the civil courts. So we're Americans. We can sue anybody anytime if we want to. So we could try to go to the court. In between, state departments and insurance have consumer complaint mechanisms offering varying degrees of relief. Some states like California have a whole customer complaint team with people who really know what's going on even that will only get you so far. So you can use those tools which are probably, you know, cheaper than suing someone. So regulators, in my view, I could really step up their game. By that, I mean, I don't think consumers should have to wait until something goes wrong. Auto insurance is really the only product in America that government compels us to buy. So that does lead to things that you would think changes the game if you're forced to buy it. But you're forced to buy it, you somewhat argue, if you choose to drive. But, you know, some places you kind of have to drive. But in any case, so most people can't get to work without a car. So we don't have the information to support a population that has access to good jobs and doesn't need a car. So it's essentially a mandatory purchase. So now the argument here that he's making is that, yeah, the government is basically mandated due to the fact that the way life is, especially in the city areas, or at least in California and LA area, you kind of need a car. So we're all compelled to buy the, we're all compelled by the government to purchase this private sector product, which is unique. As a result, I believe there's a special obligation on the part of lawmakers and regulators to make sure that the supply side, the insurance companies are acting appropriately. So, and that kind of makes sense. I'm not, in my opinion, I'm not big on government regulation if it's not needed. You need some, you know, regulation, of course, but over-regulation is often a problem. But obviously, when the government mandates someone to use something, now the government has already stepped in and that clearly distorts the market. And so now you gotta deal with all the distortions that are gonna happen once that happens. So I think a lot more needs to be done on the front end. So as consumers, we do have a place to turn.