 Personal Finance PowerPoint Presentation, car insurance, prepare to get financially fit by practicing personal finance. We've been breaking the financial goals into the short-term goals and the long-term goals, the short-term goals being the ones where we train our gut to trust our gut, the long-term goals such as the insurance planning, being those where we use the adage of measure twice, cut once, we have a process looking something like this, we set our goals, we develop a plan, we put the plan in action, and then we review the results starting it over once again. These are the types of things we might be considering insurance related to to mitigate risk, disability, illness, death, retirement, property loss, liability. We're gonna get specific on the car insurance now. Most of this information can be found at Investopedia. How much car insurance do you need? Which you can find online. Take a look at the references, resources, continue your research from there. This is by Chuck Tenert, updated February 25th, 2022. How much car insurance do you need? $532.58. Actually, no, it's more complicated than that. It's always more complicated, isn't it? Why? Because it depends on a number of factors, including where you live, how much your car is worth, and what other assets you need to protect. Here's what you need to know. How car insurance works. So car insurance can be somewhat complicated because we're actually talking about multiple different factors that are bundled together under this title of car insurance. They're all related to the car, but we're actually talking about different things from an insurance standpoint. So an automobile insurance policy is actually a package of several different types of insurance. The most common ones are, we got the bodily injury liability, property damage liability, medical payments or personal injury protection, collision coverage, comprehensive coverage, and uninsured, underinsured, motorist coverage. So depending on the state you live in, some of these coverages may be mandatory, others optional. So that's another factor that clouds things up a bit. We've got some component of the car insurance that will be mandatory, but then you gotta think about, okay, what is mandatory and what else might I need over and above the mandatory types of insurance? And remember that the more stuff that becomes mandatory, oftentimes we start to think, well, why do I buy this thing like insurance? Why do I buy this tool? Because they made me to, because they told me to, but that's not the only rationale we wanna have because we also wanna think about how much insurance we need that would be appropriate for us. So sometimes the laws that make us or force us to do things like buy stuff, buy insurance, can actually make us not go through the thought process that we otherwise would, which is not usually good. We would like to know why it is we're purchasing the insurance and what the insurance is doing. So if you have an auto loan or lease, your lender may also have certain requirements, but beyond what your state or lender requires, you may want to purchase additional insurance to protect yourself. Here's a closer look at each type of the coverage and how to decide how much you really need. Bodily, injury, liability, this is the one that might be required depending on the state that you are in. And I think you'll be able to see why that might be the case, what it is, what it covers. Bodily, injury, liability is the part of a car insurance policy that will pay for injuries you or family members who are listed on your policy caused to someone else in an auto accident. So if there's an auto accident, if there's injuries and you're found to be at fault for those injuries, that could be an expensive liability in that instance. You can see why a state might try to require that because if you're in a situation where someone gets in an accident and they don't have liability protection and they don't have much resources, there's not gonna be much recompensation even if the person who suffered the injuries sues because there's not much to sue for in that case. So you can see that's kind of the drive for having everybody to have the insurance for the vehicle that you might see in that could vary from state to state. So how much you need? Virtually every state requires drivers to purchase bodily injury liability coverage, although the amount varies from state to state. On an auto insurance policy, your liability coverage is typically expressed as a series of three numbers such as 25 slash 50 slash 20. The first number represents the maximum your insurer will pay per person if the insurer, someone in an accident, 25,000 in this example. So we got the 25, 50, and the 20, the first number representing the maximum your insurer will pay per person if you injure someone in an accident, the 25 standing for 25,000 in this example. The second number, which is the 50 in this example, is the maximum it will pay per accident in case more than one person is injured, 15,000 in this case. So you've got the 25,000 per person, but then you've got the maximum on a per accident situation, which is gonna be a cap there, this in this case, the 50,000. So if you had multiple people that were injured, they got the maximum of the 25,000, then you can imagine that going over the cap of the 50,000 in which case it would be capped at the 50,000 for the accident. The third number refers to the property damage liability. You will need to purchase at least the minimum amount of bodily injury coverage that your state requires for many states, that's 25,000 per person and 50,000 per accident, although some states are lower or higher. Your state's minimum requirement may not be enough, however, especially if you are involved in a serious accident, you'll need to consider your assets and whether they'd be adequately protected in the event of a lawsuit. For example, if you own your home or have a substantial amount of money in savings, a costly accident could put them at risk. In that case, you'll want to buy more coverage. So in other words, obviously if you've got an accident and the coverage doesn't cover it and then you're sued for the difference, these medical expenses can clearly be quite high. And so then if you're more wealthy individuals who have more assets are more likely, of course, to get sued and they're more likely then to need various forms of other insurance to protect against that event. The nonprofit consumers' checkbook among others recommends buying coverage of at least 100-300-50 just in case the difference in cost between that coverage and your state's minimum will probably not be very much. So you can buy even more coverage than that, 250 slash 500 slash 100 say if you have more assets to protect. You can also purchase an umbrella policy which will raise both your auto and home insurance liability coverage to a $1 million or more. Property damage liability. So now we're talking about the auto insurance. Now we looked at the liability. Now we're talking about the property damage for the medical liability. Now we're talking about the property damage liability whereas the last one was bodily injury liability. So what it covers, property damage liability covers the cost of when you or members of your family damage another person's car or other property such as a tree or fence in an accident. So clearly if you get in an accident, again, if you're at fault for it, you could have injuries that would have happened to some other individual and then you could also have damage that was caused oftentimes to another vehicle or to some form of piece of property. If you hit a tree, if you hit a fence or something like that, how much you need as with bodily injury liability, virtually every state requires you to have some amount of property damage coverage. So you got the same kind of thing, same kind of rationale as to why you can see the states kind of pressuring people to have at least some degree of this type of liability because if there was a lawsuit that happened and if someone got an accident and they didn't have any money and the other person has some kind of liability, in this case property liability, they wouldn't have the recourse they could sue but they couldn't get anything generally if there's nothing to sue for because the person doesn't have any money and so on. So it's represented on your policy as the third number in the sequence. So a 2550-20 policy would provide $20,000 in coverage. Some states require you to have as little as $10,000 or even $5,000 in property damage liability coverage but $20,000 or $25,000 minimums are most common. Again, you may want to buy more coverage than your state's minimum but unless you find yourself in a collision with a Lamborghini or Rolls Royce, you probably don't face as much financial risk as you would in an accident in which people are seriously injured. So in other words, you might be saying, well, if I have more assets then I might want more insurance in the same way as we had said with the bodily injury. However, with the property damage, you would think it would be somewhat limited because you're probably gonna be having property damage to another car which can't be too expensive, you would think unless you hit a really expensive car or something like that or you ran into a really expensive piece of property as opposed to the bodily injury. If someone is injured, the medical expenses can be quite, quite high and therefore you would think half higher risk on the bodily injury than the property liability. So a common recommended level of property damage coverage is $50,000 or more if you have substantial assets to protect. Medical payments, MedPay or Personal Injury Protection, PIP. What it covers, unlike bodily injury liability coverage, medical payments, MedPay or Personal Injury Protection, PIP covers the cost of injuries to drivers and any passengers in your car. So in some cases, it will also cover any lost wages resulting from injuries sustained in an accident. How much you need, whether medical payments or PIP coverage is mandatory, optional or even available will depend on your state. So it can vary from state to state. Note that when you're thinking about something being mandatory, the first thought process you might have and what's gonna be more likely to be in more states would be that you're thinking about the other driver having some kind of recourse and possibly the biggest thing would be for like medical or bodily injury kind of liability. You would like to have some kind of insurance so there's kind of recourse in that situation. And then the PIP would be, you would think more variant on the states because you still might be liable, say for someone else, not just yourself in that case if someone else possibly is in the car. So in states with no fault insurance laws such as Florida and New York, PIP coverage is mandatory. In Florida, for example, drivers must carry at least $10,000 and New York, the minimum is $50,000. If you and your family members already have good health insurance, you may not need to buy more than the required minimum PIP coverage because then of course you might be double covering or you might have the health insurance. If you don't have health insurance however, you might want to purchase more. That's especially true in a state like Florida where $10,000 in coverage could be inadequate for you in a serious accident. So then we have the collision coverage. What is collision coverage? Collision coverage will pay to repair or replace your car if you're involved in an accident with another car or hit someone, some other object. So now we're talking not about the other car which was the property kind of liability on the other car, you being responsible for the accident in the liability situation and therefore it's a liability situation. Now we've got the collision coverage and that we need to get our car fixed in the collision coverage. So once again, collision coverage will pay the repair or replace your car if you're involved in an accident with another car or hit some other object. Now the collision coverage, you're gonna be thinking, well do I need collision coverage? And that of course will depend on the value of your car in part and the risk level that you might have there as well. If you're driving a car that might not be worth the collision coverage because you'll replace the car or something like that. If it gets in an accident, possibly not, but if you're driving a more expensive car then it's more likely that you might want the collision coverage. So how much you need? States don't require drivers to have collision coverage because now you're talking about your own car, you're not really talking about liabilities that could be happening to someone else so you would think the state would be less likely to require you to cover your own car in that instance. So however, because notice of course, if it was someone else's fault, if the accident was someone else's fault, then you would think hopefully that they would have the liability insurance and their insurance company then would be paying for it. If you're at fault and your car was damaged, then you would think that you might want some recourse in that instance for your car but you have to have the liability insurance a lot of times depending on the state for the other car you would think the state would be more likely looking out for the other person that could be harmed who wasn't at fault, right? So however, if you have an auto loan or a leasing of a car, your lender may require it. So when you've paid off your loan or returns your lease car, you can drop the coverage. Even if it's not required, you may want to buy collision coverage. For example, if you'd have trouble paying a big repair bill out of pocket after an accident, collision coverage could be a good idea to have. So another collision coverage, if you had an expensive car you would think and or if you've gotten an accident, you wouldn't be able to pay the repair bill. Although it's also something that you might want to, you could try to self-insure against saving up in the event that an accident could possibly happen. You can't do that kind of thing as much with liability insurance if it was bodily injury kind of stuff because the medical bills could imaginably be quite high but for replacing a car or car repayments or something like that, you might be able to have enough kind of saved away in the event that something happens and plan it that way. So you'll also want to consider what your car is worth. The price of collision coverage is based on the value of your car and it typically comes with a deductible of $250 or $1,000. So if your car is not worth much and you call the insurance company, this actually happened to me once you called me. Well, it wasn't my coverage, but you know, the car's totaled, you call the insurance company, they look up the value of it and they're like, yeah, it's not worth all that much. So if your car would cost $20,000 to replace, you'd pay the first $250 or $1,000 depending on the deductible and you choose when you bought the policy and the insurer would responsible for as much as $19,000 to the $19,750. So you got the same kind of thing with the deductible plane in there, obviously. If you have a higher deductible, it might lower possibly your insurance payments but then you're responsible for that higher amount and you could try to combine your self-insurance kind of plans, your savings accounts to save for this kind of event that could likely happen and have some kind of insurance coverage and do some combo in that way if you so choose. As your car's value depreciates over time, however, you may want to consider dropping the collision coverage. So you might say, hey, my car's working great, I'm taking great care of it but after a while they're gonna say it's not worth much and so you might not need the collision coverage because it might not be worth it at that point in time. So between the cost of your annual premiums and the deductible, you pay out of pocket after the accident, you could be paying a lot for very little coverage. So you wanna consider whether or not you actually need the collision coverage more carefully. So even insurance companies will tell you that dropping collision coverage makes sense when your car is worth less than a few thousand dollars. So we got the comprehensive coverage. So what it covers? Comprehensive covers damage to your car from something other than a collision. So that might be, for example, a fire, a flood, a falling tree, it also covers car theft. So now you got stuff that isn't happening while you're actually moving on the road and you're behind the wheel possibly but in some other circumstances such as the fire, flood, falling tree. So how much do you need? As with comprehensive coverage, states don't require you to have collision coverage. So they're not really as worried, you could see why because they're not, if a tree falls on your car and no one's in it and you're not at fault for the accident, then they're not as concerned at that. They're trying to safeguard the person that's not at fault. So they have some kind of resource typically. But if you have an auto loan or lease, your lender may require it. So if you're leasing the car, then they might require this kind of thing because that's their property in essence. So, and again, when you fade off at your loan or return your leased car, you can drop the coverage. So notice that why you might ask why you have it as a loan when you have a loan because the car is collateral on the loan. And so therefore, if the car is damaged, then they're gonna lose the collateral on the loan in the event that you default on it. Clearly, if it's leased property, then they wanna have safeguard on it as well because it's their property, the leasers property. So in deciding whether to buy comprehensive coverage, if it isn't required, you'll want to weigh your ability to pay out of pocket if your car is stolen and you have to buy a new one or damaged and you're stuck with the repair bills. So similar kind of consideration here, you might try to do some kind of self-insurance as well, saving up in the event that your car is stolen or something like that and or have some kind of combination between self-insurance and the car insurance. So you'll also want to consider how much your car is worth compared with the cost of coverage covering year after year. So you've got the same kind of thing. Well, if my car is destroyed, how much would they actually give me if that happened and is that worthwhile? Is that worth the premium? How expensive is my car? Then we got the uninsured, underinsured motorist coverage, what it covers just because state laws require drivers to have a liability coverage that doesn't mean every driver does. So as of 2019 and estimated 12.6% of drivers or about one in eight were uninsured, many other drivers have some insurance but not enough to cover costs of a serious accident. That is where this type of coverage comes in. So obviously if you get an accident, typically if you're not at full, then the other person should have the insurance and their insurance should kind of take care of the cost and so on and so forth. But sometimes the other person doesn't have insurance even if they're legally required to. So it can cover you and family members if you're injured or your car is damaged by an uninsured, underinsured or hit and run driver. So how much do you need? Some states require drivers to carry uninsured motorist coverage, U-M. Some also require underinsured motorist coverage, U-I-M. Maryland, for example, requires drivers to carry uninsured, underinsured motorist bodily injury, liability insurance of at least $30,000 per person and $60,000 per accident. It also requires at least $15,000 in uninsured motorist property damage. If your state requires underinsured or uninsured or underinsured motorist coverage, you can buy more than the required amount. If you wish to, you can also buy this coverage in some states that don't require it. If you aren't required to buy an uninsured, underinsured motorist coverage, you might want to consider it if the coverage you already have would be insufficient to pay the bills if you're involved in a serious accident. So if you get in a serious accident and you don't have the bills to cover it, so, and those serious bills might be, you would think the medical type of bills. So for example, if you lack adequate health insurance or medical coverage through your car insurance policy, adding it could be worth it. So clearly you would think in the accident you've got the actual property, but then you would think that the big bills that could rack up would be those medical bills. Other types of coverage, when you're shopping for auto insurance, you may see some other totally optional types of coverage. Those can include roadside assistance, such as towing, rental reimbursement, if you have to rent a car while yours is being repaired. Gap insurance, which covers any difference between your car's cash value and what you still owe on a lease or loan if your car is a total loss, whether you need any of these will depend on what other resources you have, such as memberships in an auto club. So you might have an auto club or something that might assist you with some of these items. So you wanna make sure that you're not doubling insurance that you're covered in one or the other and how much you could afford to pay out of pocket if you must. So the bottom line in auto insurance policy is made up of multiple types of coverage, some of which are state or auto lender may require while others are optional, whether to buy more than the minimum required coverage and which optional type of coverage to consider will depend on the assets you need to protect as well as how much you can afford to pay. Your state's motor vehicle department website should explain its requirements and may offer other advice specific to your state. An independent insurance agent who is familiar with the laws in your state and can provide policy options from a number of different insurance companies could also be of help. So you could talk to an insurance agent, a note, however, you might even talk to some friends and family that are not insurance agents or a lawyer or a CPA, someone that you trust so that you can even pay someone to get an independent decision, someone who's not benefiting from you buying a particular policy because if you're buying the policy from somebody, then it doesn't mean they're lying to you, but it does mean that they have a financial interest in it. So their opinion, at least on appearance, is somewhat, is not independent. So you'd like to get possibly an independent decision and then go to the professionals and see what they think about it from there and then consider your purchasing process.