The Riskiest Decision of Your Life

by Ron Haynes

Note: This post was included in the Carnival of Personal Finance #142 hosted by The BadLady. Please check out her blog today!


photo credit: aokettun

Imagine driving to a secluded airport, boarding a Cessna 172, climbing to 9,000 feet, then jumping out with only some thin strings and even thinner cloth to allow you to float back down to earth. Sounds like a pretty risky decision, doesn’t it? How about driving to Rattlesnake Mountain just north of Birmingham, Alabama and going for a long hike? They call it Rattlesnake Mountain for a reason. How risky is that? Of these two scenarios, the riskiest decision is the decision to get into the car. You have a greater chance of dying or being injured in the vehicle on the way, than you do once you engage in the activity.

Every time you get behind the wheel, you are literally taking your life into your hands.
The simple act of driving IS the riskiest decision of your life and you probably do it on a daily basis, without giving it a second thought. The reason you probably don’t think much about it is because of your car insurance. We buy insurance to reduce the risk of financial loss should an accident occur, but you risk financial losses and surprises just buying the insurance. Here are some secrets to buying car insurance:

1. There are discounts galore. Make sure you ask your agent what discounts he or she gets (other than employee discounts). Ask for a list of all available discounts and the requirements to get them. There are potential discounts for:

  • Students with good grades
  • No accident discounts
  • Multi-car discounts
  • Discounts for multiple policies
  • Good credit discounts (yes, they check your credit)
  • Discounts if your teenager takes a driver’s ed course
  • Discounts if the car has safety features
  • Discounts for paying for a full year
  • Discounts for higher deductibles


2. Your coverage limit may be too low.
Many insurance agents push what’s called “state law minimum” in an effort to write as much business as possible. Insuring yourself to only the state law minimum is probably asking for trouble. Most policies in force today have only a $30,000 to $50,000 limit on property damage from a single accident, so if you’re in an accident with a $40,000 SUV and you only have $30,000 in property damage coverage, who pays the additional $10,000? Answer: YOU. Don’t let a slimy TV attorney take you to court and potentially ruin your life because you were too cheap to get adequate coverage limits. Judgments follow you for a long time. Ask your agent for recommendations, keeping in mind the litigious nature of our society today. I personally carry $500,000 in coverage, but that is my personal choice.

3. Don’t get surprised by the incredibly low value your insurer will place on your vehicle
if it’s totaled in an accident. Most insurance companies have their own valuations and no two are exactly the same. Your best bet is to ask. Your insurer will consider how old the car was, its mileage, its condition, and then prorate it some more. It will disgust you, plan on it. Your best defense is to buy gap insurance to cover the difference. Barring that, you do have the option of negotiating with your insurance company or going to mediation or arbitration to settle your dispute.

4. Do not overpay, but price should be secondary to protection.
All companies are not the same, coverages are almost never the same even at first glance. Your coverage is usually quoted as a “summary” of proposed protection and the limits are the same, but what goes into the policies may be radically different. One company may pay $30/day for a rental vehicle (should you need one) while your car is being repaired. Another may pay $50. One may cover towing, another doesn’t. One may pay for any shop to repair your car, another makes you jump through hoops and will only let you use one of their “authorized” repair shops. Remember, insurance isn’t a commodity. It is almost impossible to make a good apples to apples comparison without reading the actual policies and you usually don’t get to see these until you’re already committed. Ask questions on the front end. Ask to see a copy of your potential policy. Then read it and make a list of questions, imagining yourself having to file a claim.

5. If you decide to cancel your policy, do it in writing.
Don’t just ignore your last bill from your old company if you’re changing insurers. When you don’t pay as agreed, the insurance company can zing your credit report for non-payment. The way they see it, they were providing a service (coverage) and you failed to live up to your end of the bargain (payment). Usually your policy will state it very clearly (you did read the policy, didn’t you), “This policy can be canceled by notifying the company in writing.” Make sure your credit doesn’t get zapped.

cuStudentLoans

There are all sorts of ways to lower your car insurance costs, from raising your deductible, to dropping collision and comprehensive coverage on older cars, to dropping your college aged teenager from the policy (if they attend a school 100 miles away or more AND never drive your car). Don’t just think price is the only issue with car insurance. Think about the company standing behind the policy. All insurance is nothing more than a promise. Make sure you trust the company making that promise and that they have a good reputation for living up to their end of the bargain.

According to the National Highway Traffic Safety Administration, motor vehicle accidents are the leading cause of death for Americans aged 3 to 33.

Makes jumping out of a plane seem boring.

[tags]risk,insurance,car,decision[/tags]

About the author

Ron Haynes has written 997 articles on The Wisdom Journal.


The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.


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{ 9 comments }

Frugal Dad

What a timely post – my wife’s cousin was just seriously injured as a passenger riding with a friend. They gave him a Life-Flight over to UAB where he is recovering. I imagine the bills are going to be pretty steep – hopefully the driver’s insurance is solid.

http://www.easywealthfire.com

If you give most people a choice between letting their daughter who is in the 3rd grade play at her friends house who has a pool in the backyard, or at their friends house where daddy owns a gun, most parents would fear the gun. The truth is, pools kill more kids than guns by like 200 percent or something like that each year.

What most people perceive as a benefit and what is a benefit to them are 2 different things. Most people I know think their money is the safest in a local bank. I would argue online banks are far better. My local bank usually gives me .25 percent interest. Most internet banks I see that are FDIC insured like Etrade, or ING Direct give average 5.05 on the same kind of account. If you leave your money in a local bank you actually lose money, since inflation is about 2% a year. But, most people perceive it as safe.

Don’t get caught up in popular belief. Take the extra 5 minutes to read and understand then compare benefits. Your future self will thank you as those extra thousands roll in.

Oh yeah, car insurance. Hey, is there a car insurance website that does cost and service comparison for various insurance companies by area. That would be a great tool. I mean, they already do it for cars

Ron

@Martin
Hey Martin. Glad to see your comments.
It’s ironic how we tend to fear some things, but be comfortable with others that are much more deadly.
I read a statistic about how many kids are killed from drinking common cleaning products (Pine Sol, Clorox, etc) and the number blew my mind. Where’s the outrage?

My Dollar Plan

Great post! In addition, I’ve found it’s sometimes cheaper to load up with umbrella coverage at lower underlying limits than increasing the limits on the cars themselves. Of course we carry 500/500/100 with a $1 million umbrella on top.

Ron

@My Dollar Plan
Hmmm . . . interesting idea on the umbrella coverage. I’ll have to check that one out! Thanks for the idea.8)

Andy Wood

Increasingly, car insurers are using selected items from your credit report as an occasion to evaluate your risk (according to them) and raise your rates. We had a really good year last year – finished Ph.D., moved into bigger house, really good zero-balance credit card, etc.

However, our car insurance went up more than 25%. Wrecks? None. Tickets? No new ones. The culprit? All those new credit accounts. Somehow they have decided that I’m going to wreck my car because I changed my address and now mkae more money.

Hey, you know all those “15 minutes will save you” commercials? I just made the call. They weren’t kidding.

Ron

@Andy Wood
I need to make that call again. Last time there wasn’t much difference, not enough to matter anyway.
I think a lot of insurers have gotten addicted to high net profits without those “pesky claims,” then when the claims DO start rolling in (aka, hurricanes Rita/Katrina), they raise rates so their profits aren’t affected.

Jenn

I would also add to this…
Realize that when you sign your car insurance you are agreeing to arbitration with them if there is a dispute, not court with a judge/jury.

Ron

@Jenn
You’re exactly right, BINDING arbitration at that. Some policies have the insurance company able to choose the arbitrator with ZERO input from you.

Great point!

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