Tag Archive | "insurance"

Car Math

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Even if you failed algebra in high school, don’t worry. There are no unknown variables here, and we’ve even provided you with a handy calculator to help you determine your monthly car payments.

To estimate how much you’re going to owe per month on your new car, take several factors into consideration: the total price of the vehicle, the sales tax in your state, the amount of your down payment, the interest rate of your financing options, and the duration of your financing plan. (Financing can be arranged either through the dealer or through a separate lending agency).

For example, if you decide to purchase a $20,000 car with no down payment, a state sales tax of 5% and a 9.05% interest rate, and pay it off in four years, your monthly payment will be about $525. (Check out our loan calculator to figure out how much you’d have to pay for the car of your choice). Based on your estimated monthly payment, ask yourself if you can budget this successfully given your current income and still afford gas and monthly insurance payments (not to mention rent).

It seems like a lot to consider when all you want to do is to ride your new car out of the dealer’s parking lot. However, if you keep these key terms in mind, you won’t be caught by surprise when it’s time to negotiate the payment terms on your new car:

  • The total price of the car. This is the negotiated price of your vehicle plus tax, minus any dealer’s rebates. This isn’t the total amount you ultimately pay for your vehicle; however, it is the base from which dealers calculate the tax and interest rate on a car.
  • Down payment. In essence, the down payment is a portion of the total price of the car that the buyer “puts down” in order to be able to drive the car away from the dealership. Traditionally, by laying down a significant amount of money, you signify your intent to continue paying for the vehicle; however, “money down” isn’t always necessary. Remember, while putting no money down might be advantageous in the short-term, it will increase your monthly payments in the long-term.
  • Interest Rate. This is one of the most important numbers you’ll have to deal with when financing a car, so pay attention. Basically, this is the price the lender charges for making you a loan. For each year of your term, you are charged on the remaining amount that you owe. This means that you’re charged interest yearly, but pay it on a monthly basis. Interest rates vary by state and sometimes by city. The national average is about 9%; however, rates can range up to about 13%. These make a huge difference in what you owe: take a look at our example above. Given the terms stated, you’d end up paying just over $5,000 in interest. If the interest rate were 13%, the total would rise to almost $7000. Make sure the interest rate is one you can afford comfortably.
  • Term. This refers to the duration of your financing plan. Generally, you can pay your car off in monthly installments for either 24 or 48 months, although this period is negotiable with the dealer. This number is closely tied to the interest rate because the longer you take to pay off the car, the more you’ll be paying in interest. The quicker you pay off the car, the less extra money you’ll shell out in interest.

Keep these basis concepts in mind, and you can walk into the dealership confident in your knowledge of all things finance – and start worrying about different kinds of car math, like how many bags you can fit in your trunk for a weekend trip to your summer share.

Auto Insurance Options for Students

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There’s something strangely empowering about knowing your car is well-covered.

I am notoriously cheap. But when I was in graduate school, my husband took on a paper route to cover expenses. The newspaper required that we have lots of expensive auto insurance.

Having that much auto insurance had a strange effect on me. When I got behind the wheel of the car, I felt . . . invincible. I started speeding just so I could get my money’s worth. Then, of course, I finished school, my husband dropped the route, and we lowered our coverage back to the minimum rates. Cutting back on expenses was good, but I did miss that feeling of invincibility.

Finding the right balance between affordability and adequate coverage doesn’t have to be difficult when it comes to car insurance. First, understand the different types of coverage and think about which ones you need. Next, be aware of all of the ways that you can pare down your premium. Finally, get ready to shop around for the best rate.

Types of Coverage

There are about six basic types of car insurance coverage. There are good reasons for having all of them, but you may find that one or more of them don’t fit your needs.

Liability Coverage

Liability coverage protects you in the event that you injure someone or damage property in the course of an accident, even if the accident is not your fault. For example, my little sister was once broad sided by a drunk driver who ran a red light. Sis was OK, but the other driver died. His family sued her for wrongful death. She had the right kind of coverage, so the insurance company was able to settle with the family; she stayed out of court and protected her assets.

Besides protecting you from lawsuits, liability coverage will also pay for damage to other cars and property caused by your car. Most states require that you have minimum levels of bodily injury and property damage coverage, so check with your state insurance office to find out what those minimums are.

Collision Coverage

This one is simple. It pays for repairs if your car is damaged in an accident, and you’ll definitely need it if you have a loan out on your car. Collision comes with a deductible – meaning that, in addition to premiums, you will be responsible for paying for your repairs up to a certain amount before the insurance agency starts kicking in. The most common method of lowering your premium is by raising your deductible. You can just about cut your collision premium in half if you raise your deductible from $100 to $500. The advantage of a higher deductible is that if you get in a minor scrape, you can pay the bill directly and avoid raising your rates by filing a claim. This might not be a wise route for everyone, however. If you can’t afford to pay $500 out of your pocket, consider a lower deductible and a higher premium.

Comprehensive Coverage

Comprehensive covers the theft of your car and random damage caused by, say, a collision with an animal, vandalism, riots, and lots of other stuff. Again, this is a must if you have a loan on your car.

If you drive an old junker, you may want to drop the collision and comprehensive coverage altogether, as neither is considered mandatory by your state. Insurance policies will only cover damages up to the dollar value of car. If your car isn’t worth much, the amount of the claim probably won’t cover the cost of repairs.

Medical Coverage

Also called no-fault or personal injury insurance, medical pays the medical expenses of the driver and passengers in the car. You can forego this one if you already have a regular health insurance plan.

Uninsured Motorists Protection

This will pay for any damages or injuries caused by an uninsured motorist. There are a lot of them out there, so this is a good one to have on your policy.

Can I get a discount on any of those?

When you first ask an agent for a quote, they will quiz you on your car, neighborhood, etc., in order to place you in an appropriate “risk” category. The following criteria are taken into consideration: age, gender, the kind of car you drive (its age and safety rating), your neighborhood, your driving record and the length of your commute.

Changing any one of those things can lower your premium. Drive more safely. Wear your seatbelt. Get a safer car. Move out of the city. Hurry up and turn 25! Unfortunately, men are considered to be a higher risk than women, and so pay more in insurance. But, you can get married, which moves you into the more “stable” categories. And, you can usually get a discounted rate if you and your spouse insure your cars on the same policy.

Having safety features in your car go a long way to reducing your insurance premium, in addition to saving your life. So make sure your car has amenities like driver and passenger side air bags, automatic safety belts, daytime running lights and anti-lock brakes.

As with many things in life, the amount of auto insurance that you pay for should not be based on cost alone. Take into consideration the impact too little coverage might have – you might wind up without a car because you couldn’t come up with the deductible for repairs, or you could go bankrupt paying a lawsuit judgment. Insurance isn’t just about what you can afford now. It’s also about what you may have to protect in the future.

Top Financial Surprises

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Taxes

As salaries increase, so do tax brackets (rates). This can be an especially severe surprise for young grads since they have few deductible expenses such as mortgage interest and children to recoup money from taxes.

Health Insurance

You’ll need this. Most companies offer fairly decent plans, at a price. Make sure you understand your options so you can choose a plan that fits your budget and medical needs. And if you’re laid off and want continuous coverage, consider temporary health care such as COBRA (www.cobrahealth.com) or www.GradMed.com.

Dental Insurance

Your employer for a nominal fee should provide coverage. Otherwise it may be cheaper to pay for bi-yearly cleanings than dental premiums.

Life Insurance

If you’re single, you don’t need life insurance. However if you are married or have a family, do some investigating now – the younger and healthier you are, the cheaper it is to obtain.

Renter’s Insurance

Since this is not covered in your lease, it makes sense to pay a couple of hundred dollars to protect yourself from theft, flooding and fire.

Student Loan Repayments

Many graduates find student loans a significant financial burden. Remember to include repayments in your budget as they will begin within six months of graduation. Most grads are consolidating their loans in order to reduce their monthly repayments. For more information, visit the Student Loan Consolidation Program web site, www.slcp.com.

Auto Insurance

As a first car buyer – you may be shocked at how much this costs. Premiums are higher in big cities and vary according to what car you drive and your driving record.

Retirement Savings

Investment advisors universally recommend start saving as early as possible and employers often offer beneficial contribution-matching plans. But it is money out of your pocket today. If you can afford it, then sock as much in your 401K as you can.

Why You Need Renter’s Insurance

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Think you don’t need renter’s insurance? This grad student thought so too – until a fire broke out in her apartment.

I’ll never forget the phone call. I was sitting in class when my friend Javier called. “I just rode my bike past your apartment, and I think you should get over here. There are three fire trucks parked in front of your house.”

That’s all he could tell me. I wasn’t too worried at this point – I lived with three other women in a rather dilapidated house that was subdivided into several student apartments. It couldn’t possibly be our place. Right?

Wrong. When we arrived on the scene, one of the firefighters combed through the crowd, calling my roommate and I by name. Apparently, the fire had started in our room – and there was nothing left but charcoal and ashes.

Luck is No Substitute for Planning

Once I got over the initial shock, I panicked. I had never even thought about renter’s insurance. How would I ever pay to replace all of my worldly belongings?

Luckily, unbeknownst to me, I was covered under my parent’s homeowner’s policy (most standard policies cover full-time students who are under 24 years old and living on campus). The policy paid to replace almost all of my things – not a bad deal, since I was able to replace my standard grad school jeans and sweatshirt ensembles with work suits for my new job. But there were some items that were irreplaceable – like my college photo album, love letters, poems and handknit sweaters my mom had made.

Things to Consider

Insurance Providers Online

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So before you swear off renter’s insurance with a casual “It couldn’t happen to me,” here are a few things to consider:

  • You’re not covered under your landlord’s policy. If you’re moving into a new apartment, the first thing you should do is get renter’s insurance. Your landlord may have insurance on the building, but not on the stuff inside. You’re responsible for insuring your own belongings against things like fire, theft and water damage.
  • Be sure your renter’s insurance also includes personal liability coverage. Most renter’s policies also insure you against all non-auto accidents. So if someone injures themselves in your home, or you knock someone out in a softball game and they decide to sue you, you’ll be protected against lawsuits. Unsure of how much you need? Coverage of $300,000 is standard.
  • It’s not as expensive as you think. According to the National Association of Insurance Commissioners, the average policy only costs $169 per year. That’s a lot cheaper than paying to replace all of your things at one time.
  • Get a replacement-cost policy. There are two basic types of policies. An actual-cash-value policy will reimburse you only for the depreciated value of your belongings. Which, in many cases, is not much. You’re better off going for a replacement-cost policy, which will replace your things at current prices. You’ll only pay about 15%-20% more for a replacement-cost policy, so shell out the extra $20.
  • Document your belongings. When you’re unpacking your things in your new pad, take the opportunity to put together a general list of what you own. (Trust me, this is a difficult thing to do after the fact. You own a lot more stuff than you realize, and it’s hard to remember all of it in the aftermath of a fire). You may even want to take pictures of more valuable belongings, like jewelry and electronics.
  • Insure expensive items separately. Most policies place a limit on reimbursements for any single item. So if you own a computer or expensive jewelry, let your insurance agent know – she will be able to tell you if you need to take out any additional riders.
  • Look for ways to lower your premiums. There are a few things you can do to lower your premium. Ask your agent about any discounts – some insurers sell combined renter’s/auto policies at a savings. Install deadbolts and smoke detectors. Keep particularly valuable or sentimental items, like jewelry or childhood mementos, in a safe-deposit box – you’ll save money while protecting the things that are the most difficult to replace.

We still don’t know what caused the fire – theories ranged from faulty wiring to an overloaded circuit protector. But I do know that first thing I do when I move into a new place is purchase renter’s insurance. It’s a cheap and easy way to keep an unfortunate situation from turning into a tragedy.

Health Insurance Options for Students

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Having difficulty deciphering your health care options? Before you hand over all that paperwork to your employer, make sure you choose the coverage plan that’s best for you.

Excited and nervous on my first day of work, I arrived early and waited to meet with my new manager for a run down of my responsibilities. Unfortunately, my first “to do” was less than exciting – head down to Human Resources for new employee orientation.

As I met with the HR representative, she walked me through the company’s benefits package, including health care. Apparently, I needed to make a decision about a health insurance option as soon as possible so she could begin the enrollment process on my behalf.

Back in my 8×8 cube, I paged through the voluminous health care plan, thinking that the sooner I could make a selection, the sooner I could dive into my new job. An hour later, my frustration level through the roof, I realized that I had no clue where to start the decision- making process. HMO, PPO, indemnity? What was the best deal?

Luckily, I lived through the confusion so you don’t have to. Health insurance plans can be broadly divided into two categories: (1) indemnity plans (also referred to as “reimbursement” plans or fee-for-service (FFS) plans), and (2) managed care plans.

Indemnity plans

The coverage offered by most traditional insurers is in the form of an indemnity plan, which reimburses you up to a certain amount for your medical expenses. You’re free to see any doctor you like, but different plans use varying methods to determine your reimbursement:

Reimbursement – actual charges. Under this type of plan, the insurer will reimburse you for the actual cost of specified procedures or services, regardless of how much that cost might be.

Reimbursement – percentage of actual charges. Here, the insurer pays a percentage of the actual charges for covered procedures and services. A common reimbursement percentage is 80% – which means you pay 20% of the cost of all healthcare services.

Indemnity. This means the insurer pays a specified amount per day for a specified maximum number of days. For example, a hospital stay may be restricted to five days at a rate of $200 per day. You are responsible for all expenses that exceed these allotments.

Managed care plans

There are three basic types of managed care plans: (1) Health Maintenance Organizations (HMOs), (2) Preferred Provider Organizations (PPOs), and (3) Point of Service (POS) plans. Although there are important differences between the different types of managed care plans, there are also many similarities. All managed care plans involve an arrangement between the insurer and a selected network of doctors, hospitals and health care providers. All offer policyholders significant financial incentives to use the providers in that network – which can benefit you because these plans usually select and monitor network providers carefully to ensure they deliver quality care.

Health maintenance organizations (HMOs). HMOs provide medical treatment on a prepaid basis, which means that HMO members pay a fixed monthly fee, regardless of how much medical care is needed in a given month. In return for this fee, most HMOs provide a wide variety of medical services, from office visits to hospitalization and surgery. With a few exceptions, HMO members must receive their medical treatment from physicians and facilities within the HMO network.

Preferred provider organizations (PPOs). A PPO is made up of doctors and/or hospitals that provide medical service only to a specific group or association. Rather than prepaying for medical care, PPO members pay for services as they are rendered. The PPO sponsor (usually an employer or insurance company) generally reimburses the member for the cost of the treatment, less any co-payment (which is the pre-determined amount the member is responsible to pay). In some cases, the physician may submit the bill directly to the insurance company for payment. The price for each type of service is negotiated in advance by the healthcare providers and the PPO sponsor, usually at a discount. This means you save on medical expenses if you see a provider within the network, but you’re still covered if you need to go out-of-network.

Point of service (POS) plans. A point of service plan means you pay no deductible (a pre-determined cost the member is responsible for paying before benefits kick in) and usually only a minimal co-payment when you use a healthcare provider within your network. You also must choose a primary care physician who is responsible for all referrals within the POS network. If you choose to go outside of the network for healthcare, you will likely be subject to a deductible (around $300 for an individual or $600 for a family), and your co-payment will be a substantial percentage of the physician’s charges (usually 30-40%).

So which is better?

You’re young, you’re healthy, and it’s not likely you’ll need to see a slew of specialists any time in the near future. So in general, managed care plans are better suited for most recent college grads because they end up being more cost-effective in the long run. In contrast, indemnity/reimbursement plans usually involve more out-of-pocket charges (in the form of deductibles and co-payments) and often place caps on the amount of benefits you can receive over your lifetime. However, indemnity plans do offer more freedom than managed care plans in terms of choosing a healthcare provider.

So, as with anything else, the choice between managed care and indemnity plans ultimately depends on your personal circumstances and preferences. If your goal is to minimize costs, you’re probably better off with a managed care plan. On the other hand, if your goal is maximum flexibility and cost is not a major factor, consider an indemnity/reimbursement plan.

Clearing Up Insurance Myths

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Did you hear the one about the 22-year-old guy from New York with the red sports car? The rumor is partly true – his car insurance is through the roof. However, not all urban insurance legends are based in fact.

We asked Dick Hospital, the Vice President of Underwriting for GEICO Insurance, to help dispel some of the most commonly held insurance myths:

1) Will I pay higher premiums on my car insurance because I’m under 25?

Yep. Younger drivers tend to have more accidents than older drivers, so you pay more. “Twenty-five is not the magic number, but historically, it’s been used as a cut-off,” says Hospital. “Make sure you ask your insurer if they provide small decreases on a yearly basis. You may pay more as a 20-year-old than you would as a 25-year-old.”

2) Do men really pay higher premiums than women?

Unfortunately, yes. According to data compiled by the National Safety Council, 20-something men have a higher accident frequency rate than women. But once you and your sister hit 30, you’ll both be paying the same adult rate.

3) Am I being penalized because I’m single?

Yes. “Clearly, there are many responsible people who are single,” Hospital says. “But married people tend to have a lower accident rates. Who knows why – perhaps they spend less time running around or partying, or drive more carefully once they have kids.”

4) Do sports-car owners pay higher rates?

Yes. Expensive cars are more expensive to replace. Simple as that. But since the kind of car you drive is one factor you have control over, consider buying a car that tests well in safety ratings. Four-door models tend to be safer than two-doors, for example.

5) Are red cars more expensive to insure?

The jury is out on this one. “I can’t speak for everyone else, but GEICO doesn’t use color as a determining factor,” Hospital says.

6) Will I pay higher premiums if I live in a big city like New York or LA?

This one is true. “People in Culpepper, Virginia probably pay a fraction of what New York residents do,” Hospital says. “Theft rates tend to be higher in urban areas, where traffic is congested and there are more accidents.” Cities also tend to be litigious environments – in other words, your neighbors are more likely to sue you. Other high-cost areas include Philadelphia, Chicago, Miami, New Jersey and Massachusetts.

7) I’ve heard that everyone needs life insurance. Is that true?

Not necessarily. If you’re married or have children, then yes, you’ll want term life insurance to make sure you’re providing for your family. But what if you’re single? “Unless they have very generous parents, recent grads have very little assets to protect, so they may not need life insurance,” Hospital says. But, keep in mind that if you’re young, you can buy a whole lot of life insurance, real cheap. And once you have it, you can keep renewing it.

8) I don’t own that much stuff, so I don’t need renter’s insurance.

Wrong. Even if your house is never robbed or damaged by water, renter’s insurance can still be protection against future earnings. According to Hospital, “People forget that renter’s insurance also provides liability coverage in non-auto incidents. So if someone falls off your balcony or even if you hit someone on the street, you’re covered against a potential lawsuit.”

9) I’m covered under my parent’s policy until I’m 25, right?

That depends. If you still live in your parents house, or if you are a full-time student under the age of 24 still living on campus, then you are most likely covered under you parent’s homeowner’s policy. When it comes to health insurance, you’re covered under your parent’s policy as long as you’re a dependent under the age of 21 (or 25 if you’re a student).

10) If I have an accident and my premiums go up, the insurance company must be trying to recoup their losses.

Absolutely wrong. “That extra surcharge isn’t enough to cover our average $600 loss on a claim,” Hospital says. “You pay more simply because people with prior accidents tend to have a higher probability of future accidents.”

Lest you’re beginning to consider getting married or moving to Culpepper, there are other ways to pare down your premiums. Hospital recommends taking a defensive driving course offered by the National Safety Council. They only cost around $40, and can save you 10% on your premiums over a 3-year period. Also, you can get good student discounts post-college, up to age 25. Finally, take public transportation so you won’t get hit with a commuting surcharge.