Useless types of insurance to avoid like the plague

Here’s is a good link from Bankrate.com on 14 types of useless insurance to avoid.  It’s good information and ties in with the article I wrote recently on auto insurance (and how a saved a bunch of money on my car insurance by switching to GEICO…)

The main moral of the story linked below is that for any event related to your death, you should just buy adequate life insurance (likely term life, which I recommend.)  For property, often your car insurance, homeowner’s/rental insurance, or sometimes your credit card will cover you.  Often your employer has some types of insurance (life, disability) built into your compensation package gratis; check this out as well.

As a follow-up, here’s a brief introduction to life insurance on ‘Get Rich Slowly’.  Again, for 95% of people, I recommend using Term Life if you have dependents (and NO life insurance if you DON’T have dependents.)

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I just saved $160 per year on my car insurance by switching to GEICO! (No, really, I did.)

What do Warren Buffett, a green gecko, and an Indian blogger dude all have in common?  They all suggested I’d save money on my car insurance by switching to GEICO… and they were right!  I’ll be honest, I was skeptical and sloth-like in seriously investigating how I could save more money on my auto insurance, but thanks to Ramit Sethi’s motivating tip on how to have money on auto insurance, I searched around and found a better deal in about 45 minutes when I stumbled upon and filled out GEICO’s online quote process.

How can you save money on your insurance?

First, read the above-linked article by Sethi.

Second, read another link within that post that goes over how much coverage you should have.

Next, call up a couple of reputable firms and get quotes (or do it online.  You could start with esurance, which I used; followed up by GEICO.)

One thing I DIDN’T do, that I should have, was call my previous (as of today) insurance company and make sure I had the lowest possible rate based on available discounts (like maybe they weren’t including the fact that my wife and I have low-risk occupations, teacher & engineer.)

Coverage mumbo-jumbo

A few tips on deciding what type of coverage and limits to get: most states (like Washington, my home) mandate that you have liability insurance to cover accidents where you’re at fault.  There are two types of this: Bodily & Property.  Bodily liability insures passengers in your car and those in the car you hit.  The limits are given as two numbers, per person and per accident.  I have $100K/$300K (typical for many, but maybe too much if you have few assets (no home) and have a low net worth/salary.)   This means I’m insured up to $100K in medical bills, etc per person and up to $300K per accident.

Property liability covers the non-living things that you hit (typically a car, or God-forbid, you blind-drunk fool, a house.)  A typical limit is $50,000 per accident.  I got $100K because the difference was only ~$4 more per year for both me and my wife.  (So if I wreck your new Lexus, you don’t have to sue me; my insurance will cover it!)

In addition to liability, there’s Collision, which pays for damage you cause to your own car.  Comprehensive covers damage due to other causes like theft, vandalism, natural disasters etc.  Both of these have deductibles, often $500, which you must pay yourself before your insurance pays for anything above that.  One way to lower your premiums is to raise your deductible to, say, $1000 (but make sure you have an ample emergency fund to cover this if you need to.)

Another way to lower your premium in a big way is to drop Collision/Comprehensive entirely.  If you have an older car, you might want to do this.  Apparently, the rule of thumb is to drop your Collision &/or Comprehensive coverage when your yearly Collision premium is 10% or greater than the value of your car.  I would also add that you should bulk up your emergency fund/short-term savings to include the price of a new (used) car.  My wife and I drive relatively inexpensive cars, >7 year-old sedans worth about $5000 apiece, so we dropped Collision completely.  Also, with our short-term savings, we could cover the price of replacement cars should something happen to either of ours.

Of course, having a safe driving record is the best way to lower your auto insurance premium, so be careful on the road and save money.

Back to GEICO

So what did I do?  I put my current policy in front of me (which I found online at Progressive.com.  If you’re not insured through Progressive, you probably won’t find your policy there…)  My Progressive policy was $383 per 6 months.  Next, I called up Ameriprise to see if I could get a good deal via my Costco membership.  I couldn’t; their quote was $567!

Then, I checked out GEICO and was quoted $303.  I was stoked at this point, but restrained myself from signing up instantaneously until I did a search on esurance (which I really should’ve done first, since it searches multiple sites.)  This returned $336.  Go GEICO!  I signed up for everything online and had new insurance in ~30 more minutes!

$160 in savings per year for about 2 hours of reading and workI highly recommend you check out your insurance options TODAY.

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Description of coverages from Allstate.com’s website (that’s not an endorsement; I just happened to search and found their definitions first!):

Protection for People, Property, and the Unexpected

Bodily Injury Liability Coverage

If people are injured in an accident that’s your fault, Bodily Injury Liability coverage helps protect you from bills that can include:

  • Emergency aid at the scene
  • Medical expenses for bodily injury
  • Medical services for sickness or disease
  • Compensation for loss of income
  • Funeral expenses
  • Legal defense fees and/or bail bonds for anyone listed on your policy
  • Other expenses not listed here

[…]

Property Damage Liability Coverage

If another driver’s property is damaged in an accident that’s your fault, Property Damage can help pay for their:

  • Structural damage to homes, storefronts, etc.
  • Repair or replacement costs for other stationary objects
  • Vehicle repair or replacement costs

It can also help keep your assets safe in the event of a lawsuit resulting from a covered accident.

[…]

Other Coverages

Choose any of the following options that might suit your individual circumstances best and build an auto insurance policy that helps fit your needs.

Collision Coverage helps pay for repairs or replacement to your car if you’re in a covered accident that involves other vehicles or stationary objects.

Comprehensive Coverage helps pay for covered losses caused by natural disasters, theft, vandalism, or other similar events.

Underinsured/Uninsured Motorist Coverage helps protect you if the covered accident was another driver’s fault and he/she either has no auto insurance, or not enough insurance to cover the expenses.

Medical Payments Coverage helps pay medical bills if you or your passengers are hurt in a covered accident. This option may also cover other members of your family when they’re driving the insured car.

Personal Injury Protection typically helps reimburse you for lost income, child care expenses, medical expenses, and other similar things if you’re hurt in a covered accident. (Personal Injury protection is not available in some states)

Limits and Deductibles will apply to certain types of coverage. Your Limits and Deductibles determine how much your insurance company will pay and how much you’ll have to pay when you make a claim for a covered accident.

How to travel, live where and how you want to, and still save half your income (and how I’ve done it) – Part I

In this series of posts, I’m going to teach you how you can build a strong financial life while still enjoying the things you love most like traveling & living where and how you want to.  I’ll also talk about how I did it, showing you step-by-step what you can do in your own situation.

Part I – Create a spending plan that meets your needs

A lot of personal finance websites emphasize frugality as the sole means to financial well-being.  They come replete with tips like “don’t accelerate too quickly to save on gas” or “buy one-ply toilet paper.”

I believe that for most people, these tips are not worth the effort to implement, nor are they the key ingredients to a healthy financial life.  So…

Here’s how YOU can take control of your finances (Hint: Take action today; if you don’t, stop reading my blog, it can’t help you.)

Step 1) Put a copy of your most recent paycheck in front of you.  Write down how much you make in monthly gross income (take your pay and multiply by (26/12), or 2.167, for those with biweekly salaries.)

Add in any bonuses you expect to receive, or any income you make through other sources (baby-sitting on the side, unemployment benefits, drug-trafficking etc.)  Since you’re reading my blog, I’m going to assume you’re not retired, and thus aren’t getting social security checks.  I’ll also assume you’re a working stiff that relies mostly on your own earned income, and are not cashing in investments (but if you are, count these too, plus any sweet trust fund income that Daddy set up for you, you spoiled bastard.)

Step 2) Get a rough, back-of-the-envelope calculation on how much you spend.  This step takes the most work, but it’s also the most important; you need to know where your money is going to take control of it! I recommend an excel template like this one to track this info (combine, leave blank/delete and modify items to fit your situation.  Use the ‘Actual Cost’ columns for expenses; later, we’ll use the ‘Project Cost’ columns for what you’d like to spend.)

The steps below are in order of increasing difficulty.   If you’re too lazy to go through the 4 sub-bullets, at the very least, fill in your biggest expenses and give a rough estimate to the rest.

  • Since you already have your paycheck in front of you, calculate the expenses that come straight out of this: health insurance, other insurance like voluntary disability or life, federal/state/local taxes, and anything else.  For those with biweekly income, figure the monthly expense of these paycheck deductions by taking your biweekly paycheck’s deductions and multiply them by (26/12) or 2.167.  This is your monthly expense (which is pretty accurate assuming you don’t owe much or get a large tax refund at the end of the year.)
  • Calculate easy-to-track expenses like rent/mortgage and any other monthly or annual payments you make (internet, cable, cell phone plan, student loan payments, car payment, Netflix, magazine subscriptions, car or life insurance.)  Of course, for annual/ semi-annual/quarterly expenses, you’ll need to divide by 12/6/3 to get the monthly expense.
  • Estimate the regular payments that aren’t always the same amount each month (like utilities, or gambling losses funneled to your bookie.)
  • Estimate how much you spend on irregular items like groceries, eating out, clothes, entertainment (going out to bars/clubs, movies, CDs/DVDs), travel, gifts, and charity.  Also, create a miscellaneous category to lump together hard-to-track or infrequent purchases.  Look over your 3 most recent monthly credit card and bank statements to give you more accurate information and bring items to your attention that you otherwise might have forgotten.  Crunch some of that data to give yourself a monthly average of expenditures based on the reality shown in those statements (which should be available online.)  When you look at the hard data of what you actually spend, you’ll be surprised at what’s costing you an arm and a leg.  I certainly was the first time I did this.

Step 3) Subtract your expenses calculated in 2 from your gross income in 1.  Hopefully, your expenses are less than your income.  If so, congrats, you’ve achieved the first rule of personal finance: ‘spend less than you earn’.  Also insert into the equation how much you’re investing in your 401k, money market fund, savings account, etc.  For kicks, you can divide that number by your gross salary to see what percentage of your income you’re currently socking away.  (Depending on the number, you’ll likely want to increase that percentage to meet major goals like retirement, paying for a wedding, buying a car/house/Jackson Pollack etc.  Don’t worry about that now, we’ll talk about that in a future post.)

Step 4) Look through your expenses for areas where you are spending more money than you’d like to.  This means writing down what you’d LIKE to be spending in each category, and comparing this with what you’re ACTUALLY spending.  If you’re using the recommended spreadsheet, fill out the ‘Projected Cost’ column with your budgeted numbers.  The goal here is to cut spending on areas that don’t really add much value to your life.

If you’re not sure about what number to use for a given category budget (“is $200 per month reasonable for going out to eat?”), don’t sweat it too much; just put something down that seems reasonable to you.  If you want, you can break it down by units of consumption: i.e.: “If I want to go out for lunch three times per week, and I usually spend $10 each time including tax & tip, that’s about $30 per week and about ~$130 per month (= $30/week * 52 weeks/12 months.)”

Be honest with yourself

Think about what you enjoy doing most with your time and money (or what you wish you could be doing with more of each.)  Then, resolve to cut things that don’t matter as much to you.  Here’s a great article by Ramit Sethi on this idea of getting your finances in order and focusing spending on what matters to YOU (rather than what other people spend, or what they think you should spend.)

Congratulations!

Now that you’ve tracked your spending & set up a budget, you’re ahead of 95% of people in terms of understanding & managing your money.  In the next post, we’ll cover how to automate your savings & spending to set up an emergency fund, pay off debt, and invest simply and smartly for the things & experiences that you want out of life.

University of Washington’s Foster School of Business’s “State of the Economy Forum”

Here’s a 70 minute video on the state of the economy featuring University of Washington Foster School of Business economics and finance professors Karma Hadjimichalakis and Ed Rice.

(Note to those who care: Professor Rice was by far my favorite professor during my UW MBA program.)

Original link info:

State of the Economy Forum from Foster School of Business on Vimeo.

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