A classic tip for those looking to lower their cable television bills or their credit card interest rates may work in the world of auto insurance. I was reading a Consumerist post about USAA’s website technical issues and their response to, for a few hours, “losing” a woman’s IRA when I saw this little gem in the comments:

xspook: I had their auto insurance for many years. I decided to shop around and found a much cheaper (over $600 a year savings) policy elsewhere. When I called to cancel, they offered to lower my policy, but couldn’t match the price I got elsewhere. That actually pissed me off, because, as a 10 year loyal customer I should’ve been getting the best price. Now that I tell them I’m leaving, they reward my loyalty with a lower price. Adios USAA. (emphasis mine)

Insurance is a tricky business that I know only a little about. In reading the Berkshire Hathaway Letters to Shareholders, the traditional payout on insurance premiums always seems to be in the 90’s (they make money by investing the float between when premiums are collected and claims are paid). That confirmed something I’ve always believed, that a large component of my car insurance premiums were dictated by risk. Riskier car? Higher premiums. Some accidents or speeding tickets? Higher premiums. Fair enough, that’s why I get insurance, to protect me.

But this little anecdote showed that threatening to leave your car insurance (or any insurance provider) can lower your premiums. I imagine the game that gets played is that all the organizational discounts, good driver discounts and such are up for grabs if a CSR can get you to stay. Who knows?

Either way, shop around for insurance and try twisting some arms to see if you can get a better rate.

When I first started driving, I was amazed at how much car insurance cost. I, like many other newly-minted drivers clutching our licenses, was put on my parents’ car insurance policy, which I’m sure made my parents nervous, and didn’t really feel the full brunt of new-driver-car-insurance-rates. However, when I finally left the nest and had to insure myself, I finally started hoping that 25 would come sooner because everyone says that car insurance rates drop significantly after you turn 25. (I spent all my <21 years waiting to be 21, then my <25 years waiting to be 25... now I'm waiting for retirement... the waiting never ends!)

A few years ago, when I turned twenty-five, I had a great opportunity to test a few car insurance myths empirically and I'm happy to report the 25 year old rate drop myth is in fact very true.

Myth #1: Rates Drop Significantly After 25

This myth is true.

I requested car insurance quotes before I turned 25 and after I turned 25. The results were a little mixed but Geico, my current car insurance company, dropped my rate by about 15% after I turned 25. However, in each year after my 25th birthday, my insurance rates have been going down by a significant amount as well. While there were other factors involved (perhaps Maryland drivers became cheaper to insure, I hadn’t gotten into any accidents, etc), I believe each year after 25 is marked with lower premiums as long as you stay out of trouble. It just so happens that 25 is the first of the big drops, which explains its top billing.

Myth #2: Married Couples Pay Less Insurance

This myth is true, but probably not for the reason you expected.

The logic behind this myth is that once the male in the married couple gets married, he’s a safer driver and thus cheaper to insure. However, when I got married earlier this year (and told Geico), our rates dropped more so because there was a safer driver listed on my account. When I added my wife as a driver, the average riskiness of the driver went down and thus the premiums went down. In fact, I couldn’t even indicate marital status in my profile… they didn’t care. (there is also a component of the multi-car discount mixed in but I added her as a driver before I added her car)

Myth #3: Females Pay Lower Pemiums

This myth is true.

All other characteristics being equal, a female paid 18.8% less than a male in my car insurance quote study. The logic, on the part of insurance companies, behind this is that women are safer drivers and that men are reckless. Is that true? Who knows, but male drivers pay their premiums as if it were true!

(Odd factoid: Going to college lowers your premiums by about 7%, though it’s something that I doubt any company will verify, but don’t go too far… a Ph.D or an M.S. won’t give you more of a discount over B.S.)

Myth #4: Comprehensive Claims Don’t Affect Premiums

This myth is partially false.

Finally, a somewhat false myth! Conventional wisdom states that if you file a comprehensive claim, your insurer won’t increase your premiums. That part of the myth is true. The part that’s false is that if you ever leave that insurer, the new insurance company will charge you higher premiums for coverage. Is that fair? Probably not, but that’s how it works. In my car insurance quote study (near the end), I found that a vandalism claim increased rates by 8% and a vehicle theft or loss of belongings totaling more than $10k was a nearly 14% increase.

Myth #5: Your Credit Score Affects Your Premiums

This myth is true.

You might be wondering, why the heck does my credit score affect my car insurance premiums? The answer is more subtle than you might think. The reality is that not every claimable event is claimed (how many times have you been in an accident and someone pleaded to keep the insurance company out of it?) and insurance companies realize this. So they not only want safe drivers but also those who aren’t going to submit claims - a higher credit score usually indicates more sound financial footing, thus more money to pay for expenses out of pocket. Sneaky huh!?

Here are all the referenced articles:

• Effects of Changing Coverages on Premiums
• Effects of Changing Personal Insurance Details on Premiums
• Auto Insurance & The 25 Milestone
• Does Marriage Affect Car Insurance Premiums?
• Car Insurance Premiums & Credit Scores

(Photo: afagen)

Everyone’s been focused on brokerage failures and bank failures lately, wondering what happens and who backs them in the event of a failure… that is until we learned that AIG (American International Group) was in serious trouble. This begs the question very few have asked before, what happens if my insurance company fails? The quick answer is that most states have a guaranty that will back the fund up to a certain dollar amount.

State Guaranty Associations & Funds

Unlike banks and brokerages, which are protected by FDIC insurance and SIPC insurance respectively, insurance companies are often backed by “guaranty associations” or “guaranty funds” at the state level. In Maryland, the Maryland Life & Health Insurance Guaranty Corporation insures life and health insurances while the Property and Casualty Insurance Guaranty Corporation insures auto, homeowners, rental, and other insurances. The limit of the coverage is $300,000 in life insurance death benefits, $100k in life insurance cash surrender/withdrawal, and $100k in present value of annuity benefits. I didn’t look up the Property and Casualty insurance limits but it’s generally $300,000.

For more information, visit the National Conference of Insurance Guaranty Funds as they have lots of information on the subject. If you would like to learn more about the guaranty association or fund in your state, the NCIGF has a directory of each state’s Department of Insurance where you can get specific state information. Finally, there are several publications that may be of interest to you.

(Photo: thetruthabout)

The Consumerist posted some information about rental car insurances and credit cards with a great list of the coverages (based on whether it’s a Discover, American Express, MasterCard or Visa card). I thought that perhaps the individual issuers (like Citi, Capital One, Bank of America, etc.) might build off the base insurance so I did some more digging. It turns out that the auto rental insurances offered by your credit card is secondary coverage, not primary coverage.

When I looked at the list of auto rental insurance coverages for Citi cards, I saw that the basics matched the table on the Consumerist. However, this paragraph stood out for me:

Visa Auto Rental Insurance coverage is secondary coverage and underwritten by Indemnity Insurance Company of North America. Certain conditions, restrictions and exclusions apply. Not all vehicles and not all countries are covered. Details of coverage will be provided upon cardmembership. (emphasis mine)

The language under several of the other categories is the same… it’s secondary coverage.

Woah.

From what I understand, secondary insurance kicks in after primary insurance (your auto insurance) or when primary insurance doesn’t exist or doesn’t apply (such as on international trips). The auto insurance coverage provided by your credit card is not the same as the waivers offered by the rental car companies.

When you get the insurance from your rental car company, you’re absolved of all responsibility if something were to happen to the car (you’re still on the hook if you’re at fault and did damage to something else, but that’s a different issue). Your insurance is never called, your premium won’t go up, and it’s as if nothing happened. When you decline the insurance, damage to the car is still covered by your own auto insurance policy.

When you don’t get that insurance and rely on a credit card, when something happens the credit card company will point to the fine print that says “secondary insurance” and tell you to call your auto insurance underwriter. If the demands exceed your primary insurance, that’s when secondary insurance comes in. In other words, if you destroy a Lamborghini, your credit card insurance will kick in.

I think I read that right but for years the advice was to always decline this waiver because you have it covered between your credit card and your own insurance. Am I misunderstanding it?

When it comes to insurance, my approach is that insurance protects you against catastrophic events that would otherwise leave you broke. It’s for covering your car against being totaled, covering your home against that one big earthquake or fire or tornado that’ll level it, and for covering the unforeseen medical emergency where your life depends on you pulling out all the medical stops. It’s like the backstop or net at a baseball game. The ball has to get past the batter, catcher, and umpire before it’ll hit the backstop. In most games it’ll never gets that far, but for the one time it does, I bet those fans are glad that net is there.

How does this affect my insurance policy decisions? High deductibles. The deductible on our cars is $1000 (eagle eyed readers will note that my own car has no deductible because I don’t carry comprehensive or collision insurance). The deductible on our house is $2,500 the value of the home, the maximum allowed based on the value of the home (in the state of Maryland). This doesn’t really affect our medical insurance though, but I’d raise the deductible on those if it proved to be cost beneficial.

This isn’t a good approach for everyone. For example, if I lived in the city of Baltimore I would have comprehensive insurance on my car. The incident of vehicle theft and vehicle break-ins is significantly higher in Baltimore than it is out in the suburbs. That’s not to say we live in a peaceful, crime-free, idyllic utopia but it’s, in general, safer out in the suburbs (fewer people spread farther out is one contributing factor). The actuaries know this, of course, because the premiums for comprehensive coverage in Baltimore are more expensive than out in the suburbs, but you are buying peace of mind.

This also forces us to boost our emergency fund. The standard advice for emergency funds, which can range from 3 months of expenses to a year, exists for the standard situation. If you plan on self-insuring, which is what you’re doing with a high deductible, you need to account for the added risk. If you shifted your auto insurance deductible from $500 to $1000, pad your emergency fund with an extra $500. One good way start is with your insurance premium savings.

I’m not advocating any particular approach to insurance. We each have our own risk tolerances and varied life situations. In our particular situation, given our financial picture, a high deductible self-insuring plan works for us. Perhaps in a few years that will change.

What’s your insurance philosophy? Are you more of a “stop the headaches and the heart-attacks” kind of person that relies on insurance for the small and the large? Or you in my camp of high deductibles?

(Photo: branditressler)

When I was younger, I always thought that there were two things that really made a big difference in your insurance premiums:

• Turning 25,
• Getting married.

Everyone always told me that my premiums would drop when either one of those things happened because they were strong indicators of safety. Right before I turned 25, I recorded my premiums and then compared them to the premiums after I turned 25. I discovered that my premiums fell by a whopping 20% just for turning 25.

So, when I got married to the most wonderful woman in the whole wide world this year, I thought my insurance premiums would fall as a reward for making her an honest woman. As I went to make adjustments to my policy last week, I discovered there was no field for marital status! I’m not a rocket scientist but something says that I won’t be getting another insurance discount because I can’t even tell Geico I got married.

I went to Kanetix, where I did a series of comparisons to see how personal details affected your premiums, and that form had marital status (quite detailed options too) so I’m surprised Geico didn’t care. Is this true for other insurers as well or was I looking in the wrong place?

One of the things I’ve been looking at lately, given the upcoming wedding, was how to optimize our insurance policies because, as we all know, multi-policy discounts are one of the best ways to get a discount. Two auto insurance policies with one insurer generally costs less than two separate auto insurance policies with two different insurers. In actuality, only the medical and auto insurance policies can be optimized because you don’t really share any others. Anyway, I was taking a look at our options and here’s what I came up with.

Auto insurance
This one will probably yield the biggest savings. When you decide to combine two auto insurance policies onto one, you get savings because of two reasons: You are statistically less risky because you’re married and the multiple policy discount. When you do optimize your auto insurance, you should do more than just add coverage to your policy (or add coverage to your spouse’s policy). You should start the whole auto insurance purchasing process over again and get multiple quotes so that you can compare. Two of those quotes should be adding you to your spouse’s policy and you adding your spouse to your own policy.

Medical insurance
Theoretically, given no prior negative medical history, one of you will simply go on the other’s policy for some quick savings. For example, my fiancee right now gets free health insurance and would also get free insurance for me if she were to add me to her policy after we are married. That’s clearly the easiest way to go… but there is another option available. If she were to add me to her policy and I were to add her to my policy, we’d get double the coverage. How is this valuable? This is most valuable if you expect to use your insurance a lot because it increases your lifetime limits. In such a strategy, I would submit claims against my insurer first and if they exceeded the lifetime or annual limits, I’d start all over with her insurance plan. The same would work in the reverse.

Are there other insurance policies you can optimize after marriage? Those were the only two I could think of.

Image by Laineys Repertoire.

I hadn’t until I read about nonowner auto liabilities policies in a Baltimore Sun article this past weekend. Nonowner auto liability policies are for folks who don’t have cars but find themselves renting them often enough that having their own insurance is better than taking the one offered by rental companies. According to the Insurance Information Institute, it costs only about $200-$300 a year and is a better alternative than the often $20+ a day prices from rental companies. By comparison, my insurance through Geico, which only covers liability, costs me $605 a year for a 2003 Toyota Celica. Nonowner Auto Liability policies are liability only, which means they only cover damage to the other car and not your own. Luckily, if you rent the car with a credit card, your credit card might offer a collision benefit (which one reason why you should decline the insurance offered by the rental company and rent with a card that offers insurance).

A brief look at on the Geico website didn’t yield any information about nonowner auto liability policies and when I tried with Kanetix (an auto insurance search engine I used when I tried to figure out the relationship with personal information and insurance rates) it wouldn’t let me continue without putting in vehicle information. I think that if you want to take advantage of this you’ll probably have to call up the insurance company directly.

Has anyone heard of this before or know someone who has used it? Seems like a good idea for people who live in cities.

This week I went in for a routine dental visit to get my semi-annual cleaning and passed the checkup with flying colors. Today I saw the claim hit my dental benefits website and the disparity between the Fee Charged and the Fee Paid (that is the negotiated price the insurance company agreed to) was a lot larger than I ever expected. My out of pocket expense was a nice $0, as expected for my routine cleanings, and this was the first time I ever looked at my dental claim so I was surprised to see how much less the negotiated fee was compared to the fee charged. (% Diff was calculated as $ Diff divided by Fee Charged)

This was something my friend first pointed out to me whenever he had work done on his car after an accident, that the fee you would normally pay for service is generally higher than the fee you would pay if the insurance company pre-negotiated the fee, but I didn’t think the difference was this high. But, if nothing else, gives you ammunition (and a big of confidence) if you’ve ever considered negotiating fees with your doctor. If the insurance company can get a 48% discount, by haggling a little bit you should be able to knock off a little from the starting price.

The biggest surprise was the “Additional Intraoral Film” item. I accidentally swallowed when they took the first X-Ray so they had to take another X-Ray of my front teeth. To think that it would’ve been $21 to pay for it on my own and a mere $4 otherwise is pretty ridiculous, an 85% difference!

This is a double-whammy for anyone who want to self-insure themselves because not only do they have to pay out of pocket, they don’t pay insurance company negotiated rates, they pay rack rates (to use a hotel booking term). So, if you’re thinking about self-insuring, certainly keep that in mind (and the fact that you have much more leeway than you probably expect when it comes to negotiating the fee itself).

I had written a post in which I talked about some companies I love and one of them was GEICO, mostly because they were cheap, and bostonmichelle left the following comment:

You like Geico only because you’ve never had a claim or any other problem. Someone put in a fraudulent claim against me, and [Geico] just went ahead [and] paid them even after:

1. I submitted professional photos (at a claim shop) documenting the total lack of damage to my car.
2. I submitted my own photos of my car backed up against a truck of the exact same model of the claimant’s to show there was no way my little car could have damaged his huge truck’s back bumper, and
3. I spent 2 hours on the phone with various people there begging them to look at the photos and tell me how I possibly could have caused that damage.

So, they pay anyway, and my insurance record gets dinged cuz they did so. I had to pursue this case because there was NO WAY I was going to pay higher insurance because they are so stupid. After spending many hours talking with MANY stupid, lazy people at Geico, I finally get a guy whose wife had a fraudulent claim against her. HE got it and fixed my insurance record. It still showed they paid out, but I was now shown as “not at fault.”

Idiots. I’ve gotten the best deal and the best service of my life going through Costco (one of your other favorites). They use Ameriprise, which has been wonderful so far. Plus, you can pay your premiums with a credit card. I bet you could save even more money with them - plus you won’t risk your sanity, insurance record, or finances should you actually need to use your insurance.

I was pretty surprised to hear this mostly because insurance companies aren’t in the business of paying out a lot of money needlessly, they’re usually on the other extreme, looking for ways to get out of paying for something. So I asked for more details and bostonmichelle provided:

The claim they paid was about $450. It sure would have been cheaper to listen to their customer and not the claimant (they lost me as a client immediately, and I’ve been telling my story ever since), but I’m sure they had their reasons.

There was no police report since we both agreed at the time that there was no damage. I hit the guy while I was rolling from a standing stop - about 1 or 2 miles per hour. He had a dented bumper on his tall SUV, but my bumper (on my short little Sentra) was far too low to do that damage. I had hit his tow package hanging down below his bumper. We both agreed there was no damage. Neither of us had a camera in our cars.

He later sent me a quote for $700 or so from a repair shop. It listed his make & model, so I went to a dealer who let me park up right next to the back of the same model and take photos. I had clearly hit the tow package. If he had no tow package, the front of my car would have gone clear under his truck, which certainly might have damaged MY car -but not his.

I sent those pics in AND I went to Geico’s claim shop which put a measuring tape on the front of my car and took their own pics. There was absolutely no damage to my car at all. They sent those pics in. When I talked with the various Geico people, most didn’t have access to the pics. And, no one WITH access ever called me back.

The one guy who helped me knew what it was like to have a fraudulent claim. He didn’t see the photos either. He just had been through it himself and was sympathetic. I don’t know the insurance business, so I can’t answer your questions any more than that. You can post this email if you like. Anyone who wants to help share the pain of dealing with Geico on a claim is doing a good deed, that’s for sure.

By the way, I have NEVER had an accident - one that was my fault or someone else’s. And, I’m 36 and have my license for 20 years.

Again, I would get the hell out of there, if I were you. At least look into Costco’s service. I think you’ll be pleasantly surprised.

Basically it sounds like the person she hit pulled a fast one on Geico and they fell for it, leaving bostonmichelle holding the bag. While you can’t do anything after the fact, this is why it’s crucial to keep a camera nearby (nice if you have a cell phone camera) to take pictures at the scene of the accident in order to have some sort of proof. Your word is nice but evidence is nicer.