Auto Insurance: How Much Will An Accident Claim Increase Your Premium?

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Here’s an infographic from HowMuch.net that charts how much your annual auto insurance premium will go up after just one claim:

Auto insurance companies portray themselves as friendly and forgiving in television commercials, but they are less friendly than you might think. After filing just one claim, car insurance premiums increase by an average of 41.81%, according to an annual study by insuranceQuotes and Quadrant Information Services.

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I was somewhat surprised at how much the initial premiums and subsequent hikes varied state-by-state. On average, the annual premium is $842, but after a single $2,000+ accident claim, it goes up by $352. The source article also states that you should expect rates to remain high for three to five years, depending on the severity of the claim. Ouch.

I didn’t see similar data about smaller claims like a dented bumper. I keep my collision deductible at $1,000 because I’d rather self-insure below that amount, pocket the premium savings, and avoid any rate hikes if I did make a claim. In general, I always try to only pay for insurance when an incident would cause significant financial difficulty (your number may vary).

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NYT Financial Tuneup Day 6: Property Insurance

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nyt_ftuDay 6 of the NY Times 7-Day Financial Tuneup is about insurance. Specifically, either homeowner’s or renter’s insurance to protect yourself against a large financial hit. (Sign up for your own personalized tune-up here.)

Do a home inventory. Basically, take a video of everything you’d want an insurance company to replace if your home was destroyed. Store the video somewhere safe, like the cloud or a flash drive in a secure location. You can use this video to both get appropriate insurance coverage and if you do end up filing an insurance claim. I’ve seen some apps that help you do this in detail, but I agree that a simple video is a reasonable solution.

Check your current policy. Find a copy of your insurance policy. Make sure you have enough coverage. Note the difference between a “replacement value” and “fair market value” policy.

Shop around with some competitors. The NYT recommends picking two of the major insurance companies (Geico, Progressive, Allstate, State Farm, etc.) and call them for an insurance quote armed with your home inventory list. If you are willing to try a start-up insurance company, I would throw in a free online Lemonade quote if you are in one of their 9 covered states – New York, California, Illinois, New Jersey, Rhode Island, Texas, Nevada, Ohio, and Georgia. If you get a quote that is too high, simply move on.

I also recommend doing a search for “[Your State] Department of Insurance” and look for a “Homeowner’s Insurance Guide” of some sort. Insurance companies are closely regulated on the state level and you can often find a list of sample premiums, a ranking based on complaints ratio, or other useful information. This can help you narrow down your initial search and save time. For example, here are some links for New York and California.

Call your current insurance company. Call your current insurance company and first, confirm that your policy coverage details. Then, ask if there’s any way to reduce your insurance rate. Mention a competing quote if you have one.

Financial Tuneup Recap (still in progress)

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NYT Financial Tuneup Day 3: Apply For a Better Credit Card

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nyt_ftuDay 3 of my NY Times 7-Day Financial Tuneup is called Find the Best Credit Card for You. (Sign up for your own personalized tune-up for full details.) The key again is to actually apply for a better card, not just think about it and then keep your old card with lukewarm rewards and/or high interest rates.

Scenario 1: Carrying a balance

If you are still working on paying down your credit card balance, the NYT (surprise!) recommends a credit card with a low interest rate and fees. The average credit card interest rate is something like 17% APR, which is simply nuts. Ignore cashback and rewards credit cards, as they have higher interest rates in general that will overwhelm any potential rewards. The NYT specifically mentions the following cards:

  • Simmons Bank Platinum Visa has a lower variable APR (currently 9.5%) with no balance transfer. This might be a better solution if you plan on carrying a balance forever (why?!?).
  • Discover it Secured credit card improves your credit score (and thus perhaps your interest rates) as it will help build a positive credit history with no annual fee. You can have poor credit as a $200 security deposit is required for a $200 credit line.

If you’re going to apply for a new card, I prefer the following cards with 0% introductory APRs with no balance transfer fee. Here, the plan would be to consolidate balances and design a plan to pay it all off within the promotional period. After that, the rates will shoot back up again unless you do another balance transfer.

Scenario 2: No credit card debt

If you do pay off your balances every month, then you can ignore interest rates and focus on getting points, miles, or cash back on your purchases. The NYT specifically mentions the following cards.

  • Citi Double Cash card for simple cash back. It pays “1 percent back when you make the purchase and another 1 percent when you pay the bill. The best part? There’s no need for you to track points or decide when to cash out. The money comes back to you automatically.”
  • Bank of America Travel Rewards Card for simple travel rewards with no annual fee.
  • Chase Sapphire Preferred for those that collect airline miles and know how to use them efficiently.

Your goal with your new card should be to get all of the rewards you can just for spending as much as you normally would.

I’m giving the NYT an overall thumbs-up on these recommendations for most people. However, I would only recommend the Bank of America Travel Rewards card if you can participate in their Preferred Rewards program and reach the Platinum (2.25% back towards travel) or Platinum Honors (2.62% back towards travel) tiers. Otherwise, the Citi Double Cash is better than 1.5% back.

The hard part: Actually applying for a new card! The reason why there are so many juicy incentives for credit cards is that most people still don’t like to bother with applying for a new card. Change can be hard. If you’ve been thinking about making a switch, let today be the day!

Financial Tuneup Recap (still in progress)

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Lemonade Insurance Review: Home & Renters Insurance With No Incentive To Deny Your Claim?

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lemon_logoUpdated July 2018. Lemonade continues its rollout – see map above. Get a free quote from Lemonade and see if they are cheaper than your current homeowner’s or renter’s insurance policy. Feel free to leave a comment about whether they were more or less expensive at the same coverage and deductible level.

Right or wrong, many people view insurance companies with suspicion. Even though you pay them money every month for protection, you worry if you’ll actually get paid when you experience a problem. The problem is that with most insurance companies, every dollar they don’t pay you ends up in their pocket. The incentives are not aligned. Will they find a reason to deny your claim? Will they make it such a pain that you’ll just give up? Recall the Insuricare scene from the movie The Incredibles.

Lemonade is a new insurance company that takes a flat cut upfront, and the rest is put aside to payout claims. They are starting out with homeowner’s and renter’s insurance. The specific breakdown is below.

  • 20% to Lemonade.
  • 40% into a pool to pay out for claims (or charity).
  • 40% to reinsurance in case that pool is exhausted (catastrophic cases).

Reinsurance is basically what is sounds like – insurance for insurance companies. This provides additional safety that there will be money to pay out your claim in cases of catastrophic losses (i.e. certain natural disasters). Examples of reinsurance companies are Lloyd’s of London and Berkshire Hathaway.

If there are fewer claims than expected, Lemonade will donate the money to a charity of your choice. Therefore, they have no direct incentive to deny a valid claim. In turn, hopefully their customers will also not make false claims because they will only be taking money away from charities and not the big bad insurance company. When signing up, you even take a “honesty pledge”. Here’s how behavioral economist Dan Ariely, who is their “Chief Behavioral Officer”, puts it:

Knowing that every dollar denied to you in claims is a dollar more to your insurer, brings out the worst in us all… Since we don’t pocket unclaimed money, we can be trusted to pay claims fast and hassle-free. As for our customers, knowing fraud harms a cause they believe in, rather than an insurance company they don’t, brings out their better nature too. Everyone wins.

Lemonade is also structured as a Public Benefit Corporation (B-Corp), which makes it the “World’s Only Public Benefit Insurance Company”.

Update: In July 2017, TechCrunch reported that Lemonade made its first annual donation of $53,174 or 10.2% of first year revenues. So that’s 10% out of the 40% pool reserved for claims (or charity).

Lemonade also saves money with tech start-up tricks. No human salespeople. No brokers. No physical branches. Apply online. File your claim online. You can do nearly everything via smartphone app (iOS and Android) with a chat-based AI interface. (Fewer adjusters and customer service reps.) If you have to file a claim, you can take a video of the damage using their app and explain the situation.

It remains to be seen if they can truly disrupt the industry. In the meantime, they need competitive premiums. Uber would not be so successful if they weren’t also cheaper than traditional taxis.

Live Policy and Zero-deductible option. In September 2017, Lemonade rolled out a new option with a zero deductible. If you pick this option, you won’t have to pay any deductible and thus get the full value of even a smaller claim like a $250 bike or smartphone. Importantly, Lemonade also promises not to hike your premium after making a claim (you are limited to two claims per year). You can preview how much this option changes your premium with their “Live Policy” system where you can make changes to your policy instantly via the Lemonade app.

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As of July 2018, Lemonade offers renters, condo and/or homeowners insurance in Arkansas, Arizona, California, Connecticut, District Of Columbia, Georgia, Iowa, Illinois, Maryland, Michigan, New Jersey, New Mexico, Nevada, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Wisconsin. Get a free online quote from Lemonade and compare with what you have now. Prices start at $35 $25 a month for homeowner’s insurance and $5 a month for renter’s insurance.

Also see: I asked for more clarification on how Lemonade differs from mutual insurance.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Scott’s Pizza Tours: Unconventional Entrepreneur Turns Passion into Business

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sptmovieI’m a sucker for people turning their unique interests into a profitable small business, especially a quirky one-person business (like this person who farms food from other people’s yards). My newest discovery came from watching the Scott’s Pizza Tours documentary about Scott Wiener, who turned his passion for pizza into a successful tour business and more. Below is a more bio and the trailer (direct link):

He runs a successful tour business in NYC, where he leads visitors to some of the best and most historic pizzerias in the world, teaching the history and science of pizza making. He writes a monthly column in Pizza Today magazine, is a legend in the pizza industry, judges pizza competitions, eats 15 slices per week, and–oh, yeah–he’s the Guinness World Record holder for the largest collection of pizza boxes, now numbering nearly 1,000 different boxes from 55 countries, selections of which are currently touring through gallery spaces in the U.S. and Europe, with tentative exhibitions planned for Asia and Latin America. In his spare time, he founded and organizes Slice Out Hunger, an annual event, which has raised over $70,000 for hunger relief organizations in NYC.

Are you happy with the path are you on? In one scene, Scott describes how he used to have a desk job with the government. After his first year, they had a little celebration and said “Hurray, only 24 years left until retirement!”. That statement really shook him, and he put in his resignation notice the next day.

“Follow Your Passion”: Too idealistic… or actually practical advice? You can’t make good money at something unless you’re good at it, and it’s very hard to get good at something if you don’t like it. That means passion fuels 2 out 3 parts of the pie (pun intended). If you can figure out how to make it well-compensated, you’re golden. Here’s a quote from Charlie Munger:

I have never succeeded very much in anything in which I was not very interested. If you can’t somehow find yourself very interested in something, I don’t think you’ll succeed very much, even if you’re fairly smart. I think that having this deep interest in something is part of the game. If your only interest is Chinese calligraphy I think that’s what you’re going to have to do. I don’t see how you can succeed in astrophysics if you’re only interested in calligraphy.

Dream job: Goal vs. Journey. Did Scott Wiener write down one day that his dream job would be to teach tourists about pizza history? No, it was a result of incremental daily movements. I’m reminded of the High Fidelity movie scene where John Cusack’s character makes a list of his top 5 dream jobs if “qualifications, history, time, and salary were no object.” After going through them, he realizes that he is already doing one of his dream jobs, owning his own record store.

I saw Scott’s Pizza Tours on the Viceland cable TV channel, but you might also be able to see it for free on Hoopla if supported by your local library. Otherwise, you can buy/rent on Amazon/iTunes/YouTube.

p.s. If you live in the NYC area, the 2017 edition of Slice Out Hunger’s $1 Pizza Party is on Wednesday, October 4, 2017. I’m impressed he even leverages his passion to raise money for a good cause (over $70,000 so far).

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Health Insurance Premiums: Average Annual Cost $19,000 Family, $6,000 Individual

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healthThe Wall Street Journal recently published (paywall?) a chart showing how the average cost of employer-provided health coverage for a family has changed from 1999-2017. The total average annual cost was $18,764 for a family and $6,690 for an individual in 2017. The data source is an annual poll of employers performed by the nonprofit Kaiser Family Foundation along with the Health Research & Educational Trust, a nonprofit affiliated with the American Hospital Association.

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In very rough terms: a single adult is ~$500 per month ($6,000 per year), and a family is about $20,000 a year. These numbers agree overall with the preliminary health insurance quotes that I have gotten for my own family.

In addition to the rising premiums, the average annual deductible is now over $1,200 for a single worker.

The implications for an prospective early retirees are obvious. How are you going to cover this huge expense? Here’s a quick brainstorm of options. Spoiler alert: There is no easy fix.

  1. Use an Affordable Care Act (ACA) plan and get a subsidy if your income is low enough to qualify. Do a lot of reading, then hope it doesn’t change?
  2. Plan ahead with a job that offers health insurance benefits in early retirement (don’t have to be a certain age). You’ll probably have to hunker down with the same employer for a number of years.
  3. Save enough money (or create enough income) to pay for health insurance premiums. Try a managed-care system like Kaiser for a low-cost HMO plan.
  4. Find a part-time job that you both enjoy and offers health benefits.
  5. Run a part-time side business that earns enough profit to cover health insurance costs. Look for potential group discounts or tax breaks that are available as a business instead of a consumer.
  6. Now and later, look for a high-deductible health plan (HDHP) and fund a Health Savings Account (HSA) due to the tax advantages.
  7. Join a direct primary care arrangement or health care sharing ministry that is exempt from ACA.
  8. Extend your current employer coverage for up to 18 months through COBRA (check cost).
  9. Move to a foreign country with reasonable and transparent cash pricing.

Am I missing anything? Right now, we have #4. My family’s future plan is a mix of #1, 3, and 5. However, #5 could push us over the income limits for #1.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Best HSA Plan Provider For Long-Term “Healthcare IRA” Investing – Morningstar

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piggy_hsaNearly 30% of covered workers are now enrolled in a high-deductible health plan (HDHP). This means a lot more people are also eligible to contribute to a Health Savings Account (HSA). HSAs have the unique feature of triple-tax-free savings when used as designed:

  • HSA contributions are tax-deductible,
  • HSA investments can grow tax-deferred, and
  • HSA withdrawals are also exempt from taxes if spent on qualified medical expenses.

(Penalties: Funds withdrawn for non-healthcare expenses are taxable. If withdrawn before age 65, there is an additional 20% penalty.)

HDHPs have lower premiums in exchange for higher deductibles and higher out-of-pocket maximums. As of 2017, in order to qualify for an HSA, an HDHP must have a deductible of at least $1,300 for individual coverage or $2,600 for family coverage. Many people will use their HSA balance to cover current health expenses. However, if you can manage to pay for your current expenses out-of-pocket while also contributing to the HSA, you have the opportunity to maximize the tax advantages by investing the funds into long-term vehicles like stocks. Here are the annual contribution limits:

hsa_morn1

You can then use the future balance to pay for Medicare premiums or other eligible healthcare costs in retirement.

We personally don’t have an HDHP/HSA option from our employers, so I don’t have much first-hand experience. However, Morningstar just released an HSA research whitepaper by Leo Acheson that examined 10 of the largest HSA plan providers:

  • Alliant Credit Union
  • Bank of America
  • BenefitWallet
  • HealthSavings Administrators
  • HealthEquity
  • HSA Bank
  • Optum Bank
  • SelectAccount
  • The HSA Authority
  • UMB Bank

In terms of using an HSA simply as a way to grab the upfront tax break on contributions, you really just want to find an HSA provider that offers a checking account without monthly maintenance fees. Earning 0.50% APY on a $2,000 balance will earn you $10 a year, but a $4 monthly fee will cost you $48 a year. The top plans listed by Morningstar for this short-term purpose were Alliant Credit Union, SelectAccount, and The HSA Authority.

In terms of using an HSA as a portable, long-term investment vehicle (think “Healthcare IRA”), the top plans listed by Morningstar were Bank of America, HealthEquity, Optum, and The HSA Authority. However, as a firm believer in the “Costs Matter Hypothesis”, I would personally narrow it down based on the lowest overall expense ratios (underlying fund + manager fee). Here’s a chart comparing costs for a $15,000 balance (click to enlarge):

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The same cost chart but for a $50,000 balance:

hsa_morn4

The two cheapest plans recommended by Morningstar are HSA Authority and HealthEquity. You can see that overall HSA costs are still higher than what you can get in a IRA or better 401(k) plan. At least the selection is pretty good. See HSA Authority investment options and HealthyEquity investment options [pdf]. Below is a sampling from the HealthEquity menu.

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Keep in mind, this is not my list but what Morningstar recommends. One option not listed here is Saturna, which may make sense if you only plan on making a single lump-sum max contribution each year and buy an all-in-one Vanguard mutual fund with one transaction per year.

Please feel free to share your own experiences in the comments below.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

How is Lemonade Different Than Mutual Insurance?

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lemon_logoAfter my initial post about Lemonade insurance, there was a discussion in the comments about how Lemonade’s business model compares with existing mutual insurance companies. Lemonade reached out to me and wanted to clarify some things, and I suggested that they write a guest post about the topic. Lemonade agreed and below is their response:

A Deeper Dive Into the Lemonade Business Model

Not all insurance companies work the same way. Beyond the technology and AI, behind its slick app and website, Lemonade’s different because its business model is different.

As opposed to traditional insurers, Lemonade takes a fixed 20% fee out of your monthly payments, pays reinsurance and other unavoidable expenses, and uses the rest for paying claims. If there’s money leftover, Lemonade returns it in the annual Giveback. Giveback is a unique feature of Lemonade, where each year leftover money is donated to causes our policyholders care about. Policyholders who care about the same causes are virtual groups of ‘peers.’ Lemonade uses the premiums collected from each peer group to pay the group’s claims, giving back any leftover money to their common cause. And, if the group’s claims exceed what’s left in the pool, reinsurance covers it! (Reinsurance = insurance for insurance companies!)

That changes everything.

Insurers typically make money by investing your premiums (“float”) and by paying out less in claims and expenses than they took in premiums (“underwriting profit”).

Lemonade relies on neither. We collect premiums monthly, so the money earns interest in your bank account, not ours, and we return unclaimed money to the causes customers care about at year’s end.

So what does Lemonade do with the remaining 80%?

In a nutshell: pays claims.

Lemonade spends approximately 20% buying ‘reinsurance’ from folks such as Lloyd’s of London, to ensure there will be enough money for claims even in ‘bad’ years. This kind of reinsurance buys peace of mind, but it is costly.

So our data scientists have modeled an optimal mix of internal and external ‘reinsurance’, and set aside another ~20% as the ‘Lemonade Reinsurance’. Think of it as a ‘rainy day fund.’ The costs of reinsurance fluctuate over time, and there are other smaller expenses (transactional fees, premium taxes and others) that are also paid out from this combined 40%.

The final 40% goes towards the Giveback to the cause selected each year, if none of the people who selected that cause make a claim.

Most years, there will be some claims, so the amount available for Giveback will average less than 40%. But our number crunchers tell us there should be a nice amount left for most causes most years.

What about the ‘bad’ years? Fear not. That’s what the reinsurance is for, and Lemonade Reinsurance as well as the reinsurance partners have set aside funds for exactly such a situation.

In short, job #1 is to make sure your claim is paid, job #2 is to Giveback what’s left.

Wait, so how is that different from mutual insurance, you may ask?

Lemonade is the oldest new idea in insurance. And whether you view its tech and user experience as being radically new, or its business model as centuries-old infrastructure, Lemonade is using technology to reconstitute a business model which was once prevalent.

Look at Uber or AirBnB: Neither have created spanking new markets. It’s their technology packaged with a sharing economy-esque business model that is novel. Similarly, there’s nothing new about renters and homeowners insurance, but the technology, together with the behavioral economics and unique business model, differentiate Lemonade from the rest. Lemonade writes policies on your phone in seconds, pays claims in minutes, gives back money to nonprofits, all using AI and other tech that incumbents have not used.

The mutual companies started with the notion that pooling people into meaningful communities, instead of meaningless masses, is better for consumers. But the mutuals of today have wandered off into a different direction from that sense of community that started hundreds of years ago.

What made mutuals stray this way? Well, if you take any community and you enlarge it with millions of anonymous people, the social bonds between the people break down. Insurance companies have tried to cope with the challenge of pursuing growth, but it came at the expense of group affinity.

Yet with technology, you don’t have to trade off affinity for growth. Specifically, affinity in Lemonade has spurred growth, and has not been an obstacle of growth. Think of Lemonade as having thousands of mutuals under one company, rather than being one giant mutual.

Lemonade is a Public Benefit Corporation, a certified B-Corp and our team genuinely wants to do the right thing. Lemonade takes a flat 20% fee so as to never be in conflict with our customers, and never make money by denying claims. By placing ‘unclaimed money’ beyond reach, we removed temptation, and changed the game.

That’s a first for insurance.

Get a free online quote from Lemonade and compare with what you have now if you live in California, New York, and Illinois.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

John Oliver on Why The Credit Report Industry is Awful

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John Oliver of HBO’s Last Week Tonight did a humorous monologue on why credit reporting bureaus are awful. Appropriately, it was last week and I finally got around to watching the 18-minute video tonight. Here is the full video link, embedded below:

Here’s the condensed version:

  • Your credit report can affect your ability to borrow (and thus buy a home), your ability to rent, the price you pay for all kinds of stuff, and even your ability to get a job. Sheesh, what else is there left?
  • 1 in 20 credit reports have errors that are significant enough to hurt your chances at the rather important things I just listed above. That’s 10 million Americans.
  • In an effort to show Equifax, Experian, and TransUnion how such errors can hurt both reputations and business, they created the three websites Equifacks.com, Experianne.com, and TramsOnion.com. (Warning: I left some of these unlinked because they may be considered NSFW.)

In general, I do not micromanage my credit score, but it is scary than an error outside your control could have such harmful effects on your day-to-day life. Perhaps this information will also motivate you to check your credit and consumer reports if you haven’t done so recently. There are also an increasing number of free and/or ad-supported sources of credit reports, credit monitoring, and credit scores. The bad news is that the error dispute process is still slow and complicated, and after you try patience and perseverance, you may need to lawyer up in order to get their attention.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

WreckCheck App – Auto Accident Checklist

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wreckapp0

While doing the research for my auto premium comparison post, I noticed that several of the state websites promoted an app called WreckCheck. Created by the National Association of Insurance Commissioners (NAIC), this free mobile app for iPhone and Android is one of those things you should download onto your phone now to hide away in some folder and hopefully never use.

More than simply a checklist, the app will guide you through the steps you should take following an accident. Ideally, it will keep you calm and collected in a time of stress. The app tells you what to do, and also what not to do. As a backup, you can also print out the checklist in PDF form.

Things you should do:

  • Keep your vehicle information handy ahead of time (glovebox or in-app) including VIN, license plate number, insurance company, agent name, and policy number.
  • Document the time and location of accident (uses your GPS).
  • Take pictures of the accident, including damage to all vehicles involved (uses your camera).
  • Document what happened, including vehicles and people involved (uses your audio recorder).
  • Call the police (tap to call 911). If they are not dispatched, file an incident report.
  • Share only your insurance card information, including name and insurance phone number. You are not even required to share your personal phone number.

Things you should NOT do:

  • Share your home address or drivers license number.
  • Allow someone to take or photocopy your ID.
  • Admit fault.

The app can email a completed accident report directly to you and/or your insurance agent. Finally, the app provides tips on how to file and follow up on a claim. Here are some app screenshots and a explanatory video:

wreckapp1

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Big List of Auto Insurance Premium Comparisons for All 50 States

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50states

The standard advice for saving money on auto insurance is to shop and compare prices. You could use a comparison website, but they may not include every insurance carrier listed in your state. A lesser-known fact is that auto insurance is regulated on the state level, where each company must submit their rates for approval. Many states in turn share this information with consumers. Some states also provide complaint data, so you can also view which insurers have the most complaints relative to their market share. Here is an example report for the state of California:

autoins_cal

For the hypothetical scenario above, the difference between the cheapest option (Wawanesa) and the 17th cheapest option (AllState) is over $1,100 a year.

Using this information, a consumer can more efficiently choose to get quotes from the insurance companies which will likely offer them the lowest rates. Individual companies often choose to focus on certain areas of the market – drivers with clean records, drivers with tickets/accidents, teen drivers, and so on. Credit scores are another newer area of focus. Try to find the comparison example that fits your situation the closest.

These premium comparison reports can often be hard to locate, so I manually searched for all 50 states and the District of Columbia and shared my results below. (I used the same template as my free state income tax e-filing post.) Some states share very specific data down to zip code, some share only a few broad example rates, and others share essentially nothing. In alphabetical order (just click on the state):

State Notes
Alabama Click on “Compare Premiums” for the scenario that best fits your own.
Alaska Personal Auto Insurance Premiums Comparison Guide > Premiums Comparison Guide.pdf
Arizona 2015 WEB_AutoPremiumComparison_Publication.pdf
Arkansas Insurance Cost Comparison > Private Passenger Auto
California 2016 Automobile Insurance
Colorado Private Passenger Automobile Premium Comparison Report.
Connecticut None found.
Delaware Automobile Insurance Rate Comparison
Florida Auto Rate Comparison Tool
Georgia Automobile Insurance Rate Comparisons
Hawaii Motor Vehicle Insurance Premium Comparison
Idaho None found.
Illinois No premium info, but some guidance provided including complaint ratios.
Indiana None found.
Iowa Auto Insurance Pricing Guides
Kansas Auto Insurance Shopper’s Guide.
Kentucky Auto and Home Insurance Guide with Disaster Guide and Premium Comparison. [PDF available]
Louisiana Automobile Rate Comparison Guide.
Maine Auto Insurance, Comparison of top 10 policies.
Maryland Auto Insurance – A Comparison Guide to Rates.
Massachusetts Auto Insurance Premium Comparisons.
Michigan Comprehensive Guide to Auto Insurance.
Minnesota None found.
Mississippi Personal Auto Rate Comparison.
Missouri Auto Policies – See policies of insurance companies ranked by market share.
Montana Auto Insurance Price Comparison (pdf).
Nebraska Auto Rate Guide (direct link to PDF).
Nevada Consumer’s Guide to Auto Insurance Rates.
New Hampshire New Hampshire Auto Cost Premium Rate Comparison.
New Jersey Auto Insurance Premium Comparison.
New Mexico None found.
New York No premium comparison, but there are complaint rankings and discount list (pdf).
North Carolina No premium comparison, but there is a Consumer Guide to Automobile Insurance and complaint ratio list for insurers.
North Dakota Cost Comparison Survey
Ohio Shopper’s Guide to Auto Insurance, with example premiums and complaint data.
Oklahoma Rate Comparison Chart.
Oregon No premium comparison found, but the Oregon Consumer Guide to Auto Insurance has helpful info
Pennsylvania A rate comparison guide for Automobile Insurance in Pennsylvania.
Rhode Island Could not find rate comparison, but see Consumers Guide to Auto Insurance for helpful info.
South Carolina Quick Links – Automobile Price Comparison Guide.
South Dakota None found.
Tennessee Limited market share and other info at Personal Auto Policies Rate Changes.
Texas Automobile Insurance Price Comparison
Utah Auto & Homeowner Annual Comparison Tables with Complaint & Loss Ratio Info.
Vermont No premium information found, limited info in Consumer’s Guide To Auto Insurance.
Virginia Auto Insurance Sample Premium Table.
Washington None found.
Washington DC None found.
West Virginia 2011 Annual Survey (see bottom right).
Wisconsin No premium information found, limited info in Consumer’s Guide To Auto Insurance.
Wyoming No premium information found, limited info in Wyoming Personal Automobile Insurance Guide (last updated in 2000, ack!)

 

I have tried my best to locate the information for each state, but it is quite possible I’ve overlooked something or the websites have since changed. Please let me know if you find any errors or broken links.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Exceeding $500,000 SIPC Insurance Limit at Vanguard (or any Brokerage)

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sipcThis post is for the fortunate folks who may possibly exceed the often-quoted $500,000 limits for SIPC insurance ($250,000 for cash). The way this insurance works wasn’t necessarily obvious to me, and although it is often compared to the FDIC insurance of banks, there are many important differences.

The Securities Investor Protection Corporation (SIPC) is a federally-mandated and member-funded organization that provides insurance to customers against the insolvency of broker-dealers. If needed, the SIPC can borrow from the US Treasury to meet its obligations. All broker-dealers are required to be members, including Vanguard (brokerage accounts, not mutual fund-only accounts), Fidelity, Schwab, TD Ameritrade, E-Trade, TradeKing, Robinhood, Betterment, Wealthfront, and so on.

Your assets, for examples shares of Apple stock or an S&P 500 mutual fund, are required by federal law to be held separately from the broker’s assets at all times. Broker-dealers are subject internal and external audits, surprise regulatory examinations, and weekly and monthly reporting requirements. Thus, in the vast majority of cases, there are no missing securities and the primary role of the SIPC is to oversee the transition of assets from the failed brokerage firm to another solvent firm. If there are missing assets, then the SIPC will cover of up $500,000 of missing assets ($250,000 maximum for missing cash), per legal entity.

What is a separate legal entity? Per Wealthfront:

The following would qualify as separate legal entities, each subject to the $500,000 limit: your individual account, your trust, your IRA, your spouse’s individual account, trust and IRA, your joint account, as well as a custodial account for a child. Two IRA accounts held by the same client would be considered one legal entity and thus are combined for purposes of insurance coverage. The same combination occurs when a single client holds two individual taxable accounts.

Another way is to simply hold your assets at two different broker-dealers. If you had an individual taxable account at TD Ameritrade and another at Fidelity, that would be two accounts with $500,000 at each.

How often has SIPC insurance actually been exceeded? Only in less than 0.1% of claims. Here are some stats from a Betterment article based on the SIPC 2014 annual report [pdf]:

Since the inception of SIPC in 1971, fewer than 1% of all SIPC member broker-dealers have been subject to a SIPC insolvency proceeding. During those proceedings, 99% of total assets distributed to investors came directly from the insolvent broker-dealer’s assets, and not from SIPC. Of all the claims ever filed (625,200), less than one-tenth of a percent (352) exceeded the limit of coverage.

Example of meeting and/or exceeding SIPC limits. So for example, you could have $2 million of non-cash assets at a failed firm in a single taxable account. If 75% of assets are recovered from the failed firm, you get $1.5 million back from the firm and $500,000 from the SIPC. If only 50% of the assets are recovered, that’s $1 million back from the firm, $500,000 from SIPC, and you’d be out $500,000 unless there are additional recoveries in the future.

Again, a recovery rate as low as 50% is highly unlikely based on historical failures. Per the SIPC annual report, the average recovery rate for insolvencies is 99%. Most examples that I’ve seen use a 90% recovery rate as a conservative example.

However, if you altered the scenario above to have your $2 million separated in to $500,000 in your individual taxable account, $500,000 in your spouse’s individual taxable account, and $1,000,000 in a joint taxable account, then even in that unlikely 50% recovery rate you’d be made whole.

Situations covered by SIPC insurance

  • Brokerage firm insolvency or bankruptcy.
  • Unauthorized trading. SIPC covers securities may have been “lost, improperly hypothecated, misappropriated, never purchased, or even stolen” by the broker-dealer.

Situations NOT covered by SIPC insurance

  • Market price drops. Fluctuations in the market value of your investments are not covered. In the event of a claim, you will receive the value of the securities held by the broker-dealer as of the time that a SIPC trustee is appointed.
  • Claims in excess of insurance limits. See above.
  • Certain investment types are not covered. As summarized by FINRA:

    Not all investments are protected by SIPC. In general, SIPC covers notes, stocks, bonds, mutual fund and other investment company shares, and other registered securities. It does not cover instruments such as unregistered investment contracts, unregistered limited partnerships, fixed annuity contracts, currency, and interests in gold, silver, or other commodity futures contracts or commodity options.

  • Certain other types of fraud. For example, if a scam artist tricked you into buying a penny stock which is now worthless, that is not connected to an insolvency by the broker-dealer, and is thus not covered by SIPC insurance.

Excess of SIPC Insurance. Many brokerage firms pay for optional, additional insurance on the private market for their clients called “excess of SIPC” insurance in the unlikely situation where a client may exceed SIPC insurance limits. You should contact your brokerage firm or look through their boring annual notices.

For example, I have the majority of my assets held in a new “merged” account at Vanguard Brokerage Services. Looking through their VBS semi-annual notice, you can find the following:

VMC [Vanguard Marketing Corporation] has secured additional coverage for your account, which applies in excess of SIPC, through certain insurers at Lloyd’s of London and London Company Insurer(s) for eligible customers with an aggregate limit of $250 million, incorporating a customer limit of $49.5 million for securities and $1.75 million for cash.

Note the total aggregate limit of $250 million, though. Last time I checked Vanguard mutual funds had over $3 trillion in assets under management. $250 million divided by $3 trillion is only 0.01%. Of course, most of those assets are not held in Vanguard Brokerage Services (but in institutional funds and other mutual fund accounts outside of VBS). Still, $250 million across all of their accounts doesn’t seem like very much. A few big fish with $50 million accounts and most of that would already be used up.

Additional ways to reduce your risk. The basic idea here is that the only way you’ll lose a big amount of money is a spectacular failure. In the past, the brokerage firms that have had spectacular failures have shared a few common traits – bad behavior. Don’t do anything that would foster such bad behavior.

  • Don’t hold your money at a firm that does proprietary trading. If a broker-dealer trades with their own money, there is a greater chance a bad trade will bankrupt them. Also, there may be a greater temptation to “borrow” some client funds to cover any unexpected cashflow needs.
  • Don’t use margin accounts, stick with cash accounts. In a margin account, technically your broker is often allowed to “borrow” your securities for their own purposes (usually loaning it to other broker-dealers). In a cash account, there is no such permission given. This is a bit extreme in my opinion, but perhaps something to consider.
  • Don’t invest in exotic, non-transparent strategies. If your brokerage firm only sells plain vanilla investments, it is much harder to hide any shady business. Mutual funds and ETFs are highly regulated by the SEC. Hedge funds are not nearly as closely-regulated.
  • Keep good records. You should keep copies of trade confirmations. You should keep copies of your latest monthly or quarterly statement of account from your brokerage firm. A trustee may ask you to supply copies of these documents in the case of erroneous statements or trades.

My two cents. Purely my opinion, but this is how I see it:

  • Keeping your accounts to each stay under the $500,000 limit (and not hold cash in excess of $250,000) is the only way to know that you’ll be 100% covered in the cases listed above. Just because something hasn’t happened in the past, doesn’t mean it won’t happen. Unlikely is not impossible.
  • If your account has between $500,000 and $5,000,000 in it, and you’re holding traditional mutual fund or ETFs inside, you’d need a bankrupt firm with less than a 90% recovery rate to lose any money (possibly much less). That is admittedly quite rare. You will have to weigh the risk against the added hassle of splitting your accounts by either institution or legal entity.
  • If you have more than $5,000,000 at a single account type at one broker-dealer, I think it starts to definitely become worth the extra effort to split your assets by either institution or legal entity. The risk may be small, but the potential losses are big. If you have this much, why mess around?
  • I wouldn’t put too much faith into excess SIPC insurance. They usually come with an aggregate limit and you have no idea how close the firm’s current assets are to exceeding that value. The amount of protection you’d receive is not under your control.
My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.