Home & Auto Insurance: How to Maximize Your Policies and Save Money
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Welcome to the Stay Wealthy Podcast. I'm your host, Taylor Schulte. And today I'm going to be sharing just about everything you need to know about your auto and home insurance policies, which are also commonly referred to as PNC insurance, standing for property and casualty. Specifically, I'm going to be sharing three things today. Number one, how to optimize your policies by improving your coverage and also reducing your out-of-pocket costs. Number two, how to optimize your policies by improving your coverage and also reducing your out-of-pocket costs.

Number two, I'm going to be sharing some common pitfalls and how to avoid them. And then number three, where to shop for insurance to make sure you're getting the best deal without putting yourself at too much risk. For all the resources and links mentioned in this episode, visit youstaywealthy.com forward slash 46. All right, let's dive in.

I want to first address how I personally think about insurance just to kind of help lay the foundation for the rest of this episode.

Insurance, in my opinion, should be used to protect us against big financial losses. So disability insurance, which I talked about in episode 44, is a great example of this. Our future earning power, if you're still working, our future earning power, depending on the stage of life that we're in, it could be our largest asset. The money we're going to make in the future can be a big asset. And so we want to protect that asset.

Now, in regards to auto insurance, if we cause a car accident and injure a neurosurgeon who can't work and support her family anymore, that's a big deal. We want to protect ourselves against that and our nest egg if something like that were to happen.

For something like homeowners insurance, a flood or an earthquake can result in a large bill. It could be a six or even a seven-figure bill if something catastrophic like that were to happen. So we want insurance to help protect us against these big events that can wipe us out financially.

What we don't need insurance for, what I don't think we need insurance for is protection against minor financial losses like roadside assistance or iPhone insurance. I mean, if you have $1,000 cash in the bank, you don't really need to be paying an annual insurance premium for a policy that's going to pay you out $1,000. It just doesn't really make any sense.

Before I go any further, I just want to remind everybody, you've heard me say this before on the podcast, but there's this textbook answer, this textbook way to approach this stuff, and then there's your answer. And so if having iPhone insurance just helps you sleep better at night and you worry less and you don't mind paying the $10 a month or whatever it is, if that just feels good to you, that's fine. That's your answer. But I want you to have all the relevant information so that you can make an informed decision for yourself.

So with this philosophy in mind, let's begin by tackling auto insurance and more importantly, how we can save money on our auto insurance policies while also still maximizing them.

First, before we do anything, there are two tweaks to your auto insurance policies I'm going to suggest you make that are actually going to increase your bill. So just hang with me here. These two things are just really important. And yes, they're going to increase your bill, but we'll talk about how to potentially offset that in a few minutes.

So the first tweak, the first is liability insurance. Liability insurance is one type of coverage that makes up your whole auto insurance policy. And as most of you probably know, liability insurance is mandatory. It's required by law to carry, but the requirement is for good reason.

Liability insurance covers you if you drive your car into another car or a person, a house, or even a tree. And since this car, this 4,000 pound object being pushed into anything can cause a lot of damage, you want liability insurance and more so you want a lot of it. So when it comes to liability insurance,

you want to make sure that you're getting the maximum amount of coverage. So I mentioned that liability insurance is required by law, but you're only required to carry the minimum amount. And in the state of California, the minimum amount is only $30,000 per accident. So it's not that much.

The maximum varies by insurance company, and it usually ranges between $100,000 and $500,000. So whatever your company's maximum is, you should strive to buy it. Unfortunately, like I said, maxing out your liability coverage is going to cost you more money if you don't already have it maxed out, but it's for good reason. We want to protect against the big stuff first before we do anything else.

The other reason that we want to max out our liability insurance, and a lot of people don't know this, but the other reason that we want to do it is so we don't create a gap with our umbrella insurance policy.

First things first, just about everyone out there should have an umbrella insurance policy. Umbrella insurance increases your liability policy even further. So the max liability you may be able to purchase is $500,000 and $500,000 of liability insurance might sound like a lot of money, but it's not a lot of money if you hit a doctor who's driving a million dollar Ferrari and

If you skip umbrella insurance and you only have $500,000 worth of liability and the damages are a million dollars, well, you're responsible for coming up with the difference there. And if you don't have $500,000 to your name to come up with the difference, guess what? That doctor, whoever that is that you injured, they're going to come after your paycheck and garnish your future wages.

Back to my comment about making sure you don't have a gap in these coverages. Let's say that you do have a million dollar umbrella policy.

This umbrella policy starts providing protection at $500,000. So these policies don't cover you from zero to a million. These umbrella policies start at a certain point. So let's say your umbrella policy kicks in at $500,000 up to a million. Well, if you tried to cut a corner with your liability policy, remember that the liability policy is part of your auto insurance policy.

If you tried to cut a corner with your liability policy and you only opted for, let's say, $100,000 of protection, then you have a $400,000 gap before umbrella kicks in.

So to kind of sum it all up, we want to max out our liability coverage on our auto policy, we want to max it out. And then we want to extend it with umbrella. If we cheap out on liability coverage, and go ahead and get umbrella, there could be a gap between those two policies, which kind of defeats the whole purpose. One common question that we get is how much umbrella insurance do we need? So

So the back of the napkin approach for someone who's retired is really, it's really simple, just kind of roughly equivalent to your naked assets. Your naked assets are assets outside of any 401k accounts that you have. 401k accounts receive special creditor protection. So anything outside of your 401k accounts, if you add up your home equity, cash in the bank, you know, traditional investment and brokerage accounts, and if

they all add up to a million dollars, then you should probably buy about a million dollar umbrella policy. Now there could be some other things you have to take into consideration. Again, this is kind of back of the napkin approach or a starting point.

If you're a working professional, you're still in the workforce, you need to factor in your future wages into the equation. Again, those wages can be garnished if you're in a really severe situation. For example, if you make $100,000 per year and you think you're going to work for another 10 years, then you should consider an additional $1 million of umbrella on top of your naked assets.

Now, the good news here is that umbrella insurance is pretty cheap. So buying a little more than you think just for some peace of mind isn't going to be too painful. So I gave you a lot there. Again, I'm just going to recap it one more time. Liability insurance, we want to max out that coverage and then we want to extend that coverage with umbrella insurance.

That's the first tweak that you're going to make to your policy if you want to maximize it and use insurance the way I use insurance. Again, it's going to cost some extra money, but it's really important. The second tweak that I'm going to suggest that you make to your current auto policy that again is going to increase the cost a little bit. The second tweak is uninsured, underinsured motorist coverage.

And this insurance helps when the other guy drives his car into you and that other guy doesn't have big liability coverage, which is very, very common. A lot of people opt for that minimum amount that's required because they're trying to cut a corner and save some money. Not you.

You're smarter than that. After listening to this episode, you're going to have a nice big liability policy and umbrella policy, and you're going to be fully covered. But a lot of people out there carry these really small amounts. Again, they're trying to cut a corner. Even worse, there are people out there driving without any liability insurance at all, which is obviously against the law, but people do it. So

Consider this example. Let's make up a person. We're going to call him Distracted Dave. And Distracted Dave doesn't see you in front of him and he plows his car into your car.

Your car is totaled. You've got $100,000 in medical bills and you can't work for the next 12 months at a job that pays you $100,000 per year. So on paper, distracted Dave owes you $200,000. But guess what? You're only going to get $30,000 from Dave's insurance company because that's all the liability insurance he was carrying and he didn't have an umbrella policy.

Even worse, Dave doesn't have a job, so you can't garnish wages. And he lost all his money trading cryptocurrency, so there's nothing left in the bank either. So you're pretty much out of luck here. Your medical insurance might cover some of your bills, but not all of them. You might have a disability insurance policy that replaces some of your income, but certainly not all of it. And then let's not forget, you still need a new car. So

$30,000 plus a little extra coverage from your own insurance, it's not going to get you to where you need to be.

This is why we want uninsured, underinsured motorist coverage. This coverage fills the gap left by an irresponsible driver like Distracted Dave. So as you can tell, this insurance, just like liability insurance, is really, really important. And so we want to buy the maximum amount.

kind of sum this all up before we do anything we want to max out our liability insurance we want to max out our uninsured underinsured coverage and we want to get an umbrella policy that extends our liability so again these changes are going to increase our bill but they're going to protect us against some really big important things

All right, with those costly but important tweaks out of the way, let's talk about how we can save some money on our auto policies and potentially offset those cost increases.

The first is by reviewing your comprehensive and collision insurance. And just about every insurance company in the world thinks that you should load up on this coverage. I know this because every policy I've ever looked at has it listed and the policy owner, you, you're paying for it.

And oftentimes it's several hundred dollars per year. Here's the deal. Here's what I want you to know. If you have more cash in the bank than your car is worth, then you should probably skip comprehensive and collision insurance. Why is this? Really? The answer is math. I mean, not just any math, but probability statistics and actuarial type of stuff. Basically it boils down to this.

An insurance company is only going to sell you an insurance policy if they think they can make money off of it, if they think they can turn a profit.

In other words, on average, an insurance policy is priced so that you'll lose money and they'll make money. That's how it works. So on average, you're going to save money by skipping comprehensive and collision. When it comes to comprehensive and collision, remember the most money you could lose is the amount your car is worth.

But if you have more cash in the bank than the car is worth, then it's not going to destroy you financially. You should be prepared for that. This is why liability and underinsured coverage is totally different. If you skipped liability, you could be out hundreds of thousands of dollars or more. Being on the hook for $500,000 could absolutely destroy your financial life.

Now, I know what some of you are maybe thinking, Taylor, this idea about comprehensive, getting rid of comprehensive and collision sounds great, but I don't have a big pile of cash in the bank. So this doesn't really work for me.

Don't worry, you can still save money on comprehensive and collision coverage by working your deductible. And just a quick reminder, your deductible is the amount of money that you have to pay out of pocket before your insurance company steps in.

And managing your deductible is pretty simple. If you increase your deductible, your auto insurance bill will go down. If you decrease your deductible, your auto insurance bill will go up. So you can save money on your comprehensive and collision if you need to keep it because you don't have a big pile of cash. You can save money by picking a deductible that's equal to the size of your cash savings.

If you have $2,000 in your rainy day fund, then opt for a $2,000 deductible. If you have $50,000 in your rainy day fund, then raise your deductible to the maximum amount that your insurance company will allow. As long as you have sufficient cash savings, on average, you're going to come out ahead by managing your deductibles and your policies properly.

The last way that you can save money on your auto insurance policy, even if you don't have a big pile of cash sitting at the bank, is to opt out of these nonsense coverage options that every insurance company tries to sell you. The big one, which I referenced a few minutes ago, is roadside assistance. And I see this in almost every policy I review. Aside from saving some money on your auto insurance bill by getting rid of this, it's

It's also been documented that using roadside assistance through your insurance company will ding your insurance history. So your auto insurance company who's selling you this roadside assistance will raise your rates if you use this roadside assistance.

So if you must have roadside assistance, again, maybe you just feel more comfortable having it. You don't want to pay out of pocket when something happens. Just make sure you get that coverage from someone other than your insurance company. For example, if your auto policy is through USAA, then get your roadside service through a company like AAA.

You might also check your credit cards. I know one of the credit cards I have, roadside assistance is a perk that's part of that credit card. So you might already be kind of paying for it through one of your credit cards that you already have.

If you have an emergency savings account, which everyone should have, you should be able to pay for these small kind of nonsense coverage options if they happen, which means getting rid of these nonsense options will lower your auto insurance bill. Some other ones to look out for aside from roadside assistance would be rental car coverage, mechanical brake coverage, windshield replacement coverage is another one.

The unfortunate side of this is that some insurance companies actually force you to adopt these nonsense coverage options in order for you to have insurance with them. So let's say we'll increase your liability, we'll carry all of your insurance, we'll do your umbrella, but you actually, you're required to have rental car coverage.

So sometimes these smaller policies are required in order to have insurance with this company. When you review your policy with your insurance company, hopefully after you listen to this episode, you get fired up and you're like, I want to go review this stuff. When you review your policy with them, go line by line. I've done this several times. Go line by line with them and just ask them which coverages are optional.

And again, opt to max out the coverages on the really big items and then pass on the really small nonsense options that your emergency savings can cover. And by doing this, you're going to optimize your policy and you're going to save more money on your annual premium. And don't forget to manage those deductibles. If you've got a good cash savings set aside, then match up those deductibles with your cash savings.

All right, let's move over to homeowners insurance. We're going to carry this same approach and same philosophy over to homeowners insurance. So this should be pretty painless. Like auto insurance, we want to use homeowners insurance to protect against the really big things. So one of those big things is the risk of a flood, which is why I recommend that everyone carry flood insurance.

And get this, even if you don't live in a designated flood zone, I still think you should carry flood insurance because according to the Federal Emergency Management Agency, FEMA, more than 20% of flood claims come from properties outside of the high-risk flood zone. So

Flood damage can happen to anybody and it can be catastrophic. So we want to protect against it. The other big thing is earthquake insurance, primarily for those of us in California. And I see people forego earthquake insurance for really two main reasons. One, the price and two, the deductible.

You already know how I feel about insurance. So yes, earthquake insurance is not cheap, but it could completely destroy you financially. So to me, it's worth the cost and you just have to get over that. As for the deductible, yes, it can be very large since you're protecting the value of a very large asset, your home. So a simple solution here, if the deductible is scaring you away from earthquake insurance is to decrease that deductible and you can decrease it to as low as 5%.

And while 5% might still be a big number, depending on the value of your home, it'll be a lot easier to handle for most people than a deductible of 15% or 25%. So a lot of times when I'm reviewing these earthquake policies, I see someone with a really high earthquake deductible, and they don't have the cash savings set aside to cover that. So lowering that deductible down to 5% can make it more palatable.

Just like with your auto, your insurance company or broker helping with your homeowners, and it could be the same company, is going to try and tack on a bunch of these small nonsense coverage options that end up costing you more money, and they're probably not necessary.

And these options, I keep calling them these nonsense coverage options, but these options are actually called riders in the insurance world. They're called insurance riders. And they're actually kind of these mini insurance policies inside your main policy.

So for example, if we're talking about homeowners insurance, they might share with you that your current homeowners policy doesn't cover your jewelry collection. And they might talk you into buying a $10,000 jewelry rider. Well, if you have $10,000 cash in the bank in your emergency savings account, then you don't really need to pay an annual insurance policy that's going to pay out $10,000 when you have $10,000.

Other homeowner policy writers that you might see come at you will be artwork writers, silverware, musical instruments, collectibles, things like that. So look, if you have something that's really, really, really valuable, and if it were to get stolen or damaged would destroy you financially, then by all means pay for the writer. But if it's something like a thousand dollars or $5,000, and you have that money set aside in your emergency savings account, then it's, it's

it's kind of silly to pay for the writer. Again, I can't stress this enough, but we want to use insurance to protect against the big catastrophic losses. And then we want to self-insure for these smaller things. And by doing this, we're going to save money on our policies over long periods of time.

All right. Everything I've talked about up to this point is about making adjustments to your current policies. And as we all know, the final way that we can try to save some money on our PNC insurance is to shop around. And I recommend shopping your policies at least every three years.

I also recommend reviewing your annual statement each year because most policies, this is crazy, most policies allow your insurance company to raise your premium by a small amount without telling you. So look at your annual statement and you might see a year over year increase. And if you do, this is a good time to do that.

this should trigger you to do two things. One, it should trigger you to call your insurance company and just ask them to reverse this increase. And oftentimes they will, they don't want to lose you as a customer. So if you catch it and you see it, give them a call, ask them to reverse it. A lot of times they, most of the time they will. But two, this is a good reminder for you to shop around and see if there's a better deal out there. And I hear a lot of people say they don't want to shop around because they're

They don't want to pick up and they don't want to move all their policies to a new company. I realize it's a lot of work to do that. And I usually say, well, you don't have to. If you find a lower quote from another company, take that quote, show it to your current company, and odds are they're going to match it so they don't lose you as a customer.

And then lastly, don't forget to ask about discounts. Common discounts are things like low annual mileage. If you don't drive that much, let them know. Being a longtime customer can certainly benefit you. If you have anti-theft devices on your car, that can be a candidate for a discount. If you haven't been in an accident in three years or more, that can help with a discount. So ask your insurance company if you're eligible for discounts. They'll take you through a list that they offer and some might apply to you.

Also, it's important to note that lower cost does not always mean it's a better solution. We're talking about insurance companies here. So you do have to take into consideration the company's reputation, ratings, and their financial stability. To quote Clark Howard, Clark says...

The whole thing about insurance is not necessarily to have the lowest premiums, but to have the coverage you need if something goes wrong.

Speaking of Clark Howard, since he has done so much work and research on the insurance industry, auto insurance, homeowners insurance, I just thought I'd go ahead and share his top three picks for auto insurance. And if you don't know who Clark Howard is, I really recommend checking him out. He's got a great blog at clarkhoward.com. And then he's got a podcast as well. So if you're a podcaster, go check out his podcast, a ton of great information. And I'll link to his stuff in the show notes as well. So I'm going to go ahead and share his picks.

So his top three picks for auto insurance are USAA, Amica Mutual, and NJM Insurance Group. And not surprisingly, these three companies also have the three highest ratings from Consumer Reports.

Clark also mentions that there are a lot of small regional insurance companies that are worth a look as well. So for example, if you're in California, he mentions Wawanisa. If you're in the central part of the country, he mentions a company called Shelter.

So he goes through kind of region by region and lists a few different companies within each region. I'll link to this entire list in the show notes if you want to review them. If for some reason you're not eligible for USAA, and again, you just want to kind of continue shopping around. Again, the show notes can be found by going to youstaywealthy.com forward slash 46, and I'll link to all this there.

Lastly, in case you're wondering, Clark also rates the lowest auto insurance companies and the 10 lowest auto insurance companies. You probably know most of them by name, which is kind of scary. So the 10 lowest rated companies, according to Clark are,

are M-A-P-F-R-E, North American Group, which I've never heard of. But the others are MetLife, Mercury, Progressive, Liberty Mutual, Nationwide, Allstate, Farmers, Geico, and State Farm. So my guess is that you know nine out of 10 of those companies.

Now, look, it may not mean that you need to run screaming from these companies, but there might be some better options out there, some higher rated companies with more stability. Just take a look. It's just worth taking a look and shopping around and making sure that you're in the right place.

For all the links and resources mentioned in this episode, again, you can go to youstaywealthy.com forward slash 46. I hope you've learned something new here today. And I hope at least I've inspired you to open up your insurance bill and just begin learning a little bit more about what coverages you have and more importantly, why you have them.

I hope you'll make sure that you're protecting against the big stuff, maxing out that liability coverage, extending it with an umbrella, making sure you have uninsured, underinsured motorist coverage. Skip all the bells and whistles that insurance companies love to sneak in there. Again, make sure you have that emergency savings account intact. And on average, over long periods of time, you're going to come out ahead by doing this. So as always, thank you for listening and I'll see you in two weeks.

This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services. ♪