Last week I published what turned out to be a somewhat controversial piece about smart ways to lower your car insurance by thinking like an insurance agent.
These were all strategies that have either worked well for me or have been proven to be lucrative and repeatable by many other people.
For some reason, when a subject like insurance comes up, very rational people end up thinking very irrationally. Rather than think in math and statistics (What’s the likelihood that X will occur and how much will it cost if it does?), they think emotionally (How uncomfortable will I feel without all the bells and whistles?), and it leads to poor decision-making.
This is the reason so many people with high incomes are in debt and have poor money management skills. The money equation is very simple math, but it’s wrapped in all kinds of emotional logic that leads people astray.
But this is all okay! I like a little controversy around here. And in the comments of the car insurance article, there were a few people who made great points and offered even more good ways to save money on your premium.
I want to take a minute to answer some of the most common gripes I heard surrounding my car insurance article, and even admit that I was (kind of) wrong about something (gasp!). Almost all of them, in one way or another, related to my hatred for comprehensive car insurance. I suspect some folks didn’t like being called suckers for owning comprehensive policies.
Sorry! I still love you, but I’m not happy with your insurance choices.
In no particular order, here are the most frequently complained questions about lowering your car insurance:
“Choosing the minimum liability coverage is stupid! What if I destroy someone’s $70,000 car?”
Alright, we’re just going to start with me admitting that my advice to get the lowest possible coverage was a little off. What I meant was that insurance (of any form) should only be used to cover the most expensive and catastrophic cases.
For that reason, you should always carry the highest possible deductible—no relying on insurance to pay for little bumps and bruises you can cover yourself (unless you want to pay even more for them via ever-increasing premiums for the rest of your life).
I concede: The way I worded that didn’t apply the way I meant to car insurance. In many states, carrying a multiple or two higher than the mandated minimum coverage is a small up-charge—usually just a few dollars a month—and worth the premium since everyone in the U.S. drives stupid-expensive cars and emergency care is outrageously expensive. If you hit someone, it could be pretty damn expensive to fix.
Now, if everyone were like me and drove cheap but reliable cars, this would never be necessary. Alas, that utopian dream world doesn’t exist (yet!), so consider carrying more than just your state-mandated minimum liability coverage.
Comprehensive coverage is still ridiculous and never worth the premium.
“What if someone without insurance hits me and I don’t have comprehensive coverage? I’m screwed!”
Good question, actually.
Technically, whoever causes an accident is on the hook to pay for it in most parts of the U.S. The problem is that to get compensated for an accident with an uninsured driver, you’d need to either
- Get them to pay you on the spot for damages, or
- Take them to court.
Neither of these options are likely to work because people who don’t carry any insurance are often not the type of people who have the cash to fix the problems they cause, even if a court order is involved.
Luckily, there is a very cheap way to protect yourself from this, and it doesn’t require comprehensive insurance. It’s called “uninsured/underinsured motorist coverage” and in many states in the U.S., it’s required by law and rolled into basic liability packages.
Check your policy; you may already have it. If you don’t, get a quote for it; it’s usually very cheap.
“What if I get hit from behind and then hit someone else? How will I pay for the damage to the person’s car I hit?”
This was a specific gripe I turned into a question so that I could answer it.
First of all, you would never be responsible to pay for any part of a collision like this except in some bizarre scenario, perhaps, where you were following someone too closely at the time of the accident.
How a claim like this would be handled depends on the type of state you live in. In a “tort” state, whoever pushed you into the other car would be on the hook for all the damages. In a “no-fault” state, you’d go to your own insurance company for damage to your own property.
In any case, you’d have liability coverage that would cover damage you caused to others (in this case, none). And comprehensive coverage wouldn’t even help in this case, because you were not at fault in the accident.
As long as you’re driving a car that’s easily replaceable, there’s nothing to worry about here.
“My car is expensive, and there’s no way I could afford to replace it. I need comprehensive coverage!”
No you don’t! You’re being a sucker!
Sell your expensive heap of metal, and a buy a cheaper heap of metal. At the end of the day, every car really is just a heap of metal with some tires on it.
Use the leftover cash to cover your now incredibly cheap liability insurance.
Who are you trying to impress with that expensive heap, anyway? Owning a luxury you can’t afford to replace is not Smart Riskology!
Also, learn some basic car repair.
“If someone hits me, my liability company won’t help me!”
Of course they won’t. Liability is there to help you when you cause an accident. However, if you called up your insurance company after you were hit, and they wouldn’t do anything for you, it’s time to switch providers.
A reputable insurance provider like Progressive, Allstate, Geico, or AAA will at least help you with making phone calls to the insurance company responsible for your accident if you have trouble.
But it’s not their responsibility to help you in that situation. That’s where comprehensive insurance comes in for people who are too timid to make a few phone calls.
A Smart Riskologist is not afraid of making phone calls! Buck up!
“Comprehensive insurance is a good deal because I know how much it costs. I don’t know how much a wreck will cost.”
This gripe is silly for a lot of reasons, but the worst is that it comes from fear-based thinking.
You will never come out ahead in any transaction you enter out of fear. A Smart Riskologist knows that fear is what motivates us to make generally horrible decisions.
And fear, of course, is eliminated with knowledge. Two pieces of knowledge I can share, just based on this gripe, are that:
- You do not know how much insurance costs. If you think you do, go buy a policy, get in a wreck, and file a claim. When your rate adjusts, come back and let us know if you really knew how much it would cost!
- You do know how much a wreck will cost. If you buy your insurance the smart way by getting liability coverage for the worst case scenario, the out-of-pocket cost of an accident you cause will be the replacement cost of the other person’s car/emergency care (covered by your liability, so $0) + the replacement cost of your car + the deductible for your health insurance for emergency care. Cost can all be controlled on your side. And that’s exactly what liability insurance is for—to limit your losses to costs you can predict.
The only reason to have collision or comprehensive insurance is to recoup your own losses when you cause an accident. So, comprehensive insurance is for people who are betting on the need to replace something they can’t afford. Not Smart Riskology!
In the end, you’ll pay a lot more in exorbitant premiums, just like you would if you bought something with credit and didn’t pay it off right away. Some concept, different application.
“I could never go without a car. I need my insurance to replace it if something bad happens.”
The first thing I think when I hear someone say, “I could never go without _____” is, “Bullshit. You’ve gotten accustomed to a luxury. How would you change the way you lived if this thing you could never go without simply didn’t exist?”
Except in very rare cases, even folks who live in rural areas can get by without a car for long periods of time.
Of course, no one wants to live like this, but if you shop for your car and insurance like a Smart Riskologist, you’ll never have to.
If you a drive a reliable, older car you can actually afford to replace, you’ll never go without a car—at least not longer than it takes to shop for a new one… which would still apply with a full comprehensive policy.
Although, I bet if you looked hard enough you could find a policy that covers a chauffeur to drive you around car shopping. And I bet it’s a great deal!
In the world of advice, take what works, and leave the rest.
Any time anyone anywhere on the Internet writes something that resembles advice, there’s always a small army of folks who will turn up to explain how one small piece of the advice doesn’t work for them.
Well, of course it doesn’t! No one piece of advice can apply the same to everyone in the world. The problem is that these people choose to focus on the one thing that doesn’t work instead of the many other things that do.
They train themselves to look for what’s wrong and, as a result, they find it. To them, the world is full of “stuff that doesn’t work.”
My general philosophy for advice is to take what works and leave the rest. See something that doesn’t apply to you? Skip past it and look for something else!
If instead of looking for problems you look for solutions and opportunities, you just might find some!
In fact, several commenters on the last insurance article left even more great ideas for reducing your premiums.
Thanks to all those who left more great tips.
Yours in risk-taking,
P.S. Hat tip to Mr. Money Mustache for the title of this article.