I’ve seen a number tweets recently about the difference between mandating health insurance and car insurance. Rhetorical or not, I’ll share a few talking points as to why this is an apples and oranges comparison. I’m not going to go into politics or beliefs. If you choose to leave a comment or ask a question please play nice.
1. Federal vs. State
This is the biggest difference in the two. The federal government is about to mandate that all Americans have health coverage. Currently, the mandate to have car insurance is handed down by state governments. In fact, it may surprise you to find out, most states don’t require car insurance at all. For more on that read my previous post.
2. Choice
When the federal government mandates that all Americans must have health insurance, they are basically saying this. In order for you to be considered a law abiding citizen you must have health coverage. Unlike, the states’ auto insurance mandate; only people who choose to own and operate cars are required to be financially responsible for them.
3. Liability/Negligence
The reason states require car insurance is to protect the public from a dangerous activity. According to the CDC, in 2006, the number one cause of death for people under age 44 is unintentional injury. Motor vehicle accidents are either the leading cause, or second leading cause of unintentional injury in every age category! By mandating car insurance states are protecting their citizens from an inevitable financial catastrophe caused by a chosen activity. If we’re going to allow you to do 70 mph with 2,000 lbs of steal and fiberglass, we want to be sure that in the LIKELY event that you do cause an accident, you’ll be able to pay for the damage you cause to the other person. A vast majority of states do not require you to provide medical coverage for yourself, even though driving is about the most dangerous activity you can participate in. Medical coverage for yourself is not required in most car insurance policies, because if your injuries are caused by you, you don’t sue yourself to recover from them. If they are caused by somebody else then you do sue them. See also negligence.
Even if car insurance wasn’t a requirement a vast majority of Americans would still purchase it. Just as a vast majority of Americans currently have health insurance. Insurance, both car and health, is designed to protect you from a financial catastrophe. If you didn’t have car insurance you would have to pay out of pocket for all the damage caused by you in a car accident. To both repair your own car and the other persons’ as well. Most people have no idea how much it costs to indemnify the other party after an accident because that’s what your insurance company takes care of for you. They also foot the bill for your legal defense after an accident as well.
If you’ve been at fault in a car accident in the past 5 years, call your insurance company and ask them how much they’ve paid out in the claims. I’m sure the numbers will shock you.
If you have questions on what any of your insurance is doing for you, please contact me. Leave a comment or ask a question, but remember no politics!
Tuesday, March 23, 2010
Monday, March 22, 2010
Car Insurance is NOT Required
I’ve seen a lot of talk on twitter today about the parallels of requiring health insurance and auto insurance. I feel that it’s time to remind, or notify, everybody that car insurance is not mandatory, in most states.
What is mandatory, is that if you’re going to drive, you have to be able to pay for the damage that you potentially might cause if you’re at fault in an accident. This is called maintaining Financial Responsibility (FR). Now, given that auto insurance is regulated on the state level, each state will vary a bit on their requirements for FR.
Generally, buying a car insurance policy is the easiest way to satisfy the FR laws. I deal with insurance in most states. Ohio’s FR laws are fairly transferrable from one state to the next. Here’s an easy to read excerpt from the Ohio FR law:
“To comply with the FR requirements, individuals must maintain insurance or get a bond.”
You may be asking yourself, “so what’s a bond?” A bond is essentially an insurance product. It’s a promise to pay if something happens. However, you don’t necessarily have to pay for a bond.
Since the state doesn’t require insurance, they just require you to be able to pay for an accident you may cause. If you have $30,000 in the bank, the state will allow you to drive without insurance, because if you cause an accident you’ll be able to foot the bill. Also, if you have $60,000 in real estate equity, you’re good to go too. If you cause an accident you’ll be able to either sell the property or access a line of credit to pay for the accident.
Now, people with $30,000 in the bank or $60,000 in real estate equity know that they want to protect that asset. If they cause an accident they don’t want to be left with nothing. So most people in that situation buy insurance anyway. They do this because they know, that relatively speaking, the small cost of insurance far outweighs the benefits provided by the insurance company. Even, the smallest car insurance policy in Ohio provides $32,500 worth of benefits. And Ohio has some of the smallest coverage requirements in the country. Most states’ insurance policies have a minimum amount of benefits at $75,000.
If you want to talk FR requirements or what exactly your auto insurance does for you, please contact me.
What is mandatory, is that if you’re going to drive, you have to be able to pay for the damage that you potentially might cause if you’re at fault in an accident. This is called maintaining Financial Responsibility (FR). Now, given that auto insurance is regulated on the state level, each state will vary a bit on their requirements for FR.
Generally, buying a car insurance policy is the easiest way to satisfy the FR laws. I deal with insurance in most states. Ohio’s FR laws are fairly transferrable from one state to the next. Here’s an easy to read excerpt from the Ohio FR law:
“To comply with the FR requirements, individuals must maintain insurance or get a bond.”
You may be asking yourself, “so what’s a bond?” A bond is essentially an insurance product. It’s a promise to pay if something happens. However, you don’t necessarily have to pay for a bond.
Since the state doesn’t require insurance, they just require you to be able to pay for an accident you may cause. If you have $30,000 in the bank, the state will allow you to drive without insurance, because if you cause an accident you’ll be able to foot the bill. Also, if you have $60,000 in real estate equity, you’re good to go too. If you cause an accident you’ll be able to either sell the property or access a line of credit to pay for the accident.
Now, people with $30,000 in the bank or $60,000 in real estate equity know that they want to protect that asset. If they cause an accident they don’t want to be left with nothing. So most people in that situation buy insurance anyway. They do this because they know, that relatively speaking, the small cost of insurance far outweighs the benefits provided by the insurance company. Even, the smallest car insurance policy in Ohio provides $32,500 worth of benefits. And Ohio has some of the smallest coverage requirements in the country. Most states’ insurance policies have a minimum amount of benefits at $75,000.
If you want to talk FR requirements or what exactly your auto insurance does for you, please contact me.
Monday, March 1, 2010
How high is too low?
I had an applicant recently whose story inspired me to do this post. The thought process that you should use to determine your car insurance and homeowners insurance deductibles are very different. Because most people have plenty of experience with choosing car insurance deductibles, they usually apply the same logic to the new experience of choosing a homeowners deductible. The process is different because the rating factors the insurance company uses after a claim is different.
With car insurance, who’s at fault makes a huge difference in what happens to your rate after a claim. In homeowners insurance, it all comes down to how many claims have there been, how often did they happen, and how much did it cost the insurance company to settle them. If you’re at fault in a car accident, it generally does not matter if there was $200 worth of damage or $20,000 worth. Since most car insurance claims are generally small, the difference between a $500 deductible and $1,000 can be a large percentage of the total damage. So the price difference between the two is a strong reason to do one over the other.
But what about homeowners insurance, should the price between two deductibles persuade you to go one way or the other? Yes, but not nearly as much as in auto insurance. Where as in auto insurance you want to avoid at fault accidents, in homeowners insurance you want to avoid claims, period.
For most people $1,000 is as low as you should consider going. If you’re a responsible saver then $2,500 may be the right deductible for you. Consider this claims story from the applicant I referenced earlier:
“I recently had a fire in my bathroom. I mistakenly placed a candle too close to a towel rack and started the bathroom on fire. I was able to contain the damage quickly, and it resulted in $800 damage. I had never filed a claim with my insurance before so I figured why not use it, it’s what I’m paying for. My deductible was $500 so they ended up paying $300. A year later, while on vacation, my house was broken into. Between the theft to my property and the damage to the house, the loss totaled $3,500. Of course I filed the claim and the insurance company paid out $3,000. Six months later, the same thing happened again, this time a $2,500 theft claim. I later learned after talking to a policy officer that this is common with thieves. They rob you, wait a couple months for you to accumulate new stuff and then hit you again.”
This applicant was very happy with the way the insurance company handled the claims and the speed in which they took care of them. So why was she shopping around? Her insurance company was dropping her for having too many losses too quickly. Had she had a $1,000 deductible she wouldn’t be in that situation; the initial bathroom fire claim would have never happened. And let’s face it, when we’re talking about insurance a house for hundreds of thousands of dollars, $800 is small potatoes. Insurance is meant for catastrophic financial loss. Unfortunately, many people do not have much of a savings and $800 can seem like a catastrophic financial event at the time.
What kind of price can you get with 3 claims so quickly? I work with 5 homeowner insurance companies in her state. Most were not willing to accept her at any rate, the best I could do, $2,400/year. Nothing fancy about the house either, $145,000 house with standard coverage.
If you want to talk about deductibles, or any insurance topic, please contact me. Do you have a claims story that you regret? Leave a comment.
With car insurance, who’s at fault makes a huge difference in what happens to your rate after a claim. In homeowners insurance, it all comes down to how many claims have there been, how often did they happen, and how much did it cost the insurance company to settle them. If you’re at fault in a car accident, it generally does not matter if there was $200 worth of damage or $20,000 worth. Since most car insurance claims are generally small, the difference between a $500 deductible and $1,000 can be a large percentage of the total damage. So the price difference between the two is a strong reason to do one over the other.
But what about homeowners insurance, should the price between two deductibles persuade you to go one way or the other? Yes, but not nearly as much as in auto insurance. Where as in auto insurance you want to avoid at fault accidents, in homeowners insurance you want to avoid claims, period.
For most people $1,000 is as low as you should consider going. If you’re a responsible saver then $2,500 may be the right deductible for you. Consider this claims story from the applicant I referenced earlier:
“I recently had a fire in my bathroom. I mistakenly placed a candle too close to a towel rack and started the bathroom on fire. I was able to contain the damage quickly, and it resulted in $800 damage. I had never filed a claim with my insurance before so I figured why not use it, it’s what I’m paying for. My deductible was $500 so they ended up paying $300. A year later, while on vacation, my house was broken into. Between the theft to my property and the damage to the house, the loss totaled $3,500. Of course I filed the claim and the insurance company paid out $3,000. Six months later, the same thing happened again, this time a $2,500 theft claim. I later learned after talking to a policy officer that this is common with thieves. They rob you, wait a couple months for you to accumulate new stuff and then hit you again.”
This applicant was very happy with the way the insurance company handled the claims and the speed in which they took care of them. So why was she shopping around? Her insurance company was dropping her for having too many losses too quickly. Had she had a $1,000 deductible she wouldn’t be in that situation; the initial bathroom fire claim would have never happened. And let’s face it, when we’re talking about insurance a house for hundreds of thousands of dollars, $800 is small potatoes. Insurance is meant for catastrophic financial loss. Unfortunately, many people do not have much of a savings and $800 can seem like a catastrophic financial event at the time.
What kind of price can you get with 3 claims so quickly? I work with 5 homeowner insurance companies in her state. Most were not willing to accept her at any rate, the best I could do, $2,400/year. Nothing fancy about the house either, $145,000 house with standard coverage.
If you want to talk about deductibles, or any insurance topic, please contact me. Do you have a claims story that you regret? Leave a comment.
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