Originally published in the News Star on Sunday, October 25, 2015.
QUESTION: My daughter graduated from college nearly a year ago. She has a car we bought her in college and she is still on our insurance. It’s time for her to get her own coverage, but she doesn’t have any experience with this and I don’t think I would be much help either. She lives out of state, so our agent can’t help her. What advice should I give her on how to find coverage?
ANSWER: The purpose of auto insurance is to protect the insured financially against damage done to her car or by her car.
The second item (damage done by her car) has a far bigger potential for financial damage, though it is less common.
Here are the basics of what I would tell your daughter (and you!) to look for when shopping for auto insurance:
The right agent for you. Never buy any kind of insurance assuming you’ll never have to make a claim. If that’s your assumption, why have insurance at all?
When shopping for insurance, you really ought to be giving your potential agent a job interview. Some people are comfortable working with a “remote agent” online. Just keep in mind that at the time of a claim, you’ll be working with a similar arrangement – there will be no one on site to hold your hand or take care of details. You may be fine with that. I’m not, but that’s just me.
One great way to find a good agent is to ask your friends who they use and what they think of her service.
A good agent ought to be able to give you good advice and good service. A lack of either is a good reason to find another one.
The right amount of protection for you. Here’s the meat of the matter. What exactly does automobile insurance cover?
Damage done by your car. This is called liability insurance. If you are found legally liable for damage done by your car to someone else’s body or to someone else’s property, you are responsible to pay for it. On the low side, that might be a few hundred dollars. On the high side, it could means hundreds of thousands of dollars. I regularly advise clients to have liability coverage (on both auto and home) of at least equal amount as their net worth.
Damage done to your car. This part is what most people think about when they think about auto insurance. “What if my car gets totaled?” Obviously, the extent of your risk is the cost to replace the car. So while that is a lot of money, it’s not nearly as much as your potential for financial liability for damages done by your car to someone else.
As quickly as possible, you want to have enough money in savings to pay for the “first dollars” of any claim. If you keep making $300 and $500 claims to your auto insurance company, I would predict that your rates will go up. Ask your agent to price the difference between a low deductible ($100) and a higher deductibles ($500 or $1000). See if it makes a big difference.
The right price for you. Feel free to shop around for price, but I would let price be the last driver of your shopping, not the primary.
Call at least three agents, describe your situation and ask them for a written quote. Ask them why they recommended these specific coverages to you. Listen for hints as to their attitude towards service (rather than just sales) and the quality and thoughtfulness of their advice.
It’s easy for someone to claim to be able to save you “15% in 15 minutes” by simply offering your less coverage or less service.
Make sure that any savings you get are not at the cost of service or protection.
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Byron R. Moore, CFP® is Managing Director / Planning Group of Argent Advisors, Inc. Email him at firstname.lastname@example.org. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5858. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc. No forecasts can be guaranteed. Argent Advisors, Inc. does not offer tax, insurance or legal advice. The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.