Car, Home and Liability Insurance – Episode 478

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, we are going to cover something that may be shocking to any of you parents out there that have teenage children. Yes. Price increases when it comes to insurance and why it’s actually a good thing. We’ll see if it’s a good thing, right? Maybe, but Kim and I were chatting and here’s the story behind it. My son is 16. He just got his license. And what we did is we went to the insurance office because they offer a 10% discount if they go through a video and answer some questions. Okay. So for us, a 10% discount is a 10% discount. So we’ll do it. And so my son, as I’m inside the office talking with our agent, he’s on the iPad, goes through, answers the questions and our insurance agent says,

[00:56] that’s great. You guys can get your 10% discount. And then he proceeds to give me some serious sticker shock, about 150% increase in insurance, which is typical. And I said, why so much? And he said, of all the teenagers that I bring through here, 50% of them have an accident in the first year. Oh, so we’re not going to be that 50%, but we are the 50% that is paying 150% more. So Kim, tell us why this is actually an opportunity for us to reflect and look at things and approach differently. Absolutely. So first of all, full disclosure, I am not a property and casualty insurance agent. I do not have the licenses that are required to sell car, home and liability umbrella. However, like any good American adult, I too own car, home and liability protection.

[01:55] I have gone through what you’re going through, Spencer. I have gone through the other side of that. When you get to call the insurance company and say, the kids moved out of the house, they have their own car. I’m off the hook. And that was a glorious day. And a couple of the stages in between, thankfully, not any car accidents in our family, but we have shared on the podcast before. We do have a tree that fell through a house and that accident in our family, thankfully, nobody at home, nobody hurt. Nevertheless, has been an additional learning for all of us because I don’t think it matters what you try to learn just by the normal reading, looking, learning, watching, listening, nothing helps with learning like going through

[02:42] it yourself or having a close family member or friend go through it. So this space, so again, we’re talking car, home and liability umbrella. Now, let’s first, why do I bring those three up together? And home obviously could be rental insurance too, if you’re renting an apartment or renting a home. And the reason that I bring them up together is that especially as it relates to a teenage driver with car insurance on your coverage in your car, the adult, it is very, very important to make sure that the entire landscape of this insurance area is heavily coordinated because there are aspects about home insurance and now I am not speaking rental or just full on home ownership that overlap the car insurance space.

[03:38] And again, I will readily admit, I don’t understand this area very well, but I do know just enough to get you open-minded about it and going to your own insurance agent, calling the 800 number, whatever it is that you need to do to get clarity around your own situation, because as I said, the car and the home are interrelated as it relates to liability. And then that third component, which is called a personal liability umbrella is also a very valuable tool, especially when you have a teenage driver, because you do have that higher accident risk and as we know, boys have worse statistics than girls do in the young driver category, and I believe young is age 25 and under, and you, as you’ve identified already have

[04:33] an expense increase in your actual car insurance, but where the real issue lies is the liability. And that would be if they did something, you know, either on an accident or because they were not handling themselves properly, that caused serious property damage or potential other damage to bodies in the car, you know, friends, somebody nearby, a pedestrian, you know, the list goes on. And it really comes back to that liability issue. So because of that car and home are somewhat overlapping and the most effective way to handle the liability is to go ahead and have an appropriate level on your car and your home, but to have that third product known as a personal liability umbrella that is, as the term implies, overarching

[05:26] the car and the home and really anything else that would be around that would be interacting with you as a human, your family members as a human, their friends, et cetera, et cetera. Again, I, you know, I’m not skilled enough to explain exactly what a liability umbrella does, but it protects against any kind of additional accident where somebody could be held liable. And in today’s heavily litigious society, it is a very inexpensive way to make sure that your assets are protected in the event that some type of liability situation could occur. So car home liability umbrella, get with the experts, get them coordinated and make sure that that liability umbrella is a value that would be similar to your gross worth.

[06:28] And so this is an interesting thing that we can bunny rabbit trail on, but let me just pause for a minute and Spencer and see where your thoughts are now, because you’ve already had some of this discussion with this agent getting everything updated, right? We have, and, and what was also strange to kind of add to this formula was the change in the marketplace because we had the car shortages and the computer shortages that caused the vehicle market to be a little out of whack. And, and so they, we call this, you know, second order effects and, and that actually factors into our insurance, how you look at things. And the insurance agent pointed out in the parking lot and said, Hey, we had an Escalade that was out here and it was just a couple of years old.

[07:15] And it was just minor damage. It’s like they drove it to the parking lot, the insurance adjuster came and he totaled the vehicle. And I looked at it and he, and the insurance agent said, I would have been happy to buy this and it’d be a very simple fix, but we couldn’t get the parts because they couldn’t get the parts or the parts are astronomical price, they had to total the vehicle. Wow. And then I’ve got a friend that’s purchasing a specialized SUV right now. So it’s been outfitted, but I mean, his SUV is a quarter million dollars for an SUV. So we have to make sure that we have the appropriate amount of insurance and that we’ve done everything properly. And things like totaling an SUV because of minor damage, minor

[08:02] body damage was just eyeopening to me, how many of us may not realize the real dynamics that are happening in the marketplace. I’ll say, yeah, that’s incredible. And yet, you know, that at some point that part will become available, that car will be fixed and, you know, go on down the road. And we also know that cars depreciate in value very, very quickly. And so whatever it was bought for is, and, you know, depending on where the loan is on the car, it’s an interesting and a nod to the efficiency of the transaction that that whole situation happened there. And I’m sure the insurance companies know a lot more than you and I do about that space, but gosh, what an eye-opener. I’m really quite surprised.

[08:58] Absolutely. And then you brought in the umbrella, the importance of liability. So in our litigious world, that part is, I’m not going to use the word scary, actually I use the word annoying, I think for me at least. But we have a lot of contractors that’ll do work on property that once they step foot on, if something is to happen, of course they have their own policies. But all of us know whenever we’re dealing with these types of insurance companies, there’s just a lot of back and forth and headache and paperwork. And so we want to do whatever we can to protect ourselves, as you mentioned. Yeah. So this liability umbrella is something that a lot of car and home insurance agents don’t bring up, at least in my experience.

[09:44] So it’s something that you want to ask about. Again, it’s typically a third policy. So you have home liability, but you’ll want to look at the umbrella liability in addition, and then as I was indicating, it really should be one times your gross worth. So it’s interesting that insurance companies don’t want you walking in the door and asking for a $5 million liability umbrella, they typically start people at 1 million, which for a lot of people, that’s way more than their gross worth, and that’s fine. That just seems to be, at least from my knowledge, the minimum. And then it’s common, you know, to see the twos and the threes. And in time, you can progress to the fives and the tens based on whatever your gross worth is doing, and of course on up from there.

[10:30] But the jump from say 1 million to 5 million is going to get a lot of questions and may not get approved. So I always encourage people to go ahead and get 1 million pretty much as soon as they’re getting a home. You know, for a lot of younger people, maybe that might not mean right away. And maybe they should get the liability umbrella before they get the home. But the 1 million is a good start. And then as I said, upgrade from there. So, you know, maybe your next step is 3 million and then you go to 5 million and then maybe up to 8 or 10 or something like that. That’s going to get you better results than if you’re not doing anything for a long time and then trying to take one big jump. And as indicated, you want to look at your gross worth.

[11:15] And part of the reason that you want to do that is that the total value is really irrespective of debt. And as we know, in theory, debt’s being paid down all the time also. So you don’t want to be dealing with a net worth number that’s moving, whereas your gross worth number, of course, is hopefully growing. Nevertheless, you don’t have that corresponding debt payoff, which is really irrelevant to the value of the assets. Furthermore, you want the insurance company defending you and their lawyers and their capacity and their experience coming to the table before you have to do a thing. And so that’s a very valuable reason to have that liability umbrella up there in those higher dollar figures.

[12:04] I would say with my memory, a million dollar liability umbrella is maybe four to 700 a year. It’s, as I said earlier, inexpensive asset protection. And yes, we have our LLCs and yes, we have our other structures that we put in place. And you want those insurance company lawyers defending you. So again, I would encourage that gross worth number and that price, that four to 700 per million is going to be somewhat accurate as the numbers get larger. And please reach out to us. If you need help in this area, I cannot provide it personally, but I have lots of connections with property and casualty agents that work nationwide. And it is a very state specific thing. So like Spencer, with you guys moving around a bit, you

[12:57] know, if you’re going to call one state, your residence, and then you’re going to move where you’re going to, for whatever reason, switch your residency, you have to revisit all of that car home and liability area again, along with getting wills updated because wills and trusts, particularly wills are also very state specific. And in any of this area, why we don’t provide it ourselves, we certainly can get you references and referrals and people to talk to and good links to check out and 800 numbers to get your information, et cetera. And I’m more than happy to help. That’s perfect. We’ll make sure for anyone that has questions, please send that email to hello at prosperity thinkers.com. That’s really important.

[13:42] And then what we mentioned earlier was how to go through and make this an opportunity. So I kind of want to spend this just for a moment if we can. And I look at it as milestones, you know, for having a 16 year old kid that gets a license, that is a great time to reassess all of these pieces. You know, that’s a time when you look at it and you say, okay, well, you know, when we set up our insurance, if we’ve been with our broker for a long time or the company, it’s easy to forget what, what things were set up like originally. Absolutely. And so, you know, you can look at it and decide, Hey, do I need to increase the deductible amount or Hey, do we need to increase the coverage or whatever that could be?

[14:25] And then as you mentioned, when you have a child that’s called man, child, woman, child at 25, that’s now leaving the house. And hopefully they’ve left before. Well, caveat there. What happens is that’s another opportunity. And the way that, that I personally approach these things is when an expense like insurance goes away. So we no longer have that. I want to take that same amount of money and I want to move it into working for me and better. So that’s a perfect opportunity to say, Hey, what kind of policy, life insurance policy can I set up now with that money or where can I save this? Where can I invest that? And if you’ve already adjusted the way that you live, you won’t notice it on the front end, but on the back end, you will.

[15:12] Well said. And I am really looking forward to sharing with our community, some ways to automate some of those decisions so that you can identify that now, even though that may be four to eight years down the road, and it will help build really unconscious savings, right? You’re making a conscious decision now that will then turn into unconscious in the future. And that’s a way to get some pretty good results. Ooh, that’s so good. All right. That sounds like a good content for another episode. So listeners, thank you for spending time with us today. We’ll have resources inside of the description of this episode. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you,

[16:04] visit ProsperityThinkers.com.