Beating Broke

Personal Finance from the Broke Perspective

How Trying to Save $100 Cost Me $500

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My husband was offered a job in Arizona, 1,750 miles from where we current live in Chicago, Illinois.  Because neither of us had been to Arizona before, we wanted to visit before we committed to living there.  Time was of the essence, and booking a last minute flight for the two of us was expensive, so we decided to drive.

We also decided to rent a car for the trip to save wear and tear on our car and pay less in gas (our family car is a minivan, so a small sedan would use much less gas).

Being frugal, I decided not to buy the rental car company’s insurance.  I had called my auto insurance company, and they assured me that my coverage would cover any damage to a rental car.

By not buying the rental company’s car insurance, I saved $100, or so I thought.

I was wrong.

Traveling Long Distances in Desolate Areas

100 cost me 500I was proud of my penny pinching ways until our first night on the road.  We were driving along a desolate stretch in Oklahoma; it was dark, and we were ready to stop for the night.  A semi was in front of us and swerved at the last minute.  We had no time to wonder why; a deer carcass was straight in our path.  Even though my husband swerved, he still hit it.  We felt the thump under our car and feared the worst.

When we got to the hotel, we didn’t see any damage to the bumper, so we thought we had lucked out.

That thought soon faded when we were driving through Texas the next day and heard something clicking against the tire.  A piece of the interior bumper was hanging down and hitting the tire.  We pushed it back in and thought all was well until we hit the brakes in Santa Fe and felt resistance on the tire.  Yep, the piece had fallen down again.

Long story short, in Arizona, we traded out the vehicle for a different one and had to pay a $500 deposit for the repair.

Street Sweeper Causes Havoc

On the way back home, in our new rental vehicle, we ran into a street sweeper on the highway in New Mexico.  (Seriously?  I have never seen a street sweeper sweeping the highway!)

As we passed the street sweeper, what seemed like a million pebbles pelted our windshield.  I think my husband and I cursed in unison when we heard a particularly nasty hit on the windshield and saw a chip in the windshield, right in the middle of the driver’s side.

Car rental number two, and another injury to the car.

Sigh.  Suddenly my decision to try to save $100 by not getting the rental company’s car insurance didn’t seem like such a good idea.

Luckily, when we turned in the second car, we weren’t charged for the damage to the windshield.  (Any dent or scratch smaller than the size of a quarter, the rental car company let’s slide.)

Still, my desire to save $100, ended up costing me $500!

Stay tuned for part two, where I’ll explain in more detail why rental car companies’ insurance isn’t the waste of money we all think.

 

How Much Life Insurance Do I Need?

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Life insurance seems like a second thought to so many people.  You’ll notice that the title of this article isn’t “Do I Need Life Insurance?”.  That’s because there really isn’t much question about whether you need life insurance or not.  I suppose there might be a few exceptions, but pretty much everyone needs and should have life insurance.  It’s just a matter of how much you need.  There’s a couple of ways to figure out how much you really need.

How much life insurance can I afford?

This is probably the most popular method of choosing life insurance.  And it’s completely wrong.  If you ask most people how much life insurance they can afford the answer is almost always “little” or “none”.  Again, wrong answer.  Most of us carry car insurance because it’s something that covers us against a loss.  If our car is damaged in an accident, we have the insurance to help with the cost of repairing or replacing the car.  To the people who depend on us for income, we need to have life insurance in place to help with the costs of continuing on when our income is lost.

How much income do I need to replace?

This question is usually a pretty good place to start when determining how much life insurance you need.  If you’re a regular budget-maker, you probably have a pretty good idea of how much income you and your family need to pay the bills and keep food in the fridge.  It’s probably not your entire salary, but it might be close.  Take into account any investments you have, as well as assets that might become unneeded if you die.  You’re family probably won’t need that second car anymore, for instance.  Also, any payments on those assets that can be disposed of can be discounted as well.

How long do I need to replace the income?

Once you know how much income you need to replace, the next question you need to ask is how long you need to replace it for.  In an ideal world, you’d be able to buy enough life insurance to set your family up for life.  Your spouse would be able to quit work and take care of the kids full-time.  You’d be able to pay for the children’s college education.  But, the world we live in is far from ideal.  Most of us won’t be able to afford the premium payments on a life insurance policy that will pay out enough to do those things.  In a romanticist world, your spouse would grieve for your loss for the rest of his or her life.  That isn’t all that likely either.  It’s far more likely that your spouse will remarry at some point.

All of that still leaves us without a real answer to the time question though, doesn’t it?  You’ll have to make some assumptions in order to really answer the question.  Assume that your spouse will get remarried.  Assume that you’re not going to be able to pay for your kids’ college education with the pay-out.  I think a good starting point is somewhere around 3-7 years.  Some will say that’s too long.  Others will say that it’s too short.  I don’t think there is a perfect answer.  And, when you’re faced with a question that has no perfect answer, you’ve got to find an answer that is as close as possible.

Calculate, then purchase.

You’ve answered how much income you need to replace, and you’ve got a pretty good idea of how long you need to replace it for.  Now, you’ve just got to put the two together and come up with how much life insurance you need.  Multiply the income number by the length and you’re in the ballpark. Let’s say that you determine that you need to replace about $30,000 a year in income.  You’re married to a real hottie, who shouldn’t have any issues with finding suitable future spouses, but you don’t want him or her to rush into it, so you use the 5 year length.  $30,000 a year X 5 years = $150,000.

You might want to add a bit extra for sudden expenses at the time of death, like funeral, casket, and burial.  But, that’s a pretty good ballpark number for how much life insurance you should buy.  Now comes the big step…  You’ve got to purchase it.  Find a good place to compare life insurance policies and costs and get all the information compiled.  Then pull the trigger and purchase the policy.

That will be the hardest part of the whole thing.  If anything does happen to you, your family will be thankful that you did.

In a Car Accident? Should You Pay Out of Pocket for Repairs?

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Our Chicago winter this year has been a lot less like a Midwest winter–the snow storms have been few and far between.  A few weeks ago we finally got hammered by a storm that dumped 10 inches over the city.  At the height of the snow storm I had to pick up my son from school.  As I waited at a stop sign, the driver behind me bumped into my bumper.

Luckily, the damage wasn’t bad.  When I took it to a repair shop for an estimate, they thought it would cost between $580 and $1,200 to fix depending on if there was any damage inside the bumper when they take it off to repair it.

Surprisingly, the woman who hit me decided she wanted to pay out of pocket rather than go through insurance.  When I told her that the repair would take 2 to 3 days and we’d need a rental car during that time, she agreed to cover that cost, too.

This is the second time I’ve been rear-ended in 5 years, and both times the repairs were less than $2,000.  Both times the drivers opted to pay out of pocket.

If you’re in a minor fender bender, should you pay out of pocket rather than going through insurance?

Reasons You May Want to Pay Out Of Pocket

Pay out of Pocket for Repairs1.  If you have a high deductible.  If you have a deductible of $1,000, for example, paying out of pocket if the repair is just a few hundred dollars over that amount may make sense.  You’ll save yourself from an increasing premium.

2.  If your insurance premium will increase substantially.  Each insurance company is different, but rest assured that if you cause an accident and file a claim, your insurance will increase.  Some insurers increase your premium by 10% and others by 20%.  You may be able to call your insurer and ask how much the premium will go up before you decide to pay a claim or not.

3.  If this is your second accident.  While you’ll pay an increased premium for one accident, if you file two claims within a few years of one another, the increase is substantial.  For instance, State Farm generally charges a 10% increase in premium for the first claim, but that amount increases to 45% for the second claim.  While it may hurt your budget to come up with a thousand or two to pay out of pocket for the repairs, that may be the better option if you’re facing a substantial increase that could last several years.

4.  If your insurance doesn’t have an accident forgiveness clause.  Some insurers offer an accident forgiveness clause, meaning, if you’ve been with the company for a certain number of years (usually 5 to 9) with no accidents, the insurance company won’t increase your premium on the first accident you file.  Again, though, you may want to save this benefit for a more substantial accident that you can’t afford to pay out of pocket rather than when the repair is relatively minor.

If you cause an accident, don’t automatically file a claim.  There are benefits to paying out of pocket.  You just need to understand your insurance policy as well as know exactly how much the repairs will cost before making a decision.

If you’ve caused an accident, did you pay out of pocket rather than filing a claim?

Original img credit: Oops, by fortes on Flickr

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