Can someone explain insurance to me?

[2o6]

I'm a bit baffled.


My bro is paying $200 a month in insurance. However, the bill is $275. My dad doesn't make us pay rent as we get older, but he makes him chip in in other ways.




Using the insurance company's site, I calculated that with adding me and a car, insurance would go roughly up to $400-450.


However, I don't think it makes any sense to insure a sub $2000 car with anything more than liability, or full coverage with high deductibles. He thinks this is a bad idea, and I should have my deductibles at their lowest value.


However, having low deductibles would make insurance virtually unpayable. Could someone help me understand insurance? I'm really confused.

[the Teuton]

Your deductible on a cheap car should never exceed $500.

Having anything more is basically asking to get eaten alive if you have an accident.

[2o6]

Your deductible on a cheap car should never exceed $500.

Having anything more is basically asking to get eaten alive if you have an accident.

Ah.


This entire process is confusing.

[the Teuton]

You pay the deductible on whatever happens.  It's like a co-pay at a hospital.  Having it cheap enough leaves it so you're not paying too much against the value of your car.

Let's suppose you're working with a $1,000 car.  What would be the point of paying a more than half on repairs, supposing they don't total it?  It makes no sense.

[GoCougs]

No, you have it about right - generally the lower the deductibles the more expensive the insurance.

A $2k car warrants liability and comprehensive (theft, vandalism, broken class, etc.), and only collision if you cannot afford to replace it.

However, even the most minimum of collision is probably at least a 50% adder, making it much more painful for a young driver than for someone 25+.

I tend to agree with you.

[MX793]

You pay the deductible on whatever happens.  It's like a co-pay at a hospital.  Having it cheap enough leaves it so you're not paying too much against the value of your car.

Let's suppose you're working with a $1,000 car.  What would be the point of paying a more than half on repairs, supposing they don't total it?  It makes no sense.

What sense does it make to pay 1500-2000 a year (or in this case, close to 5 grand) in insurance premiums on a car that's only worth 2 grand?

[2o6]

No, you have it about right - generally the lower the deductibles the more expensive the insurance.

A $2k car warrants liability and comprehensive (theft, vandalism, broken class, etc.), and only collision if you cannot afford to replace it.

However, even the most minimum of collision is probably at least a 50% adder, making it much more painful for a young driver than for someone 25+.

I tend to agree with you.

That's the problem, though. I want to be able to afford to pay insurance, but not get raped if I have an accident.

[the Teuton]

What sense does it make to pay 1500-2000 a year (or in this case, close to 5 grand) in insurance premiums on a car that's only worth 2 grand?

What sense does it make to have a $1,000 deductible if you get into an accident and its your fault while you're driving a $1,000 car?

[2o6]

What sense does it make to have a $1,000 deductible if you get into an accident and its your fault while you're driving a $1,000 car?

They'll generally end up totaling the car out, anyways right? It's simply not worth that much to get fixed.

[GoCougs]

That's the problem, though. I want to be able to afford to pay insurance, but not get raped if I have an accident.

You'll have to make a choice - it's insurance 101 - you pay to mitigate risk.

[2o6]

I'll have to talk it out with my peeps.

[ifcar]

That's the problem, though. I want to be able to afford to pay insurance, but not get raped if I have an accident.

You have a choice: pay a significant amount of money if you have an accident, or pay a significant amount of money whether or not you have an accident.

Set aside the money you save on insurance costs from your higher deductible for if you'll ever need to pay it and you'll come out ahead.

[the Teuton]

They'll generally end up totaling the car out, anyways right? It's simply not worth that much to get fixed.

Yeah, but if you have only liability then you're now $2,000 in the crapper because you just lost your $1,000 car and you're paying $1,000 to fix the other guy's car.

As my parents told me, the best advice is just to avoid having accidents.  Out of the combined 16 years my 2 similar-aged brothers and I have been on the road, only one accident has occurred that has been one of our faults.  That needed to happen because our Olds was a POS.

Good grades and cheap, insurable cars help, too.

[hotrodalex]

Simple explanation - they make sure they get money any way possible.

[Madman]

That's the problem, though. I want to be able to afford to pay insurance, but not get raped if I have an accident.

If you're male and under 25 years old, you WILL get raped by the insurance companies.

Interesting how insurance is the only industry I can think of that are allowed to discriminate on the basis of age and gender.  If any other type of business were to try doing that, they'd get sued for 348 trillion dollars!  Does anyone else think it strange that insurance companies can't discriminate based on race or nationality (imagine the uproar if they tried doing that!) but when they do discriminate based on age and gender, nobody bats an eyelid?


Cheers,
Madman of the People

[Laconian]

Age discrimination is completely logical. Teenage brains, especially the part that deal with understanding the consequences of one's actions, have not yet been fully developed. Combine that with peer pressure to do stupid shit, and you have materially increased risk on your hands. Insurance companies need to be able to hedge their bets--in the form of increased rates--in order to remain solvent.

When I was a teen I thought it was completely unjust, of course...

[MX793]

What sense does it make to have a $1,000 deductible if you get into an accident and its your fault while you're driving a $1,000 car?

My point was more that it doesn't make sense to have collision on such an inexpensive car.  With the money saved by not having collision, you could buy another $2000 car so long as you avoid totalling yours for 8 or 9 months.

[MX793]

Yeah, but if you have only liability then you're now $2,000 in the crapper because you just lost your $1,000 car and you're paying $1,000 to fix the other guy's car.

As my parents told me, the best advice is just to avoid having accidents.  Out of the combined 16 years my 2 similar-aged brothers and I have been on the road, only one accident has occurred that has been one of our faults.  That needed to happen because our Olds was a POS.

Good grades and cheap, insurable cars help, too.

If you have liability and you're at fault, your insurance pays to fix the other guy's car.  That's what liability coverage is.  It covers damages you cause (your liability) to other people's property.  There are no deductables for liability.  Collision only covers damages to your own property when you are at fault.  You're out the cost of fixing or replacing your car, not the other guy's.

[AutobahnSHO]

Insurance is based off of your age, driving record, and what you're driving.
The insurance company supposedly figures out how likely you are to be in an accident off of that.

Insurance rates as a teen SUCK. If you get on a parents' policy it's much cheaper, especially if your 'rents have a clean record.
-Get older, you're less likely to do dumb things in a car- your rates will go down.
-Keep a clean record, your rates will go down.
-Keep the same company for a while, with the clean record, rates go down more.
-Get married, rates go WAAAAY down, because now you supposedly will drive safer.
-Buy a minivan instead of a Mustang, your insurance will be less.

Actually when shopping for cars, check on the insurance rates of several cars. There is the 'mindset' of drivers (like a minivan driver is less likely to be street racing,) and then there is the actual safety of teh vehicle. -Motorcycles will CAUSE far less damage than a minivan, so liability might be lower. But the rider himself is more likely to get harmed in an accident so personal injury rates might be higher.

--------------------------------------------
True life story-
I was going too fast in the rain in germany and totalled an older BMW (with "only 310k MILES" on it.") Insurance paid around $1700 to the owner (a friend) and had to pay to fix the lightpole. My premium went up around $30/month. Eventually it dropped off some..

Last month I hit a Cadillac, totalling my van. I had collision coverage on the van, so I had to pay the $300 deductible. The damage was more than the van was worth, so they paid out $3500. (minus the deductible.) Insurance paid to total the Cadillac as well. My insurance will probably go up again.

--------------------------------------------------
One last thing to think about:
The "bare minimum" insurance isn't that high. Mine was $25k property liability, $50k injury liability. The Cadillac was a 2004, worth around $11k. What if it was a brand new Cadillac I hit? Insurance would only pay out $25k, I would be responsible for the rest. No one was injured, but what if someone were in the hospital for a week or more? or need surgery? That could EASILY be more than $50k.

I raised my liability when I added the new van to $50k property/ $100k injury. It was only about $30 more per six months, so about $5/month.

[GoCougs]

If you're male and under 25 years old, you WILL get raped by the insurance companies.

Interesting how insurance is the only industry I can think of that are allowed to discriminate on the basis of age and gender.  If any other type of business were to try doing that, they'd get sued for 348 trillion dollars!  Does anyone else think it strange that insurance companies can't discriminate based on race or nationality (imagine the uproar if they tried doing that!) but when they do discriminate based on age and gender, nobody bats an eyelid?


Cheers,
Madman of the People

Uh, nobody bats an eyelid because it is objectively proven that age and gender are major predictors of driving risk (as well all know, young males are statistically by far the worst driving demographic). Thus, why shouldn't riskier drivers pay more?

Beyond age and gender, insurance companies also discriminate based on vehicle, career, driving record, academics/education level, credit rating, amongst probably other things, as they too have been statistically proven to be predictors of risk.

Through discrimination insurance companies are more competitive and otherwise offer a superior product and service, and you should be happy for it. People who are riskier pay more - it's insurance 101.

Though I wholly disagree with it, each state has its own insurance oversight body, which requires each insurance company to objectively justify (i.e., with statistics) its method and manner of rate determination. As such insurance companies do not operate in a vacuum - they are very heavily regulated.

[S204STi]

You have a choice: pay a significant amount of money if you have an accident, or pay a significant amount of money whether or not you have an accident.

Set aside the money you save on insurance costs from your higher deductible for if you'll ever need to pay it and you'll come out ahead.

[r0tor]

If you are 16 and have a $2,000 beater...

- You get liability (required) and comprehensive (probably a $500 deductable)
- You do not get collision as for a 16 year old it will probably costs $1,000 a year...

If you manage to not be at fault in an accident after 2 years of driving, your ahead of the game by not carrying collision.  Even if your at fault without collision, your still only $1,000 or less in the hole from the decision as you'll have a deductable and the first year of insurance to pay no matter what.  If you are not at fault in an accident, the other drivers insurance covers your car.  If you don't have an accident at all, look at all the money your saving...

[Byteme]

What sense does it make to pay 1500-2000 a year (or in this case, close to 5 grand) in insurance premiums on a car that's only worth 2 grand?

You really only want to carry liability on a $2000 car.  And the liability minimums most states require are really too low   

[ChrisV]

If I'm not covering a financed car, I only have the basic minimums of liability/uninsured motorist, and occasionally comprehensive (depending on whether the additional cost is more than my cost of replacing everything covered every year for the hell of it), with relatively high deductibles. I decided long ago that if *I* do something to mess up the car, then *I* should pay for it and do the labor then and there. As incentive for me to not do anything wrong.

In 30 years, I've never made an insurance claim, nor had to, for anything I've done to a car, and only a couple times for something someone else has done.

[Byteme]

How much insurance to carry is a personal choice once one meets the state minimums. 

I'm not sure it would make sense not to carry collision/uninsured-underinsured motorist insurance on a $40,000 new car, even of one pays cash for it.  It's also easy to cause more damage than minimum liability coverages would cover.  Any excess would come out of the driver's pocket.  Additional coverage, in excess of the minimums, is generally pretty cheap.

[mzziaz]

If I'm not covering a financed car, I only have the basic minimums of liability/uninsured motorist, and occasionally comprehensive (depending on whether the additional cost is more than my cost of replacing everything covered every year for the hell of it), with relatively high deductibles. I decided long ago that if *I* do something to mess up the car, then *I* should pay for it and do the labor then and there. As incentive for me to not do anything wrong.

In 30 years, I've never made an insurance claim, nor had to, for anything I've done to a car, and only a couple times for something someone else has done.

I pretty much agree.

General rule of thumb: if wrecking the car doesn't wreck your economy, you don't need collision. I personally woun't pay collision on a car worth 20k or less.

[ChrisV]

I'm not sure it would make sense not to carry collision/uninsured-underinsured motorist insurance on a $40,000 new car, even of one pays cash for it.

Agreed. But of you can pay cash for a $40k new car, you can probably afford the premiums. The general rule of thumb I use for determining how much above minimums I get is this: if the annual cost is more than the cost of fixing everything annually, or replacing the car annually, then I don't bother with the insurance. If the annual cost is less, especially if it's significantly less, then definitely get the insurance. For example, the additional cost of comprehensive insurance on my 911 was more than the cost of replacing all the covered parts annually. Since I knew that there was no way that I'd be replacing all the glass and the like annually, then the insurance wasn't worth getting.

It's also easy to cause more damage than minimum liability coverages would cover.  Any excess would come out of the driver's pocket.  Additional coverage, in excess of the minimums, is generally pretty cheap.

I've always used it as incentive to, you know, pay attention more while driving and not do anything that would cost me cash outlay. Been working well for 30 years in some pretty fast street cars.

[Byteme]

Agreed. But of you can pay cash for a $40k new car, you can probably afford the premiums. The general rule of thumb I use for determining how much above minimums I get is this: if the annual cost is more than the cost of fixing everything annually, or replacing the car annually, then I don't bother with the insurance. If the annual cost is less, especially if it's significantly less, then definitely get the insurance. For example, the additional cost of comprehensive insurance on my 911 was more than the cost of replacing all the covered parts annually. Since I knew that there was no way that I'd be replacing all the glass and the like annually, then the insurance wasn't worth getting.

I've always used it as incentive to, you know, pay attention more while driving and not do anything that would cost me cash outlay. Been working well for 30 years in some pretty fast street cars.

Like anything else in life you have to balance risk and reward and everybody's circumstances are different. 

Someone able to pay cash for a $40,000 car besides being able to afford the insuracne payments generally has much more to lose in a lawsuit than someone scraping by month to month.  I drive carefully myself because I don't want to pay additional insurance premiums or suffer a large cash outlay.  But it only takes a heartbeat of time to wind up with a large liability bill.  And then there is the issue of you not being at fault but being hit be someone without insurance.  Usually all the careful in the world won't protect you from that.

[r0tor]

the other thing to consider is that for a minor, any and all lawsuits really stop with the parents.  In most cases, parents who have something to lose (like a house for instance) may require their teenagers to carry liability coverage far exceeding the state minimums to protect their own ass.

[GoCougs]

If I'm not covering a financed car, I only have the basic minimums of liability/uninsured motorist, and occasionally comprehensive (depending on whether the additional cost is more than my cost of replacing everything covered every year for the hell of it), with relatively high deductibles. I decided long ago that if *I* do something to mess up the car, then *I* should pay for it and do the labor then and there. As incentive for me to not do anything wrong.

In 30 years, I've never made an insurance claim, nor had to, for anything I've done to a car, and only a couple times for something someone else has done.

Wouldn't it be easier to just have someone else fix the car, especially if you get hurt?

FWIW, since the age of 25 I've had collision on all I've owned vehicles - from an $800 Power Wagon to a $5,000 Ramcharger to a $21,000 Accord. Once I hit 25, and given my various discounts (house, life, commercial, multi-car, career, credit, etc.) it was relatively little cost; turns out the gamble was a good one. I hit someone in the Ramcharger and got a ~$2,000 settlement (plus $15,000 payout for the other cars) and my rate increased $5/mo.