0:00

Well, Elizabeth, there's a word out there

0:02

that we haven't heard bandied about for

0:04

a while now. It's not a word

0:06

we like, but it's a word we

0:08

need to address. Is this our word,

0:11

Sean? It is. Recession. It's cropping

0:13

up in discussions of the economy.

0:15

So today we're going to talk

0:17

about the likelihood of one and

0:19

how to prepare for it. Welcome

0:23

to Nerd Wallet's Smart Money Podcast, where

0:25

you send us your money questions and

0:27

we answer them with the help of

0:30

our genius nerds. I'm Sean Piles. And

0:32

I'm Elizabeth Ayola. This episode we're

0:34

answering a listener's question about

0:36

car insurance. Car Insurance 101. What's

0:38

the difference between collision and

0:40

comprehensive? We'll ask our nerdy

0:43

expert for some definitions and

0:45

best practices. But first, some definitions

0:47

of another kind in our weekly

0:49

money news roundup, where we break

0:51

down the latest in the world

0:53

of finance to help you be smarter

0:55

with your money. Today, our news colleague,

0:57

Anna Hill Hoski, is here to talk

0:59

with us about recessions. So, Anna, are

1:01

we in a recession right now? Are

1:04

we in danger of entering one? Should

1:06

people be preparing? Hey, so, the short version

1:08

is no. Maybe, and it's not a

1:10

bad idea. And that's the end of today's

1:12

the end of today's episode. Bye, Anna.

1:14

All right now hold on not so

1:16

fast. Let's take a step back

1:18

and get into what we mean

1:20

by a recession and what is

1:23

stoking some of those fears right

1:25

now. So we are not in

1:27

a recession right now. The traditional

1:29

definition is quote a significant decline

1:31

in economic activity spread across the

1:33

economy lasting more than a few

1:35

months. In simpler terms growth stops

1:37

and the economy begins to shrink.

1:39

The National Bureau of Economic Research

1:41

officially determines and dates recessions and

1:43

they look at a range of

1:45

economic indicators, including economic

1:48

growth, income, inflation, unemployment,

1:50

manufacturing, consumer spending, and

1:53

retail sales. And how long

1:55

do recessions usually last? The timeline

1:57

for recessions have been anywhere from...

2:00

months to several years. Now the

2:02

recession during the COVID lockdown in

2:04

spring 2020 only lasted two months

2:06

and that was the shortest one

2:08

on record. Now the longest recession

2:10

ever was actually after the Civil

2:12

War and it lasted more than

2:14

five years. Next would be the

2:16

Great Depression which lasted from 1929

2:18

to 1938. So since 1948, which

2:20

we can call the modern era,

2:22

there have been 12 recessions and

2:24

most of those recessions lasted just

2:26

one year. But there were a

2:28

few that lasted for two, including

2:30

the Great Recession, which kicked off

2:32

in 2007 and ended in 2009.

2:34

So it's important to remember that

2:36

economic declines begin before recession is

2:38

officially declared. So things are shaky

2:40

before it's technically a recession. Some

2:42

recessions are mild and they end

2:45

quickly. With others, the bounce back

2:47

takes longer so the effects can

2:49

linger even after it's technically over.

2:51

Are we seeing some economic declines

2:53

now? The economy has been fairly

2:55

healthy in the last couple of

2:57

years despite the elevated inflation, right?

2:59

Yeah, you're right, Elizabeth. The economy

3:01

is still generally okay, but there

3:03

are some recent economic indicators and

3:06

general mood that has consumers concerned

3:08

and experts raising red flags. There's

3:10

just still so much uncertainty. I'll

3:13

get into those specific signs in

3:15

a minute, but something telling happened

3:17

earlier this month that didn't exactly

3:20

quell fears. In an interview with

3:22

Fox News on March 9th, President

3:24

Trump wouldn't deny the possibility of

3:27

a recession when he was asked. I

3:29

hate to predict things like that. There

3:31

is a period of transition, because

3:33

what we're doing is very big.

3:36

We're bringing wealth back to America.

3:38

That's a big thing. And there

3:40

are always periods of, it takes

3:42

a little time. But I don't, I think

3:44

it should be great for us. I mean,

3:47

I think it should be great. What are

3:49

the economists saying though? Economists

3:51

are pretty much aligned. Right now, there's

3:53

certainly a higher risk of recession than,

3:55

say, last year, but they're watching and

3:57

waiting. And on March 10th, former

3:59

Treasury... Secretary Larry Summers posted

4:01

on X that he was projecting

4:03

close to a 50-50 chance of

4:05

a recession in 2025 and the

4:07

UCLA Anderson forecast put the nation

4:09

on a recession watch and said

4:12

that if Trump's promise policies on

4:14

trade deportations and workforce reductions are

4:16

fully enacted it could trigger recession

4:18

in the next year or two.

4:20

And also last week Federal Reserve Chair

4:22

Jerome Powell said that the chance

4:24

of an upcoming recession had risen

4:26

but the probability is still not

4:28

high. So there's a lot up in

4:30

the air right now. What about the

4:32

data? What's happening there that's worrying experts

4:35

as well as consumers? A few things

4:37

are happening. Consumer sentiment is down

4:39

on a month-over-month basis for the

4:41

first time in nearly two years.

4:43

And then forecasts of GDP for

4:45

the first quarter of the year,

4:47

that's gross domestic product, which represents

4:49

economic growth, are negative, which would

4:51

be the first time that GDP

4:54

declined since the first half of

4:56

2022. Inflation is certainly down from

4:58

where it was, but prices are still

5:00

elevated, especially for rent and everyday goods

5:02

like eggs, which we've talked about before.

5:04

Now, these are just early signs, but

5:07

even if the data doesn't fully signal,

5:09

yes, we are headed toward a downturn,

5:11

the mood has already shifted that direction.

5:13

Consumer sentiment has taken a dive since

5:16

the start of the year. Surveys that

5:18

feed the major indexes show that

5:20

the majority of concern is around

5:22

price increases due to tariffs. as

5:24

well as other uncertainty surrounding mass layoffs

5:26

of federal workers. And Trump's policies

5:28

are also influencing markets. Earlier this month,

5:31

stocks sank to the lowest levels

5:33

of the year, erasing all of

5:35

the gains the markets had made since

5:37

Trump's election to office. But on Monday,

5:39

when Trump walked back some of his

5:41

tariff plans, the markets rebounded. So

5:43

there's a lot of volatility there. Okay, Anna,

5:45

so we aren't in a recession right

5:47

now, but the possibility of it happening

5:49

this year isn't entirely out of the

5:51

question. What happens to things like

5:54

interest rates and prices during a

5:56

recession? Yeah, that's a good question. So

5:58

let's start with interest rates. Reserve

6:00

often lowers interest rates to

6:02

stimulate the economy. The federal

6:04

funds rate impacts interest rates

6:06

for things like mortgages, auto

6:08

loans, and credit cards. One thing

6:10

that we also see affected by

6:12

rates are treasury bonds. During a

6:15

recession, if interest rates drop, bond

6:17

prices increase while bond yields decrease,

6:19

which makes bonds less attractive for

6:21

investors to purchase. As for prices,

6:23

home prices generally go down during

6:25

a recession since people aren't making

6:27

a big purchase like that. But historically

6:29

speaking, that also doesn't always

6:32

happen. And things like food prices are

6:34

volatile. And there are a lot of

6:36

factors that influence prices. So it's not

6:38

clear what would happen during recession.

6:40

Is there anything people can do to

6:42

prepare for a recession? And should they?

6:45

Like death and taxes, there will always

6:47

be another recession coming. It's inevitable. What

6:49

we don't know is when the next

6:51

one will hit. So there are some

6:54

ways to prepare your finances. Our first

6:56

recommendation is to make a spending plan

6:58

that reduces your must-haves, which will give

7:00

you more wiggle room in the future,

7:02

especially if bad economic times hit, and

7:05

you need to reduce spending due to

7:07

something like a job loss. And those

7:09

must-haves are essential expenses, including your rent

7:11

or mortgage payment, transportation, food, utilities,

7:13

insurance, and minimum loan payments. At

7:16

Nurdwale, we usually recommend the 50-30-20

7:18

budget. That limits must have to

7:20

50% of your after-tax income, 30%

7:22

to want, and 20% to debt

7:24

payments and savings. An emergency fund

7:27

is also crucial to start building

7:29

if you haven't already. That could

7:31

mean finding ways to make extra

7:33

money, putting away more money from

7:35

your paycheck by increasing automatic transfers,

7:37

and see if you can switch

7:40

to a high-yield savings account. What you're

7:42

trying to do is have a plan

7:44

B waiting and ready to go if

7:46

necessary. You'll need to be able to

7:48

meet your monthly expenses plus payoff debt.

7:50

Credit is another big thing to pay

7:53

attention to. It's often harder to get

7:55

new credit during a recession, but financial

7:57

flexibility seems to be key in difficult

7:59

economic. times. You may need to lean

8:01

on credit more to cover expenses if you

8:03

don't have savings built up. So it's not

8:06

a bad idea to set up access to

8:08

additional credit that you can tap if you

8:10

need to. Homeowners may be able to set

8:12

up a home equity line of credit or

8:15

if you need to. Homeowners may be able

8:17

to set up a home equity line of

8:19

credit or if you already have a

8:21

key lock then try to replace it

8:23

with one that has a higher limit.

8:26

You can easily repay the balance on

8:28

something like Netflix subscription. Addressing your debt

8:30

now is also critical, whether it's a student

8:32

loan, an auto loan, or a credit card.

8:34

Interest can add up quickly, so you might

8:37

consider moving high interest debt to a credit

8:39

card with a 0% APR offer on balance

8:41

transfers. And of course, making extra payments on

8:43

any high interest debt now will put you

8:45

in a better position if times get tough.

8:48

Now when it comes to investing, it's hard

8:50

to see beyond market drops, but you

8:52

can think about the long term. Don't

8:54

look at the value of your portfolio

8:56

of your portfolio of your portfolio every

8:58

day every day. and remember that the

9:00

market historically has been able to recover.

9:02

And you should still devote what you

9:04

can to retirement savings. It never hurts

9:06

to be prepared. That's right. Well, Anna,

9:09

thanks for walking us through that. Sure thing.

9:11

Up next, we're answering all your

9:13

burning questions about car insurance. But

9:15

before we get into that, a

9:17

reminder to send us your money

9:20

questions. Are you wondering the best

9:22

way to manage investments ahead of

9:24

a recession or what this uncertainty

9:26

might mean for your financial goals?

9:28

Whatever your question is, leave us

9:31

a voicemail or text us on

9:33

the nerd hotline at 9-0-1-7-0-1-7-0, nerd.

9:35

Or you can email us at

9:37

podcast at nerdwallit.com. Now let's get

9:40

to this episode's money

9:42

question. That's coming up

9:44

in a moment, stay with

9:46

us. Hey,

9:50

guess what? Smart Money is a

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Awards and you can help

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webyawards.com. We're back and answering

10:19

your money questions to help you

10:21

make smarter financial decisions. This episode's

10:24

question comes from Gerson who sent

10:26

us an email who sent us

10:28

an email. Here it is. How

10:30

much coverage should I have on

10:32

my car insurance? Regards, Gerson. To

10:34

help us answer Gerson's question on

10:37

this episode of the podcast,

10:39

we are joined by Lisa Green.

10:41

Welcome back to Smart Money,

10:43

Lisa. Thanks so much, Elizabeth. I'm

10:45

glad to be here and chat

10:47

about insurance. So we have a

10:50

short and sweet question from our

10:52

listener here, but I have a

10:54

feeling that the answer is not

10:56

so simple. Lisa, where should people

10:58

start when they're evaluating how much

11:01

car insurance they should have? Let's

11:03

start by thinking about why you

11:05

should have car insurance at

11:07

all. Driving is a pretty risky

11:09

business. I mean, think about it.

11:11

You're whizzing along at 50 or 60

11:14

miles an hour driving a 3,000, 4,000

11:16

or 5,000 pound machine. And so are

11:18

thousands of other people. So think

11:20

of it like a giant bumper

11:22

car situation. Bad things are going

11:24

to happen sometimes. Sometimes those

11:27

bad things might happen to you. Even

11:29

if you are the safest driver ever

11:31

and you obey every rule of the

11:33

road, remember those thousands of other

11:35

people? Some of them might be

11:38

texting or eating a sandwich or

11:40

putting on makeup in the rear

11:42

view mirror. I had a neighbor tell

11:44

me once that he read an entire

11:46

book. while driving from Tennessee to North

11:48

Carolina. He just propped his paper back

11:50

up on his steering wheel. Those are

11:53

the people you're sharing the road with.

11:55

Well, Lisa, that is thoroughly terrifying. I

11:57

can't believe your neighbor admitted that to

11:59

you. you. That's really scary. So

12:01

what you're saying is that we need

12:03

to soberly evaluate the risks that we're

12:06

all facing on the road when we

12:08

consider how much auto insurance coverage we

12:10

might need. Exactly, Sean. When you

12:12

start thinking about how much car

12:14

insurance you should have, think about it

12:16

this way. What's the worst that can

12:19

happen if your two ton hunk of

12:21

metal crashes with another one somewhere out

12:23

there? Maybe you're in the hospital

12:25

with really bad injuries and you'll

12:27

need months of rehab. Maybe the

12:29

other person is in the hospital and

12:32

you are held responsible for paying their

12:34

medical bills because you were at fault

12:36

in this accident. The amount of car

12:38

insurance you should have is the amount that

12:40

makes you feel you could even dare to

12:43

get behind the wheel of a car when

12:45

you think about what could happen there. Wow,

12:47

I know nobody asked me, but my biggest

12:49

fear is dying in a car accident.

12:51

Let's talk about the different

12:53

coverages you're paying for with

12:55

car insurance. Lisa, can you

12:57

run through maybe the top

12:59

three most important coverages people

13:01

should keep in mind as they

13:03

look for car insurance? Absolutely,

13:06

Elizabeth. Let's talk first about

13:08

liability insurance. Liability means that you

13:10

are legally responsible for damage that

13:12

you cause as a driver. So

13:15

if you hit a person with

13:17

your car, you are probably liable

13:19

for their injuries. You are legally

13:21

responsible and so you may be

13:24

required to pay for their medical

13:26

treatment if you hit someone's property

13:28

with your car. You are probably

13:30

liable for the property damage that

13:33

you caused and you may be

13:35

required to pay the cost to

13:37

repair that damage because of this

13:39

liability insurance is the first

13:41

type of coverage that you'll

13:43

buy. Liability insurance is designed

13:46

to pay the expenses that you

13:48

are liable for if you cause

13:50

an accident. In most states, you

13:52

must have liability insurance in

13:55

order to legally drive. But

13:57

people should know that liability

13:59

and... doesn't cover damage that

14:01

happens to your own vehicle as

14:04

a result of an accident or

14:06

some other automotive misfortune that you

14:08

might be responsible for, right?

14:10

That's right. Liability insurance is

14:13

mostly about protecting other

14:15

people from you. If you smash into

14:17

someone else's car, liability insurance will

14:19

pay to fix the other person's

14:22

car, but for fixing your own car,

14:24

you're on your own. This is why a

14:26

lot of people will want two other

14:28

types of car insurance. First we have

14:31

collision insurance. Collision insurance will pay

14:33

to fix or replace your car

14:35

in a crash that you cause.

14:37

You'll normally have a deductible

14:39

to pay like let's say the

14:42

first thousand dollars of repair expenses

14:44

and then the collision insurance will

14:46

cover the rest. Collision insurance will

14:49

also pay to fix your car in

14:51

certain other situations like if you're the

14:53

victim of a hit and run.

14:55

And then there's comprehensive

14:57

insurance insurance. This helps replace

15:00

your car if it's stolen

15:02

or fix it if it's damaged

15:04

by something like a tornado or

15:06

a fire or hitting an animal.

15:08

So there you have the

15:10

three major types of

15:12

coverage, liability, comprehensive, and collision.

15:15

A lot of times people will

15:17

buy these three types together and

15:19

that's called full coverage. If you

15:22

have a loan or a lease on

15:24

your car, your lender will probably

15:26

require you to have. full coverage.

15:29

So Lisa, it sounds like

15:31

liability coverage is the most

15:33

important for many people. So can

15:36

you tell us what goes into liability

15:38

coverage? Sometimes people may

15:41

not understand why liability insurance

15:43

is so important. It

15:45

doesn't pay to fix your

15:47

car, right? So people may not see

15:50

the value of it. But in

15:52

truth, liability is where you run

15:54

into huge financial risks. Let's say

15:57

a cause a wreck. and my car

15:59

is totaled. Now I drive a

16:01

10-year-old Altima and now I

16:03

have nothing to drive and

16:05

Kelly Blue Book says that my

16:07

car was worth about $6,000. So

16:10

I've lost $6,000 and that's

16:12

bad. If I had been driving

16:14

a brand new car, maybe

16:16

I would have lost $50,000.

16:18

But what's really bad is if

16:20

my wreck cost a lot

16:22

of injuries and property damage

16:24

to other people and I had

16:26

to pay for these. That is where

16:29

the costs can run into hundreds

16:31

of thousands of dollars or more,

16:33

and that is why liability is

16:35

the most important coverage of all.

16:37

Lisa, you just mentioned the two

16:40

big areas of liability, injuries to

16:42

people and damage to property, and

16:44

those are two different types of

16:47

liability coverage. Can you explain what

16:49

each covers? Bodily injury

16:51

liability insurance covers other

16:53

people's medical costs when they

16:55

are injured in a crash that you caused.

16:57

In addition to medical bills, it

17:00

can also cover things like pain

17:02

and suffering, lost wages, and

17:04

even funeral costs. And then there

17:06

is property damage liability insurance. Now

17:08

this pays to repair damage to

17:10

other people's property after a wreck

17:13

that you cause. This can be

17:15

fixing the other person's car. It

17:17

could also mean repairing fences or

17:19

buildings or government infrastructure like

17:21

road signs or guardrails or

17:24

guardrails that you might have

17:26

taken out. In a car

17:28

insurance policy, you'll typically

17:30

see your liability coverage

17:33

written as three numbers,

17:35

something like 100, 350. Here's

17:37

what that would mean. The first

17:39

number, 100 means that you

17:42

would have $100,000 of bodily

17:44

injury coverage for each person

17:46

injured. But then the second

17:49

number, 300, means that

17:51

there's a $300,000 cap

17:53

on the total bodily

17:55

injury expenses per... Accident.

17:57

No matter how many people are

17:59

injured. So let's say four people

18:01

are injured in the same wreck and

18:03

they each have $100,000 in

18:05

medical bills. That adds up

18:08

to $400,000 in medical bills and

18:10

your policy is covering a

18:12

maximum of $300,000 per accident.

18:14

So here you are exceeding

18:17

what your policy will pay

18:19

for that accident. And then

18:21

that third little number, 50, that

18:24

means your policy would cover

18:26

$50,000 in property damage

18:28

per accident. Going back to

18:30

Gerson's question, how can people

18:33

determine how much liability coverage

18:35

they might need? Elizabeth, I think

18:37

people can think of this in terms

18:39

of tiers. The first tier would be

18:41

the minimum liability coverage required

18:44

by your state. You must

18:46

have at least this much liability

18:48

coverage in order to legally dry.

18:50

States don't necessarily agree on

18:52

what that amount should be. As

18:54

an example, Georgia requires

18:56

$25,000 in property damage

18:59

liability coverage while Florida,

19:01

right next door, says you can

19:03

get away with just $10,000 of

19:05

this coverage. So you'll need to

19:07

check the requirements of the state

19:10

where you live, but that's the

19:12

first tier. Let's talk about why

19:14

that first tier probably isn't

19:16

enough for most people. Let's

19:18

say you live in Colorado. Nice

19:20

state. That was just out there

19:22

this past fall for my nieces

19:25

wedding. Colorado requires $25,000

19:27

in bodily injury liability

19:29

per person. $50,000 in

19:31

bodily injury liability per

19:33

accident and $15,000 in

19:35

property damage liability

19:37

per accident. So now you're

19:39

driving along in Colorado and

19:41

you get distracted by an elk

19:43

and you run a red light and

19:46

you cause an accident and this

19:48

crash is your fault. The other

19:50

driver is in the hospital and

19:52

you are liable for the cost.

19:54

How far do you think your

19:56

$25,000 policy will go toward covering

19:59

that other driver's? hospital bill. Have

20:01

you seen a hospital bill lately?

20:03

And you're also responsible

20:05

for fixing that other driver's

20:08

shiny new SUV. Your policy

20:10

says it'll pay $15,000. Well, let get

20:12

you a bumper and a headlight,

20:14

maybe. I don't think it's going to

20:16

get you where you need to go. So for

20:19

the hospital bills, for the car

20:21

repairs, you may be personally

20:23

responsible out of your pocket

20:25

for whatever the insurance does

20:27

not pay. Lisa, I just want

20:30

to say I have never heard

20:32

such an engaging explanation for car

20:34

insurance. So thank you. I have

20:36

another follow-up question, which is, what

20:39

would the next tier cover? Okay,

20:41

so for a second tier, let's look

20:43

at what you might get with a typical

20:46

full coverage policy. Here at

20:48

Nurd Wallet, we published sample

20:50

rates for the 100-350 policies

20:53

that I mentioned earlier. 100,000

20:55

in bodily injury coverage for

20:57

each person injured up to

20:59

a total of 300,000 in

21:01

bodily injury per accident plus

21:03

$50,000 in property damage liability.

21:05

And by the way, you don't

21:07

have to get full coverage in

21:09

order to get these higher liability

21:12

limits. If you drive an old

21:14

car like mine and you

21:16

don't think it's worth having

21:18

collision and comprehensive coverage on

21:20

it, you can still get

21:22

a liability only policy. with

21:24

a limit that's above your

21:26

state's minimum requirement. So

21:28

this bigger policy will hopefully get

21:30

you closer to paying those costs

21:33

that you would otherwise have to

21:35

pay out of your pocket. And maybe

21:37

that's still not enough. Medical expenses

21:40

are high these days, and so

21:42

are vehicle repairs. It is

21:44

possible to go to an even

21:47

higher tier of coverage. One suggestion

21:49

is to buy enough liability insurance

21:51

to cover your net worth. Now

21:53

your net worth is the amount

21:55

of assets you own after you

21:58

subtract your debts. Sort of. like

22:00

the money you could get your

22:02

hands on if you absolutely had

22:04

to. It could include your cash,

22:06

the equity you have in

22:08

your house, your investments, or

22:10

anything else of value that you have.

22:12

The idea here is that if you

22:15

don't have enough liability insurance

22:17

and you cause an accident,

22:19

you could have to give up

22:21

those things you own in order to

22:23

pay the cost of the rec you

22:26

just cost. If you have enough liability

22:28

insurance. Your policy can pay

22:30

the costs instead and you

22:32

get to keep your stuff. Personally,

22:34

I prefer to have the

22:37

extra coverage. I have

22:39

an auto insurance policy with

22:41

liability limits of $250, $100,

22:44

that's the highest standard limits

22:46

that my insurer offers and

22:48

then I layer an umbrella

22:51

policy over that. Lisa, I'm

22:53

glad that you mentioned umbrella insurance policies.

22:55

A lot of people may not be

22:57

aware of them or really how good

22:59

a deal they can be. Can you

23:02

give us a brief explanation of what

23:04

umbrella insurance is and why it might

23:06

be a good idea? Umbrella insurance is

23:08

an extra layer of liability coverage

23:10

that starts where your regular car

23:13

or home insurance policy ends.

23:15

I'll use my own situation as an

23:17

example. As I mentioned, I have an

23:19

auto insurance policy with limits

23:21

of... 250, 500, 100. My home insurance policy

23:24

also has $500,000 in personal liability

23:26

coverage for things that I might be

23:28

liable for that aren't related to my

23:30

car. And then I have a $3

23:33

million umbrella liability policy that stretches over

23:35

both of these policies. That's pretty typical

23:37

for an umbrella policy to supplement both

23:39

auto and home insurance at the same

23:42

time. But since we're talking about auto

23:44

insurance, auto insurance, at the same time.

23:46

But since we're talking about auto insurance, auto

23:49

insurance, auto insurance, auto insurance,

23:51

I'll use an auto insurance

23:53

example to explain how this works. Let's

23:55

say I caused an accident that looks

23:57

like one you might see in an accident.

23:59

movie. Now I'm going to leap

24:01

to safety just like the stuntmen

24:04

do, but my car keeps going

24:06

and it crashes into a building

24:08

and the entire building explodes and

24:10

it burns to oblivion. The $100,000

24:12

limit for property damage on

24:14

my regular car insurance policy

24:16

is not going to cover

24:18

the cost of the problem that I just

24:21

cost. Let's say it's going to take

24:23

$2 million. So my regular

24:25

policy would cover up to its

24:27

limit of $100,000 in property damage

24:29

and then the umbrella policy would

24:31

kick in to cover the wrist

24:33

and nobody is going to be

24:36

coming after me for $2 million.

24:38

Umbrella policies also sometimes

24:40

cover things that your

24:42

underlying policy doesn't. For example,

24:44

it might cover legal fees and

24:47

damages if I'm sued for liable

24:49

or slander. Lisa, I don't want

24:51

anyone coming after me for $2

24:53

million either, so I'm definitely going

24:55

to consider this umbrella policy. So

24:57

Sean said these policies can be

24:59

a good deal. What does that

25:02

mean in practical terms? Sean is

25:04

right, an umbrella policy can be

25:06

surprisingly cheap. Mine gives

25:08

me anywhere from six to 30

25:10

times as much liability coverage as

25:12

my base auto insurance policy, but

25:14

it only costs a few dollars a

25:16

month. You can kind of see why it's

25:18

cheap. It's cheap. Chances are I

25:20

am not going to drive my

25:22

car into an exploding building. If I

25:25

file an insurance claim, it

25:27

will probably be small enough

25:29

that my regular car insurance

25:31

policy will cover it. So

25:33

the umbrella policy probably will

25:36

never need to pay out. It's

25:38

just that extra measure of coverage

25:40

in case of a catastrophe. So

25:42

do you need it? Kind of depends

25:44

on your circumstances. A lot

25:46

of everyday activities. can put you

25:49

at a higher risk of being

25:51

sued like owning a dog that might

25:53

bite or coaching kids sports

25:55

where parents might get angry

25:58

if you end up in a lawsuit. Having

26:00

an umbrella insurance policy can be

26:03

a relatively cheap way to shield

26:05

your assets against the possibility of

26:07

a legal judgment against you. I

26:10

think that's a really helpful way to

26:12

think about it. And in general,

26:14

when it comes to insurance, people

26:16

want to think about what risks

26:18

they are realistically likely to face

26:20

and what exposure that could mean

26:22

for them financially and personally. And

26:24

then on top of that, what

26:26

helps you sleep at night? So guys,

26:28

it sounds like you're saying that you have

26:31

to think about your risk tolerance in some

26:33

cases, right, to see what level of insurance

26:35

that you need. Absolutely. All right,

26:37

Lisa, can you think of any other

26:39

coverages that people might not think of

26:41

as important, but are worth considering? That is

26:43

a good question. If you have the

26:46

types of coverage that we've already talked about,

26:48

you have most of your bases covered,

26:50

but I will mention some coverage options that

26:52

you might be grateful for if you get

26:54

into an accident that is not your fault.

26:57

These are called uninsured and

26:59

underinsured motorist coverage. It's a

27:01

sad fact that a lot

27:03

of drivers out there don't

27:05

have car insurance or don't

27:07

have as much as they need. Where I

27:10

live in Tennessee, more than 20% of

27:12

drivers don't have insurance,

27:14

according to the Insurance

27:16

Research Council. It's illegal

27:18

for them to drive without

27:21

insurance. but they're on the road

27:23

anyway. They have to get to work

27:25

or school or the grocery store.

27:28

So if I do get hit

27:30

by someone, there's at least a

27:32

one in five chance. They won't

27:34

have insurance to pay my expenses

27:36

that they are liable for. So

27:39

to deal with that, my

27:41

policy has uninsured and underinsured

27:43

motorist coverage is for

27:46

cases where the other driver

27:48

doesn't have auto insurance at

27:51

all. Underinsured motorist coverage is

27:53

for cases where the other driver does

27:55

have some insurance, but it's not enough

27:57

to pay for the damage they call.

27:59

For example, maybe they caused

28:02

an expensive accident and they

28:04

only have the state minimum

28:06

required coverage, which as we've

28:08

already discussed is typically pretty

28:10

low. Now the last time that another driver

28:12

crashed into me, I was lucky.

28:15

He had insurance. But the next

28:17

time, I might not be so fortunate,

28:19

so I'm glad to have this coverage

28:21

in place. So Lisa, shifting gears

28:23

here. pun intended. We know that

28:25

insurance costs have gone up dramatically

28:27

over the past few years. According

28:29

to North Wallet data, the median

28:32

auto insurance rate for full coverage

28:34

increased 14% from 2023 to 2024.

28:36

What are maybe the top two

28:38

or three things that folks can do

28:40

to save money on their car insurance?

28:43

Sean, it is tough to see those

28:45

premiums keep on rising. In this environment

28:47

especially, I think the most

28:49

important advice is to shop

28:51

around. Every insurer has its

28:53

own formula for setting rates.

28:56

And when we crunch the numbers

28:58

every month at nerd wallet, I'm

29:00

always astonished at how widely the

29:02

rates can vary for the same

29:04

driver. For example, one company

29:06

might really penalize you for getting

29:08

a speeding ticket, while another one

29:11

might not raise your rate at all.

29:13

One company might think you're really

29:15

risky because you drive a red

29:17

sports car, while another company

29:19

might just think you're cool. and

29:21

on and on. So the cheapest company

29:24

for your neighbor may not be the

29:26

cheapest for you last year may not

29:28

be the cheapest company for you this

29:31

year. Don't be afraid to switch insurers.

29:33

Nurdwille recommends comparing quotes from

29:36

at least three insurers once a

29:38

year to make sure you're getting

29:40

the best rate. Those are some

29:43

good tips. I'm definitely shopping around

29:45

every few months to see if

29:47

I can get anything cheaper. Do you

29:49

have any other tips for how folks

29:51

can save money on their auto insurance?

29:53

I know in the past when I've

29:55

called trying to lower my insurance, they've

29:57

offered discounts in exchange for tracking my

29:59

drive. habits, which I think is also

30:02

known as telematics. So what do you

30:04

think, Lisa? Yes, absolutely ask

30:06

about discounts. Insurers don't

30:08

always volunteer this information. For

30:11

example, I saved $200 a

30:13

year by taking advantage of

30:15

my insurers auto pay discount. You

30:17

can also take a look at your

30:19

policy and see if you're paying

30:21

for coverage that you don't need.

30:23

I dropped roadside assistance and

30:26

towing coverage after I

30:28

realized that they just

30:30

duplicated coverage I already had

30:32

elsewhere. And you can consider

30:34

raising your deductible, a share

30:36

of a comprehensive or collision

30:39

claim that you pay, by choosing

30:41

a deductible of $1,000 instead of

30:43

$500, I was able to reduce

30:46

premiums by more than 10%. Now be careful

30:48

if you try this. It can make

30:50

your policy cheaper. but you're now

30:52

responsible for paying a lot more

30:54

money up front if you do have

30:57

a claim. So only raise it to a

30:59

level that you're confident that you can

31:01

pay in a pinch. And of course,

31:03

nerdwall has an insurance finder that

31:05

lets you compare rates in just

31:08

a couple of minutes. We'll link

31:10

to that in today's show notes

31:12

or just search online for nerdwall

31:14

auto insurance finder. Well, Lisa Green,

31:16

thank you so much for coming on

31:19

and sharing everything we need to know

31:21

about shopping around for auto insurance.

31:23

Well, thank you so much for

31:25

having me. That's all we have

31:27

for this episode. Remember, listener, that

31:29

we are here to answer your

31:31

money questions, so turn to the

31:33

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your questions at 901-730-N-E-R-D. You can

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31:48

here's our brief disclaimer. We are

31:51

not your financial or investment advisors.

31:53

This nerdy information is provided for

31:55

general educational and entertainment purposes, and

31:58

it may not apply to your

32:00

specific... circumstances. This episode was produced

32:02

by Tess Vigland. Hillary Georgie helped

32:04

with editing, Megan Maurer mixed our

32:07

audio, and a big thank you

32:09

to Nerd Wallet's editors for all

32:11

their help. And with that said,

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