Protect Against Collisions and More If you drive a car in the United States, liability insurance must cover it. This type of policy pays for medical and property damage resulting from a vehicular accident. You can also purchase comprehensive and collision insurance to cover other costs. These additional coverages help protect the value of your car should it be damaged. If you are calculating how much it will cost to buy a car, you need to take into consideration the cost of insurance as well. In this article, we’ll review the basics of car insurance and the best auto insurance companies in America, including costs, pros and cons. This is a brief introduction to automobile coverage. Liability Coverage When an accident occurs, liability insurance covers you, household members and authorized drivers for the costs associated with property damage and bodily injury. It covers the cost to repair or replace property damage that you caused. [youmaylike] You are also covered if you cause the bodily harm or death to someone else while you are driving the car. This includes medical expenses, loss of income and specified legal defense costs. Collision Insurance If you are involved in a collision, this type of insurance will help pay for repairing or replacing your vehicle. If the collision is your fault, the coverage may extend to other damaged vehicles involved in the accident. States do not mandate that you buy collision insurance, but your lender or car dealer will if you finance or lease the car. Policies offer a range of deductibles, which is how much you’ll have to pay for repairs before the insurance kicks in. Larger deductibles lower the policy premiums but expose you to more out-of-pocket expenses if a collision occurs. Comprehensive Insurance Comprehensive insurance covers damage to your car that occurs for reasons other than a collision, including theft, fire, vandalism, weather and natural disasters. This coverage is often required if you finance your automobile. You can add riders to this insurance to provide coverage of additional costs, including auto towing, glass repair, daily rental while your car is in the shop and emergency roadside service. As with collision insurance, you can set the deductible on your comprehensive insurance policy to cut your premium costs. Gap Insurance If your car is severely damaged in an accident or other incident, you might find that your comprehensive and collision damage won’t provide enough coverage to pay off the amount you owe on the vehicle. Many policies pay only the fair market value of a totaled car, which might be only 80% of the amount you owe. You can buy additional insurance to plug this gap and ensure you can pay off the car loan in full if the vehicle is destroyed or stolen. Normally, car leases require you to buy gap insurance. If you pay cash or pay off your loan, you can save money by avoiding or dropping gap insurance when no longer needed. Top Five Auto Insurers These five insurers all offer full coverage policies and many additional services. Amica Amica is a superstar among car insurers, winning accolades from Consumer Reports and J.D. Powers. It’s known for handling the claims process smoothly. The average annual cost for full coverage: is $1,360. Pros You can have your car repaired at any body shop, without restrictions. Offers a premium package which, for an additional cost, provides full glass coverage, rental coverage, good driving rewards and identity fraud monitoring. Superior financial stability rating from A.M. Best. Cons Missing some discounts, such as military, low-mileage and prepay discounts. Must speak on the phone to get a quote. Sparse website when it comes to customer education. State Farm State Farm is the country’s largest multi-line insurance company. It excels in customer service and regularly garners high marks from customers. The average annual cost for full coverage: is $1,337. Pros Superior financial stability rating from A.M. Best. Excellent online quote tool, getting customers a quote in as little as five minutes. Easy claim handling and top service from its more than 18,000 agents and its easy-to-use mobile app. Cons Doesn’t offer coverage for new car replacements or uninsured motorists. Missing prepayment and automatic payment discounts. The Hartford While only 11th in size, The Hartford is big when it comes to policy options. It offers rates based on your actual driving as well as full replacement of new cars when destroyed shortly after purchase. Average annual cost for full coverage: N/A. Pros Solid benefits, including superior roadside assistance and towing programs. High marks from customers for their purchase experiences. One of the few insurers with mechanical breakdown coverage for out-of-warranty repairs. Cons Mediocre service interaction according to J.D. Power surveys. Sparse online learning materials. Geico Geico is the second-largest U.S. car insurer. It is a favorite among tech-savvy geeks who appreciate the insurer’s mobile app and excellent online service. The average annual cost for full coverage: is $1,627. Pros Geico offers plenty of ways to save, such as multi-vehicle, driving history and vehicle safety equipment discounts. Special savings for active and retired military members and federal employees. Full-featured mobile app for getting quotes, buying insurance, managing your policy, submitting claims, summoning roadside assistance and making payments. Cons Human help may be in short supply, as just about everything is handled online. No gap insurance is offered. USAA No insurer matches USAA for service to military members. Unfortunately, it's only available to active service members, their families and retired veterans. Average annual cost for full coverage: $896. Pros Superior financial stability rating from A.M. Best. Top-ranked purchase experience score from J.D. Power. Cons Missing gap coverage. Doesn’t offer interior vehicle coverage or new car replacement coverage. Limited availability. The Right One for You Competition in the insurance industry helps drive down prices and prompts insurers to offer money-saving features. For example, your carrier might reward you for a safe driving record and for having a long-term relationship with the insurer. The right insurer for you is highly rated for service, offers the exact coverage you want and does so at an unbeatable price. You should always gather multiple quotes before selecting an insurer, and make sure you get credit for all applicable discounts.
ETFs Could Be Your First Entry Into Investing; We Tell You What You Need To Know
Those wishing to invest in a basket of securities instead of individual stocks or bonds often think mutual funds are best.
However, this isn’t always the case — there is a less discussed alternative that could be more beneficial for several reasons. We’re talking about exchange-traded funds, or ETFs.
ETFs are often compared to mutual funds, but have gained more attention because of their benefits.
In this post, we’ll explain those benefits, as well as the disadvantages of ETF investing. We’ll provide information about how to become an ETF investor. Given the similarities between ETFs and mutual funds, we’ll point out how they compare.
What are ETFs?
Exchange-traded funds are baskets of securities. The securities can include stocks, bonds and commodities. Because ETFs trade like stocks, you can make trades for them all day.
There are two types of ETF investments: passive and active.
Passive investing entails being able to buy or trade at your leisure. This is attractive to long-term investors who don’t buy and sell stocks throughout the day based on market movements or volatility because they are looking for short-term gains.
The less frequent trading could keep investors’ trading costs low, but it could cause them to miss out if a stock moves higher in a short amount of time.
Active investing is the opposite. It entails the investor being willing to sell and buy stocks throughout the day. By actively keeping an eye out for what could cause their stocks to move higher or lower, the investor has more control. This means active investing can lead to higher returns than passive investing.
However, active investing can cause investors to try to time the market, which is very risky. Novice investors should steer clear of active investing until they completely understand their risk appetites.
Benefits of ETFs
One of the main benefits relates to costs. For example, broker commissions for ETFs can be lower than those incurred when you buy stocks individually. Just like stocks, ETFs trade on an exchange, including the Dow, S&P 500 and the Nasdaq.
For those who have a limited amount of money to invest, certain ETFs can be ideal. There are brokers who offer discounts, which can help these investors cut their trading fee costs. Instead of investing large amounts of money at one time, investors can invest small amounts at their leisure.
If you have tax concerns related to investing, ETFs are worth considering. That’s due to their tax advantages. One particular tax investors must contend with is the capital gains tax. Because of the way many ETFs are managed and redeemed, investors can reap fewer capital gains.
ETF investors also benefit from receiving dividend payouts, just like stockholders. They are typically paid out each quarter. The amounts are based on the percentage of shares you own in the ETF.
ETF investors know within moments how much they paid to buy shares and how much they received after selling. Fidelity points out a particular benefit of ETFs related to how they are traded.
It states:
The nearly instantaneous trading of ETF shares makes intraday management of a portfolio a snap. It is easy to move money between specific asset classes, such as stocks, bonds, or commodities. Investors can efficiently get their allocation into the investments they want in an hour and then change their allocation in the next hour. That is not generally recommended, but it can be done.
Disadvantages of ETFs
While ETF investing can have lower costs, overall, commissions can quickly add up. Investors usually have to pay a commission every time they buy or sell an ETF. As noted by Charles Schwab, a stockbroker, over time, those commissions can really add up and become cost prohibitive.
The firm also points out ETF disadvantages, as they relate to spreads. It states:
- On top of commissions, investors also pay the "spread" when buying or selling ETFs.
- The spread is the difference between the higher price you pay to acquire a security and the lower price at which you can sell it.
- Don’t forget: the wider the spread, the higher the cost.
Spread refers to the highest price a buyer (bid) is willing to pay for a share and the lowest price (ask) the seller is willing to accept. The amount of the spread varies from one ETF to another, and tends to be greater for ETFs with low trading volume, Charles Schwab points out.
Also, it may be difficult or impossible to make automatic investments or withdrawals.
Readying to Invest in an ETF
You won’t have a problem finding an ETF that’s suitable for you. Because there are at least 2,000 of them, your problem will be narrowing down your choices.
The best thing to do is to draw up a list that includes your priorities and search accordingly.
Here are some other things to consider:
- Make sure the ETF has a significant amount of interest. Look for those that have assets of at least $10 million.
- ETFs that are based on widely followed indices and a diverse range of sectors often perform better that are those based on niches, or less popular sectors.
- Review the ETF’s trading activity and trading volume. You don’t want to sink your money into a fund that lags in either because that could be a sign that it has liquidity problems.
Understand that liquidity is important if you want to sell any of the shares in the ETF you choose before it stops trading. Otherwise, you may have to wait until the liquidation process is completed, according to Investopedia.
ETFs versus Mutual Funds
When you hear about ETFs, mutual funds usually come up. That’s because there are so many similarities. However, there are some key differences you should understand before you choose one over the other.
Here’s a comparison chart that breaks down the similarities and differences:
Mutual funds have far more assets than ETFs largely because they are so popular among companies that offer retirement plans for their workers. U.S. equity mutual funds have around $6.7 trillion, compared with $1.7 trillion for ETFs, according to Morningstar. ETFs have been making considerable gains as more financial advisors recommend them.
Choosing between a mutual fund and an ETF boils down to being a sheer matter of choice. If the pros and cons of each are too overwhelming to make a decision, seek professional advice from a financial advisor.