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.
Saving for Further Education
Putting a child, or even yourself, through college has become increasingly financially burdensome as tuition costs continue to outpace incomes. If you or your child are planning to pursue higher education, there is financial help outside of scholarships and loans available. One popular option is the 529 savings plan. This is a savings plan packed with tax advantages that encourage people to save for their educations. Let's take a look at the 529 college savings plan.
Sponsored by states, state agencies and/or education institutions, the plans have the blessings of the IRS whose Section 529 code authorizes them.
Here, we’ll go over the basics of 529 plans to help you determine if they are right for you.
529 College Plans in a Nutshell
529 plans can be used to save for certain educational expenses for any student. These educational expenses include:
- Tuition.
- Room and board.
- Mandatory fees.
- Books.
- Computers.
- Software.
You can invest in any state 529 plan that has approved them, and that’s most of them. The plans cover costs at any college as long as it qualifies under the plan’s rules. You could reside in Georgia, invest in a Colorado plan and send your child to a post-secondary institution in California.
SavingForCollege.com notes: "In most plans, your choice of college is not affected by the state that sponsored your 529 college savings plan. You can use your 529 plan at more than 6,000 U.S. colleges and universities and more than 400 foreign colleges and universities."
To find out if your preferred institution is eligible under the 529 rules, visit its website.
Two Options
529 savings plans come in two forms: a prepaid tuition plan and an education savings plan. Every state and the District of Columbia sponsor at least one of them.
Let’s start with the prepaid plan.
Prepaid Plan
These plans allow people to set up specific accounts they can use to prepay all or part of their tuition costs. Funds in these accounts can cover the costs of in-state tuition, or be converted to cover tuition and other costs at out-of-state colleges and universities.
Prepaid tuition plans have some caveats. These include:
- Residency requirements.
- Restriction on where the credits can be redeemed.
- What the credits can cover, which is usually tuition and mandatory fees.
If, for some reason, your child doesn’t attend a participating college or university, the prepaid tuition plan may pay less than expected, according to the U.S. Securities and Exchange Commission (SEC). It oversees and regulates securities, such as stocks and bonds.
The SEC states that only a small amount could be paid based on the original investment.
When considering a prepaid tuition plan, you should understand the restrictions and limitations of the plan, including the extent to which your money is guaranteed and what happens to your money if the beneficiary doesn’t attend a participating college or university, according to the SEC.
Education Savings Plan
Next, we will discuss education savings plans. Like prepaid accounts, they allow people to open investment accounts to save for their children’s futures. The plans cover the same things as prepaid plans.
However, education savings plans are not limited to covering higher education costs. They can also cover tuition for elementary schooling, such as private schools.
An additional feature of education savings plans is that they can be used to pay up to $10,000 per year per beneficiary for tuition at any public, private or religious elementary or secondary school.
The SEC also points out that savers using this plan can choose from a range of investment portfolio options, which often include mutual funds and ETFs.
It states: "If you are using a 529 account to pay for elementary or secondary school tuition, you may have a shorter time horizon for your money to grow. You also may not feel comfortable taking on riskier or more volatile investments if you plan on withdrawing the money soon. Because of these things, you may consider different investment options depending on when you plan to use the money that is invested."
All education savings plans are sponsored by state governments, but only a few have residency requirements for the saver and/or beneficiary. State governments do not guarantee investments in education savings plans.
Understand that investing in an education savings plan doesn’t qualify for federal guarantees. As with most investments, investments in education savings plans may not make any money and could lose some or all of the money invested, the SEC also points out.
Unique Circumstances
You could be one of those fortunate 529 savers who still have money in their account after your student graduates.
Be forewarned that if you use the money for purposes other than paying for qualified higher education expenses or tuition for elementary or secondary school, you could be hit with a penalty. Specifically, the earnings portion of any non-qualified withdrawals will be subject to federal income tax as well as a 10% penalty, according to the SEC.
Also, understand you could face penalties for failing to use the money in your 529 account for qualified higher education expenses and/or tuition. This applies regardless of the plan you choose.
Withdrawals can be subject to state income tax if you claimed a deduction or credit for your contributions. If a scholarship was accepted, you may have to pay taxes on any income earned.
In its bulletin, “Investor Bulletin: 10 Questions to Consider Before Opening a 529 Account,” the SEC states: "You may be able to avoid paying any penalties and taxes if you change the beneficiary of the 529 account or transfer the assets to another 529 account, in both instances to a person in the same family. Or you could keep the savings in the 529 account if your student is considering graduate school. Make sure you understand the tax implications of investing in a 529 account and consider whether to consult a tax adviser."
Time Is of the Essence
No matter which type of 529 plan you choose, you should start saving as soon as possible.
One of the benefits of 529 plans relates to the earnings potential that grows over time.
The SEC states: "The longer the money is invested, the more time it has to grow and the greater your tax benefits. You will lose some of these potential benefits if you withdraw money from a 529 plan account within a short period after it is contributed."