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.
The Best S&P 500 Index Fund
Often, when it comes to investing, a simple plan is best.
There are many investors who dedicate their lives to beating the stock market, yet their efforts don’t seem to be worth it. These folks might be smart, dedicated and hard working, but they just can’t seem to beat the performance of their peers.
And then there’s the time involved. Many full-time investors make little more than minimum wage once we factor in all the hours they spend studying the market and poring over balance sheets. They do it mostly for the intellectual challenge, but that doesn’t make the facts any less true.
Fees are the biggest reason many professional money managers can’t beat the index. A mutual fund charging 1.5% must beat the index by 1.5% annually just to match the performance of a passive investment with much lower fees. It’s hard to beat the overall market by that much on a consistent basis, so these funds inevitably come up short.
With all this in mind, it’s little wonder why so many investors are choosing a passive investing path. By putting their cash in a common index fund – like one that follows the S&P 500 – these investors get solid long-term returns, pay minimal fees and outperform many professional investors. Their time is freed up for other preferable activities.
Let’s take a closer look at which S&P 500 index fund is best, including what exactly an index fund is, how they work and what you should look for.
What Exactly Is an Index Fund?
An index fund (or exchange traded fund [ETF] as they’re often called) is a passively managed collection of stocks that track an underlying index. As the index changes, so does the composition of the fund.
This passive management strategy allows the index fund to offer ultra-low fees. Many funds have management fees of under 0.10%. These low fees keep more money in your pocket.
Now that we know an index fund simply tracks an index, it brings up the next question. What exactly is an index?
To put it simply, an index is a collection of stocks with similar characteristics which are grouped together in a logical way. This index is then given a price so investors can track the performance of the underlying stocks as a group.
The S&P 500 is a terrific example because it’s the most well known of all the stock market indexes. It tracks the 500 largest U.S. publicly traded companies. As that list changes, so does the composition of the S&P 500 index. Since most large companies are stable, the constituents of this index only change in small ways over time.
There are countless other stock market indexes. You’ve likely heard of the Dow Jones Industrial Average, which tracks 30 of the largest U.S. companies. There’s also the NASDAQ 100, which tracks large U.S. technology stocks. Most other nations also have benchmark stock indexes that are used to track the performance of their individual markets.
How a Stock Index Works
As previously mentioned, a stock market index is a passive vehicle. Only small adjustments are made to the index over time.
A stock market index is the property of a financial company who creates the index in the first place. It’s then up to this company to make any changes to the index as they see fit. Since most indexes have hard and fast rules in place, it’s only a matter of applying these rules to see which companies make the cut.
Let’s go back to the S&P 500 again. The owner of that index is Standard & Poors, which offers all sorts of financial services for the investing industry, including multiple other indexes. Since the rules of the S&P 500 are simple, changing the composition of the index is simple too. Each quarter, Standard & Poors resets the index.
Adjustments are then made to underlying ETFs that track the index. Yes, that means all the ETFs that track the S&P 500 will be buying the same stock and selling another, a process that can cause short-term gains for the lucky stock and declines for the one being punted from the index.
What’s the Best S&P 500 ETF?
Many hardcore index investors have one simple answer to this question. The best S&P 500 index funds have the lowest fees.
If that’s your only criteria, then the answer to this question is simple. The Fidelity S&P 500 Index Fund charges a mere 0.015% annual management fee. Many suspect that this fee isn’t even enough to cover the cost of the fund, meaning Fidelity is subsidizing this ETF to get additional funds under management.
There’s just one problem with this index fund. It’s technically a mutual fund, which means there are slightly different rules versus buying an exchange traded fund. An exchange traded fund is purchased just like a stock. A mutual fund isn’t, meaning there will be a slight delay in getting your shares. Over the long-term these differences don’t matter at all, so don’t let the mutual fund aspect of this S&P 500 index fund scare you.
If you’re looking for liquidity, the best choice is the SPDR S&P 500 ETF (NYSE:SPY), which is the largest and most famous S&P 500 index fund. Many people turn to this index fund because it’s also been around the longest, and they value that stability. Keep in mind, however, that this index fund has a management fee of 0.09%. That’s not much when compared to other investment products, but it is more than the other names on this list.
Vanguard’s S&P 500 ETF (NYSE:VOO) offers plenty of liquidity – especially for a retail investor – and a low management fee of 0.04%. It’s also backed up by the Vanguard name, a non-profit company that is dedicated to keeping investor costs low. There’s a reason why Vanguard is the top choice for many; it’s a solid choice for most investors.
The Bottom Line
Owning an S&P 500 index fund is an excellent way to earn solid returns on your money. The best U.S. companies end up in the S&P 500, and it’s hard going wrong owning a collection of the best.
Most S&P 500 index funds are very similar products. They have the same weighting in the same companies because it’s all the same index being tracked. If you pick an ETF with a low management fee and good liquidity, you’ll end up doing about as well as the index itself. If you’re investing regularly, that should be enough to generate some pretty significant wealth over time.