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.
Blue Chip Stocks
Everybody knows investing is a smart idea. Whether you’re putting cash aside for a rainy day, some big goal or simply for retirement, turning that capital into more money without doing any work is an incredibly powerful concept.
One of the great things — or terrible things, depending on your perspective — about investing is there’s a wide variety of ways you can get rich. Take real estate investing, for example. You can do something as basic as renting out a spare room to a friend or on AirBnb. You can buy a house in the neighborhood and rent it out. Thousands of investors make a living flipping property. Or, you can finance other real estate investors; the possibilities are endless.
It’s the same thing with the stock market. It seems like every serious investor has their own method, ranging from gobbling up deep value stocks to sticking only to growth stocks. Some swear by the wisdom of charts, while others will search for clues in the back of financial statements.
Personally, when it comes to the stock market, I like to stick to so-called “blue chip” stocks. Let’s take a closer look at what’s so appealing about these securities and why I think your portfolio might benefit from having some blue-chip names in it.
What Exactly Is a Blue-chip Stock, Anyway?
The history of the term dates back to the early 20th century, when investors started referring to the safest and most valuable stocks as blue chips because those were the highest value chips in poker.
Thus, blue chip securities started out as the most valuable of stocks, with the highest share prices. The term has evolved over the years to represent what investors view to be the safest stocks in the market.
Often, it’ll take a company decades from its initial public offering to be considered a blue chip name, but that is changing a bit today. Many technology companies are now going from being considered risky to much safer in less than a decade, thanks to their ability to grow at a quick pace and integrate themselves into our lives. For instance, many investors consider still somewhat risky technology stocks like Facebook, Amazon, and Netflix as must-own blue chips, because they can’t picture life without these services.
Personally, I like to stick with a simple definition of a blue-chip stock. If it’s a multi-national company that you’ve heard of and admire, chances are its stock is a blue-chip. This rule isn’t iron-clad, of course, but it tends to be right around 90% of the time.
Examples of Blue-chip Stocks
It’s not hard to find blue-chip stocks to be candidates for your own portfolio.
The first place to look would be companies you interact with every day. You wake up and drive to work in your General Motors car, stopping at McDonald’s along the way. Along the way you get a text message on your Apple iPhone through AT&T’s network, asking you to pick something up at Walmart before you make it into the office.
While working you might use Google or Microsoft’s software to do your job, on a computer powered by an Intel chip and connected to the internet through a Cisco router. Break time is fast approaching, so you go to the vending machine for a Coke and a bag of Lay’s potato chips, which is a division of Pepsi.
The way home is for running errands. You stop at a Bank of America branch to sort out issues with a debit card, and the clerk tries to convince you to apply for a new Mastercard. T
he next stop is Walgreens to pick up a prescription and some Colgate-Palmolive toothpaste. Finally, you get home and it’s time to relax. So, you fire up your Sony PlayStation and try your luck at the latest Electronic Arts video game.
Advantages
The big advantage to blue chip stocks is, generally, they are much safer than lesser-known companies.
Say a blue-chip stock has a crummy quarter and the price slides. Because the company is so well known, bargain hunters show up and start buying, which supports the stock price. The decline is also likely well-known by the business community, which also helps spur on a recovery.
Another advantage to blue-chip stocks is psychological. The stock market is a risky place, even if you stick to safe securities. Having a portfolio stuffed with well-known names can help a skittish investor navigate inevitable downturns.
It also helps when discussing your investments with others. A portfolio stuffed with obscure ultra-cheap value stocks or high-risk growth stocks will be questioned. It’s hard to find much wrong with safe companies that are so big we deal with them every day.
Disadvantages
One of the biggest disadvantages to a portfolio filled with ultra-safe blue-chips, is you’re unlikely to find a huge winner in a group of stocks known for being safe.
That doesn’t mean you’ll be sacrificing much in long-term returns, however. A diverse portfolio of blue-chips has returned approximately 10% a year for decades now, which is easily enough to make many of your long-term goals come true. It just won’t be as exciting as holding a sexy growth stock that goes up 1,000% in just a few years.
From a value investing perspective, blue-chip stocks rarely get cheap either. Outside of market meltdowns, there are few attractive entry points. This isn’t so bad for investors who put a little cash to work every month, but it’s disappointing to bargain hunters.
Finally, some investors don’t like blue chip stocks because they tend to pay out some of their earnings back in dividends. They argue these companies would be better off reinvesting in growth, and that dividends aren’t tax efficient because they’re taxed twice — once as company profits and once in the hands of shareholders.
The Bottom Line
Overall, investing in blue chips is a smart choice for just about every investor. They have numerous advantages, including relative safety, a solid history of growth, big advantages that can’t easily be replicated and more.
Sure, there are some disadvantages — like a lack of serious growth, and they’re not terribly exciting —but those pale in comparison to the many advantages.
Thousands of investors have slowly gotten rich by investing their cash in a diverse portfolio of blue-chip stocks and letting the magic of compound interest do its thing. There’s no reason why you can’t join this elite group. Just be warned — the process will not happen overnight. Blue chip stocks are not a get rich quick scheme by any means.