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.
Should You Focus More on Saving or Investing?
At their core, the practices of saving and investing are essentially the same. Both are methods of tucking away funds for your future, ideally after allowing that money to sit and grow in whichever account it’s held.
If you look below the surface, though, you see that there are some very key differences between saving and investing.
What Is Saving?
To save money is to store is somewhere safe, to prevent it from being spent or wasted over time.
There are many intended purposes for your savings. In fact, it’s actually recommended that you have more than one form of savings and even multiple account types.
Savings accounts can be both short-term and long-term. For instance, you might be saving for the down payment on your next new car, which you don’t plan to buy for a couple of years. At the same time, you may also have an emergency fund that is easily accessible, in case something comes up next week, next month or next year.
There are many ways to save your money, too, which don’t fall into the realm of “investing." The most common is probably your everyday savings account. Offered by brick-and-mortar and online banks alike, savings accounts provide you with a safe place to store funds until they are needed. Plus, by keeping this money out of your checking account, you remove some of the temptation to spend it.
You could also choose savings vehicles such as certificates of deposit (CDs), money market accounts, treasury bills and bonds.
Growth
The level of growth that you’ll recognize from your savings depends on the account type and establishment that you choose.
Typically, you’ll find much higher interest rates offered by online banks than by brick-and-mortar institutions. Some banks will offer both traditional savings accounts and high-yield savings; as you’d probably expect, the latter will result in a higher return. Some may additionally offer money market accounts (MMAs), which typically have rates that compare to — or exceed — those offered by high-yield savings.
If you’re alright with locking your money away for a longer period of time, CDs can be a great option. In exchange for agreeing not to touch your money for a specified timeframe, banks will give you an even higher return on the funds.
While CDs are usually your best bet for maximizing interest earned, there is one important thing to remember: the liquidity of your funds.
Liquidity
Savings accounts are excellent for funds that you may need to pull from at a moment’s notice. If your car breaks down unexpectedly tomorrow, you’ll want to be able to access the cash required for a repair; being able to immediately withdraw from savings is important.
This makes savings accounts and MMAs the right choice for your liquid funds — or easily accessible savings that can be quickly converted to cash.
What Is Investing?
By definition, investing is the practice of saving in growth-optimized vehicles with the expectation of growth from your savings. Essentially, you expect that money to be profitable (or generate an income) over time.
Investments can be anything from stocks and bonds to mutual funds, index funds, ETFs, options, cryptocurrency and more. You can also invest in tangible items, such as real estate or gold.
You can utilize investments as a way of saving for the future (such as retirement or education savings) or generate a profit to increase cash flow.
Growth
On average, investments will see greater growth than your typical savings vehicles. The actual level of growth, however, depends on many factors: the economy, time, the nature of the investment and even your risk tolerance.
There is a direct correlation between risk and growth: the higher the risk you’re willing to take on with your investments, the higher the return is, typically. For instance, bonds and mutual funds are safer bets and usually offer modest returns, while playing the stock market has the potential to skyrocket your growth. Of course, you also run the risk of losing it all.
Compound interest will play a large role in the growth of your investment(s). The longer you hold your investment, the more it will grow exponentially.
Saving vs. Investing: What’s the Difference?
As you can see, savings and investments are very similar in many ways. The key difference, however, lies in the point of each.
Savings are funds earmarked for specific purposes down the line or as a safety net. To maximize these, you should choose savings vehicles that result in a modest return while still ensuring liquidity of your funds.
Investments, on the other hand, are intended to generate income. Yes, they are “savings" by virtue of definition. However, their purpose is to grow exponentially over time.
The other key difference between the two is regarding risk.
Savings typically involve little or no risk to the safety of your funds. Your bank is likely FDIC insured, and regardless of what happens to the economy and/or stock market, you will never watch your account balance decrease. (Unless, of course, you withdraw funds or incur fees.) Your funds are guaranteed, plus whatever interest the account balance can generate.
Investments involve their fair share of risk, though. Certain products are less risky than others, but there is a direct correlation between the returns you’ll see from your investments and the danger involved.
In other words, the higher the risk, the greater the chance of reward when it comes to investing. Your returns are never guaranteed and, in fact, you could very well lose your investment thanks to shifts in the stock market.
Lastly, there is a notable difference in liquidity between the two. If you need your funds to be accessible in case of emergency, savings vehicles are your best bet. This will ensure quick access to cash when you need it most.
Your Saving and Investing Timeline
So, which financial goal should you choose to focus your efforts on, between saving and investing? For many households, doing both can feel like too much of a strain on the monthly cash flow, so one has to take precedence… right?
The truth is that saving and investing are both incredibly important. Without adequate savings, you could wind up in a bind if sudden expenses pop up, or find yourself unable to reach certain goals down the line (such as making a down payment on a home).
On the flip side, the key to successful investing really lies largely in compound interest. The earlier you start investing, the more your money will grow over time. This is true even if you “catch up" and contribute the same amount to the account later on.
But if your financial situation simply won’t allow you to focus on both investing and saving right now, there are some times where one is more important than the other.
As mentioned above, one of the most important factors in the investment game is time. Without time, you can’t allow compound interest to do its work with your money… which means losing out on growth (read: free cash) in the long run. Let’s look at an example.
In the first scenario, you begin saving at age 25. You make an initial deposit of $5,000 into an investment account, which has an average annual return of 8%. You then continue adding $200 a month into this account for the next 30 years, until you retire at age 55.
When retirement rolls around, you will have contributed a total of $77,000 into that account, spread out over 30 years. However, with an annual growth of 8%, you will have approximately $322,193 waiting for you… all thanks to compound interest and time.
However, let’s say that you decide to put off investing for a few years. You start at 35 (instead of 25) and save $300 a month (instead of $200), still planning to retire at 55.
While playing catch-up is still better than not investing, you’ll be losing quite a bit in the process:
In the end, you will have contributed the same amount ($77,000) and retire at the same time. However, your money won’t have had as long to compound and grow, resulting in a total balance of only $188,048. That’s $134,145 lost!
Setting Your Priorities
If possible, work toward both your savings and investment goals at the same time. Even if you can’t dedicate as much to either as you’d like, the power of compound interest is important for your money’s growth.
The ratio of savings to investments is up to you and dependent on your needs at any given time. If you don’t have a comfortable nest egg saved, you may want to focus on savings for a while and let investing take the back seat.
If your savings accounts are sitting pretty and you aren’t worried about unexpected expenses, you can focus on investing instead. Once a year, take some time to reevaluate your situation and adjust contributions as needed.