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.
What Is a Corporation?
When starting your own business, you will need to determine how you want to legally structure your company.
Sole Proprietor versus Corporation
When starting out, many businesses are sole proprietorships or partnerships, depending on the number of business owners. A sole proprietorship is a business that is owned by one person.
Starting a sole proprietorship is fairly easy. Most businesses in America fall under sole proprietorships.
This is where a corporation differs. Incorporating a business will require a lot of paperwork and consideration.
Advantages of Incorporation
Limited Liability
The main reason to incorporate is to protect the business owner's personal assets.
As a sole proprietor, you and your business are considered one and the same. If someone sues your business, your business and personal finances are at risk. You might have to use your own money and possibly sell your home to pay any business bills.
Registering your business will help separate yourself from the business' debts and financial obligations, hence providing you limited liability.
Ease of Ownership Transfer
Incorporating your business will make it easier to sell your business in the future.
A sole proprietorship will normally stay and die with its one shareholder. As its own legal entity, ownership of the business can easily be moved to someone else.
This flexibility will help you raise capital by selling interests (shares) of the company. Eventually, you could even sell the entire business to another party through an acquisition.
Some Tax Advantages
As a corporation, you can benefit from additional tax savings. Corporate tax benefits include:
- Savings on self-employment taxes:Not all profit is subject to the U.S. self-employment tax (roughly 15.3%)
- Lower corporation taxation rates (21%)
Disadvantages of Incorporation
Additional Administrative Work
Incorporating your business will require additional administrative overhead and effort.
The level of management required depends on the type of corporation you choose. At a minimum, registering a business will require:
- Choosing which state to incorporate in
- Filling out the required documents
- Paying business registration and maintenance fees
- Filing a business tax return annually
Double Taxation
As a larger corporation, you will most likely face double taxation on profits. Double taxation is when the same amount of money is taxed twice.
For example, C-Corporations will pay income tax as a company. Then you, as a business owner and shareholder, will most likely take out money to pay yourself. The income you receive from the company will then be taxed at your personal tax return.
This double taxation can be avoided by using a "pass-through entity." This means that profits will always be passed through the company and onto the shareholders. The company, therefore, will not pay any income tax.
Types of Corporations
Limited Liability Corporation (LLC)
What is it? An LLC is often used as the first legal structure a new business will form. It offers limited liability (protection of personal assets) as a separate legal structure from the business owners.
Pros: LLCs offer legal protection for owners and are often easier to set up and maintain. Tax-wise, the IRS is flexible with how an LLC is taxed. It can be set up as any of the following three categories:
- A sole proprietorship: taxed at the individual level and subject to self-employment tax
- S-Corp: taxed at the individual level and not subject to self-employment tax
- C-Corp: taxed at the company and individual level
Cons: This legal structure can only be in place for a limited amount of time. Many states restrict the time limit to a maximum of 30 years.
LLCs are NOT corporations, therefore there is no stock ownership structure. A stock ownership structure is required to sell an interest in the company to future investors. This, therefore, makes it harder to raise capital or sell ownership.
S-Corporation (S-Corp)
What is it? An S-Corporation is not an actual business entity structure. It is a way to classify your corporation to the IRS.
Pros: Having an S-Corp helps lower the tax burden for business owners. With an S-Corp, income is passed through the company directly to its shareholders (owners) as salary and profits. This means no double taxation. Secondly, business owners with an S-Corp can avoid the 15.3% self-employment tax as well.
Cons: "S" stands for small and is, therefore, more fit for smaller companies. S-Corps have many restrictions including:
- It must be a U.S. company
- It cannot have non-U.S. citizen or resident owners
- It cannot have more than 100 shareholders
More IRS restrictions can be found here.
C-Corporation (C-Corp)/Incorporated Companies (Inc.)
What is it?
A C-Corporation is essentially the next level up from an LLC, allowing stock ownership structure. Being incorporated (Inc.) refers to the C-Corporation Structure.
Pros: This legal structure is mainly for larger corporations, which can make your business look more credible. By allowing a stock ownership structure (which means you can give out shares of ownership of the company), you will have an easier time looking for investment.
Cons: Corporations require a stricter management structure. You will need:
- A Board of Directors (directors of the company)
- Corporate Officers (executive team such as a CEO)
- Shareholders (owners of the company)
C-Corporations also have to pay corporate tax. Then when you take a salary payment, you will need to pay personal income tax on that amount too. This can be seen as double taxation.
Non-Profit Corporation
What is it? As the name suggests, a non-profit corporation is the opposite of a for-profit company. The goal of this company is not to earn profits for the shareholders (business owners). Rather, the company is looking to achieve another goal such as saving the environment.
Pros: Tax-exemption is the main benefit of incorporating as a non-profit, alongside the benefit of limited liability. If qualifying under IRS rules, the organization will not need to pay corporate tax.
Cons: The effort to create and maintain a non-profit organization is increased due to strict regulations such as the IRS Tax Code.