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 Business Equity?
Business equity, in layman's terms, is the amount of money the business owners have left over after paying off all debts. As a business owner, you should have a handle on your business equity as part of your overall business plan. It needs to be managed well to ensure the business can grow, survive and become profitable.
Equity in Accounting Terms
Business equity is the measurement of assets (what the business owns) minus liabilities (what the business owes). Equity is used as an indication of how financially healthy your company is. It shows if you have a good mix of capital and other assets versus debt.
Calculating Business Equity
Business equity is calculated on your company's balance sheet. A balance sheet is a financial statement that outlines:
- Total Assets
- Cash or property you can convert into cash within one year (current assets)
- Property, plant, and equipment or other items that require more than one year to sell or otherwise convert into cash (fixed assets)
- Total Liabilities
- Short-term bills such as your annual taxes (current liabilities)
- Long-term bills from larger bank loans (fixed liabilities)
- Shareholders' Equity (aka Business Equity)
- The value of ownership of the company (capital stock)
- Profits that are reinvested into the company (retained earnings)
To calculate business equity, you would use the following accounting equation: Business Equity = Assets - Liabilities
Types of Assets
A company's assets should either be cash or, at some point, convertible into cash. Business assets are commonly made up of different things such as cash, accounts receivables (customer invoices pending payment) and purchased equipment.
Assets can include items that are harder to put a concrete monetary value on since they are not physical items, such as a brand's reputation. These are considered intangible assets. The assets previously listed, such as equipment, are considered tangible (physical) properties.
Depending on your type of business, it will be important to consider both tangible and intangible assets to increase your overall business assets. Intangible assets are generally more important as you start out your business, as cash is normally low. Therefore, many start-ups focus on building a reputable brand name and developing intellectual property.
Building a strong brand will come from having a large and loyal customer base, who advocate for all your products. For example, Apple has one of the strongest brand names in the world. Every time they release a new product, hundreds of thousands of their loyal customers will instantly purchase the product even if there are lower price alternatives.
The value of intellectual property, on the other hand, is measured in trademarks, copyrights and patents. By protecting your technology from being used by another company, you can immediately increase your company's worth.
Types of Liabilities
Liabilities will come in different flavors as you grow your business. In the beginning, your business' largest debts might just be your monthly rent or credit card bills.
As you expand and grow, you might be able to convince banks to provide you with larger loans in exchange for interest payments.
Importance of Business Equity
Similar to personal net worth, business equity is another way to measure the financial success of your business at any given time.
In the first few years, a company's equity is normally zero or in the negative. Negative business equity indicates that you don't have enough to pay off all your bills. Being negative doesn't mean that the company is bankrupt yet ,though, since larger debts are usually not required to be paid off all at once. This gives your business time to earn enough money to pay it off slowly.
For example, prior to opening up a restaurant, the owner may need to make renovations to the building. This will require cash immediately to pay the construction and interior design teams. Therefore, the restaurant owner might take out a $50,000 bank loan. After one year of operations, the owner may still be paying off that initial loan with any business profits earned.
As you grow and expand your business, though, you should aim for positive equity. Prolonged negative equity will signal to potential investors or partners that your business may be trouble. Having negative equity can eventually result in company bankruptcy.
Equity Financing
It might sound counterintuitive to grow by giving out equity, however, it is a common route that start-ups take. The equity referred to here is ownership of the company, not the excess of assets minus liabilities.
Rather than taking out a bank loan, businesses can look to sell shares (ownership) of their company.
Good loans can also be very hard to secure as a new business. Most banks will deem your start-up too risky. Therefore, banks will not want to give your company a long-term loan with low interest rates. Instead, they might only offer a small one-year loan of $10,000 with 10% interest. A loan like this is too expensive for someone starting out, who needs more capital over a longer time to grow.
The sale of company shares will give the business more cash without the financial obligations of monthly loan payments. The value of this financing can usually be a lot larger than what a traditional financial institution would offer. In 2018, the median value of a seed (initial) funding round for start-ups was $2.2 million.
The downside of selling ownership is loss of control over your business. Going forward, decisions and profits will need to be shared with your new co-owners. Shares can always be bought back as well, however usually with higher costs. Therefore, it will be important to determine ahead of time how much control you as a business owner are willing to give up.
The state of your business equity will help determine if your company is moving in the right direction. As you grow, you will need to balance how you increase cash through profits or financing. In the beginning, it will most likely be through financing. Eventually, the company should aim to be profitable in order to ensure positive business equity.