Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.
This week’s episode starts with a discussion about how to take advantage of the special health insurance enrollment period before it ends next month.
I’m looking to buy a used car with a loan from my bank. Next on my agenda is to find car insurance. I’m a recent college graduate with my first job and no longer on my family plan. I am wondering how I can go about looking for car insurance and how to know what is a good deal. I know about the big insurance companies online, and I’m wondering what your thoughts and tips are on finding the best policy. Thank you.
The special enrollment period for the Affordable Care Act exchanges is coming to an end on August 15. Before then, see if you’re eligible for a free or reduced cost plan. Anyone who has received unemployment benefits this year is eligible for a zero-premium silver plan. And those with income levels 600% of the federal poverty level (up to $76,560 for a single person or $157,200 for a family of four) can qualify for subsidies.
And when shopping for car insurance, balance cost and coverage. Policies with lower monthly rates tend to have higher deductibles. But a higher monthly rate with a lower deductible can make fixing or replacing your car more affordable if it comes to that.
Know that rates can vary greatly from one company and one person to the next. Car insurance companies use proprietary formulas when determining what to charge you, though they tend to consider factors like age, driving history and gender.
Price variations make shopping around for rates all the more important. The more quotes you get, the better your chances of finding the lowest price for the coverage you want. Consider comparing rates from at least three insurers annually to ensure you’re still getting a competitive rate. Also, don’t overlook smaller insurance companies.
Sean Pyles: Welcome to the NerdWallet Smart Money Podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I’m Sean Pyles.
Liz Weston: And I’m Liz Weston. To have your money questions answered on a future episode, turn to the Nerds. Call or text us on the Nerd hotline at 901-730-6373, that’s 901-730-NERD, or email us at [email protected].
Sean: This episode, Liz and I answer a listener’s question about how to get the best rates when shopping for car insurance. But first, in our This Week In Your Money segment, we’re talking about your best, last chance to get free health insurance, at least for now.
Liz: There’s an ACA deadline coming up. That’s the Affordable Care Act Exchanges, also known as Obamacare. And in March, President Biden signed the American Rescue Plan, which basically extended free health insurance to a ton of people. And I don’t think there’s enough notice about this or enough talk about this so we wanted to mention it since the deadline is looming.
Sean: Yeah, that is the thing right now. The deadline is coming up in just a few weeks. August 15 is the end of this special enrollment period, and after that, you would need some sort of qualifying life event to change your health insurance to get it on the ACA Exchanges. So, Liz, what do you think people should know about what is available health insurance-wise and why it’s so much better than what was available before this law passed in the spring?
Liz: One of the big changes is that people who have been on unemployment who received any kind of unemployment benefits this year, even if it was one check, qualify for a free comprehensive health care plan. They’re called silver plans, but they’ve enhanced it so much and they’ve dropped the deductible to, like I think, $177. If you don’t have access to other health insurance, in other words, if you haven’t gotten another job, if your spouse doesn’t have health insurance, whatever it is, you can qualify for one of these free plans. So that’s why the deadline is so important. If you have received any unemployment, you want to check this out — and you can start by going to healthcare.gov.
Sean: You also wrote an excellent column on this, which we will link to in our show notes, and it breaks out all of the details of this and why it’s so important right now. Another key element of this is subsidies around health insurance.
Sean: So now people with incomes up to 600% of the poverty level, which is roughly $76,000 a year for a single person or $157,000 for a family of four, can qualify for subsidies for their health insurance.
Liz: And people who are already getting subsidies, the subsidies have been enhanced. They’ve actually grown. So if you don’t have health insurance and you haven’t checked out the ACA recently, go do it because this could really save you some money and keep you from those catastrophic medical bills that can really upend your life. Even if you’re healthy now, you never know what’s coming down the road, as we’ve learned last year. So get your health insurance if you don’t have it.
Sean: And even if you have health insurance and you think, well, this doesn’t really relate to me or my life, chances are there’s probably someone in your life who might be uninsured or under-insured who could take advantage of this. So, it’s even worth mentioning in conversation with folks saying, “Hey, did you guys know the deadline is coming up? It’s really important. It can save you a lot of money and make sure that you are getting quality health insurance.”
Liz: Exactly. Be a friend to your friend and they will be fans of yours for life. I actually helped a friend do exactly this. She had been paying for own health insurance for a while and I mentioned it when it first happened, but the health care exchanges hadn’t been updated to reflect the change so she was like, “Yeah, yeah, yeah, whatever.” And then I reminded her and she went back and she was like, “Holy cow. I’ve got free health insurance.” Yes, exactly.
Sean: I think it’s important to realize that a lot of folks aren’t as steeped in this stuff and they may not know what’s going on, so if you feel a little bit annoying being that person saying, “Hey, have you done this? Have you gotten your insurance? Have you filed your taxes on time?” I think that deep down, even though they’re rolling their eyes at you maybe at least to begin with, they’re probably thanking you too.
Liz: We’ve got to hope so.
Sean: Yeah. If nothing else, I’m just going to pat myself on the back and say, “I did what I could do.”
Liz: That’s right. That’s exactly it.
Sean: Well, is there anything else around this that you think folks should keep in mind?
Liz: There was one other component to this, which is free COBRA coverage. But if you qualified for that, you probably have heard from your former employer by this point.
Liz: But if you do for some reason qualify for COBRA — that’s when you extend your own health insurance after you lose your job — but it’s super, super expensive.
Sean: Typically, yeah.
Liz: Yeah, the premiums are supposed to be covered from April through September, and again, your employer was supposed to reach out to you by May 31st. But if you think you might qualify, go check it out because that’s another big help in getting those health insurance bills paid.
Sean: There’s also a deadline coming up at the end of September, as it relates to COBRA, is that right?
Liz: The free coverage will end at the end of September, but that will be your cue, if you’re getting that help, to switch over and sign up for the ACA coverage. That will be a special event. What do they call those?
Sean: A qualifying life event.
Liz: Thank you, a qualifying life event. When your COBRA subsidy ends, then you will be able to hop on ACA.
Sean: And I’ll just throw in there are four basic types of qualifying life events, like loss of health coverage. As we mentioned with COBRA, that would be one of them. Changes in household like getting married or divorced, changes in residence like moving to a different ZIP code or county, and then there are other qualifying events like becoming a U.S. citizen or changes in your income that would affect the coverage that you qualify for.
Liz: It’s always a good idea to go check it out because you might qualify when you don’t think you do.
Sean: And you definitely don’t want to pay out of pocket if you can get some help with coverage.
Liz: Amen. Yes.
Sean: OK. Well, I think that about covers it for now. Shall we get onto this week’s money question?
Liz: Let’s do that. This episode’s money question comes from Mya in Rhode Island. Here’s their question. “I’m looking to buy a used car with a loan from my bank. Next on my agenda is to find car insurance. I’m a recent college graduate with my first job and no longer on my family plan. I am wondering how I can go about looking for car insurance and how to know what is a good deal. I know about the big insurance companies online, and I’m wondering what your thoughts and tips are on finding the best policy. Thank you.”
Sean: Great question, Maya. To help answer your question, on this episode of the podcast, we are joined by insurance Nerd, Kayda Norman.
Liz: Hey, Kayda. Welcome to the podcast.
Kayda Norman: Hey, thanks for having me.
Sean: So good to have you. Let’s start in the beginning, a very good place to start. How should people approach shopping for car insurance?
Kayda: So, when you’re thinking about shopping for car insurance, you want to be prepared with some basic information. You’ll want to know who’s going to be on the policy, their driving history, and then facts about your car, like make and model, any safety features, and annual and current mileage of your car.
Kayda: Another big one to think about is what coverage you’ll need. For someone like Maya, who’s getting car insurance with a loan, they’ll probably be required to get collision and comprehensive coverage. If you don’t know what that is, collision insurance pays for damages to your vehicle if you’re in an at-fault accident, and comprehensive insurance is going to cover damages to your vehicle from just about anything else except for those traffic collisions — damage from hail, flood, or even if your car is stolen. And then you’ll also need to buy any state-mandated coverage. The rest is up to you.
Liz: I always keep them separate by thinking, OK, collision is when I drive into the tree, and comprehensive is when the tree falls on my car.
Sean: Not when the tree drives into you.
Liz: Exactly. OK, now, after people have their information assembled, what’s next?
Kayda: So once you gather all of that information, you can decide how you want to actually compare companies. Depending on your insurer, you have a few different options. You can get your quotes online, go on the phone with an agent, or talk to an agent directly face-to-face. I personally like to shop online. It’s just really fast and convenient. I can do it from home. But if you have questions about your coverages or the insurance company, you might want to talk to an agent directly.
Sean: I kind of break the millennial stereotype where I love talking on the phone to customer service agents, because I think you can get more personalized attention and better deals. But shopping for car insurance is one of those areas where I do not want to be talking with an agent. It seems like it would take so much longer. Is that the case or are there any specific benefits to talking with an agent over the phone?
Kayda: I mean, I really think it just depends on your situation. You want to keep it quick, “Hey, I have an older car, I don’t need that much coverage,” then I would hope that it’d be a pretty fast conversation. But if you’re new to getting car insurance or you just want to know more about the company, it could take a little bit longer. But I think that talking to an agent does have a lot of great benefits because you can ask them while you’re on the phone about discounts, more ways to save, and really, do I really need this coverage?
Sean: And Liz, don’t you have someone who does this sort of work for you?
Liz: Yeah. I used to try to do it all on my own, but as you acquire houses and cars and things get more complicated, it’s really nice to have an independent insurance agent to ask questions of and to shop around and get you the best policy.
Sean: And how much do you pay for someone to do this work for you?
Liz: Well, with insurance, you actually don’t pay typically. They’re getting commissions from this. So it’s not a free service because the commissions are built in, but for me, it’s working pretty well.
Kayda: Yeah, and I did just want to add onto that, I think independent agents are great for all of those reasons, and definitely, if you’re someone with a lot of cars, different houses, or you are doing it for business purposes. But you do want to be careful because the independent agent is only going to be allowed to sell policies from certain companies in most cases. So yeah, there might be a better company out there for you that could be cheaper. And then, also, I did want to talk a bit about how there’s the independent agent like it sounds like you’re using, Liz, where you’re right, you don’t need to pay a fee. There are also insurance brokers where you might have to end up paying a fee for those.
Liz: And to be clear, we have a complex situation. We’ve got artwork and antiques — you know, grownup stuff. But if you’re just getting car insurance, there’s no reason to go to an agent necessarily. You can do your shopping online.
Sean: One thing that’s always stood out to me in my shopping experience is that I’ve had quotes vary pretty greatly by $50 or $100 a month from one company to the next. Kayda, what do you think is behind the variation in these numbers?
Kayda: Yeah, so I think that’s really common to see. One thing I’d point out is to look at how much coverage you’re getting. So that’s really important to look at, especially for liability, because liability is going to pay for the other person’s injuries if you cause an accident. So if you don’t have enough coverage, you have to pay out of pocket.
Kayda: Another thing you want to think about when you’re comparing quotes is, does the car insurance have a deductible? Some car insurance, like comprehensive and collision, will require that.
Liz: Let’s dive a little deeper into that. Can you explain exactly how your deductible affects your insurance bill?
Kayda: A deductible is the amount you pay out of pocket before your insurer pays a claim. If you have a $1,500 claim and a $500 deductible, you’ll receive $1,000 from your insurer. So your deductible amount affects the price you pay each month for your insurance. Let’s say Company A has a cheaper monthly rate, but you have to pay a $1000 deductible before your insurer pays a claim. Company B charges you more each month, but only has a $500 deductible. So you basically get to decide if you want to pay more now and have a low deductible later or save that money on your car insurance by raising your deductible. But I’d really caution you to only raise your deductible if you’re prepared to spend more of your own money to fix or replace your car.
Sean: It seems like having a higher deductible is basically making a gamble that you’re not going to have any sort of car accident trouble in the future, which you just don’t know.
Liz: So I think people will be tempted though to get the cheapest policy no matter what. Is that a good idea?
Kayda: Unfortunately, no. Sorry to say. That’s definitely a really popular way to go, but yeah, not the best choice. After all, you are buying insurance primarily for that peace of mind. It’s an interesting product because insurance is something you’re getting and you’re really hoping you’d never use it, but if you do need to use it, you want to make sure it works and it’s covering what you need. One thing to think about beyond price is consumer complaints and customer service ratings. If a company has high customer complaints, that can be a big red flag about the quality of service you might receive. If you go with that cheaper car company and you don’t do your research, you could be stuck in battle with your insurer if you do need a claim paid.
Liz: So where do people go about finding what a company’s complaint record is?
Kayda: What we do is we look at JD Power. They come out with a study every year about customer satisfaction with auto insurance and home insurance, both for claims and the shopping experience for buying it. So they also will break it down not only by large insurers, but by region. And another thing I would do is go to NerdWallet and look at reviews, because we give a star rating — one to five — to give you a quick indicator of how good of a company it is.
Sean: I do want to touch on price again. I’m wondering if you can tell me how car insurance companies determine what to charge me, Sean, versus you, Kayda, or Liz?
Kayda: Pricing with insurance is very unique where the rate you pay is always going to be specialized to you. Insurance companies look at a bunch of factors like your age, location, car make and model and driving history to determine your rate. And then on top of that, insurance companies all use their own unique formula to weigh all of those different factors. So, unfortunately, you will not know which company is cheapest for you unless you compare rates. For example, let’s say you have a recent DUI and you’re looking for the cheapest rate. Company A, maybe they charge you 5% more than someone without that DUI on their record. And then Company B is charging 3% more — they’re a little bit more lenient. But again, you’re not going to know until you actually go and compare those quotes.
Sean: It’s their secret sauce from company to company.
Kayda: One other thing I would say to keep in mind is your quote could be further personalized even after you get it. So the final price you pay can still change from the initial quote you receive.
Sean: Is there an average cost for car insurance that people can expect?
Kayda: Yeah. So I can definitely give you that baseline. NerdWallet did a study on the average car insurance rates across the nation, and we saw that drivers pay $1,592 a year or $133 a month on average for full coverage. Just remember, if you’re getting minimum coverage, you’ll pay less than that.
Sean: And this is also a good opportunity to plug bundling your insurance. If you have a home or you’re a renter and you have renter’s insurance, you may be able to save on that. I’ve been doing that and I appreciate it every time I’m paying a little bit less for my insurance.
Liz: Insurance company premiums don’t stay the same. Sometimes they’re going to want more market share so they’re going to lower their rates. Other times they’ll decide they have too much exposure and they’ll raise their rates. So you don’t just do this once, right, Kayda?
Kayda: Exactly. You definitely want to compare rates from at least three insurers at least once a year, and there’s actually even something called price optimization, which is when insurers are charging higher rates based on the likelihood that a person will not shop around for a lower price.
Kayda: So basically you always hear about insurance companies rewarding people who are loyal, which I think can be true. There’s those loyalty discounts out there. But this price optimization is basically punishing people for staying loyal to their company.
Kayda: I mean, I’m not saying that you don’t have the cheapest rate, you might do your research and find out, great, I still have the cheapest rate. I’m happy. Wonderful. Or even you find there is a bit of a lower-price company but it just doesn’t have everything you want.
Sean: It seems like price optimization is another term for your insurance company thinks that you’re a sucker, basically.
Kayda: Yeah. I mean, I don’t want to say that, but.
Sean: Well, regardless, what it seems like you’re laying out is just an excellent reminder of the importance of shopping around.
Kayda: Exactly. It’s such an important step that you don’t want to skip. Again, the more quotes that you get, the better chance you’ll have at finding the lowest rate for the coverage you need.
Liz: Another huge factor in most states is credit. Kayda, can you tell us how your credit can affect your premiums?
Kayda: Yeah. Credit is a big factor for car insurance. I’m glad you brought that up. It can end up costing you more because you have poor credit than if you have a recent DUI, believe it or not.
Kayda: Definitely something to think about when you’re shopping around. And that’s just another reason why you should be comparing different companies, because they’re not going to tell you, “Hey, we are more lenient.” If you have poor credit or not, you just have to compare rates. One thing you can do is use a comparison tool site, like the one we have at NerdWallet And that way you get to just put in your information and get rates from a whole bunch of different companies at once.
Sean: Isn’t it actually illegal in some states for car insurance companies to use your credit information when determining your rates?
Kayda: It is illegal in a few states, including California, Hawaii, Massachusetts and Michigan. There are other states looking into changing how credit is impacting your car insurance rate. Washington is looking into it, although there’s been some pushback, but they did pass a recent law about that. Even beyond credit, with gender, I just wrote a piece about that as well, different states have been using gender in your rates also, and they’re saying that certain people are being discriminated against if they’re using credit as a factor, gender, etc. So different groups are trying to support that and get those laws to change. But as you might expect, it’s pretty slow moving.
Sean: Another thing I think that would be helpful to explain is the difference between minimum coverage and full coverage. So can you explain each of those please?
Kayda: I think one thing people don’t realize is full coverage isn’t actually a specific type of policy. It’s a combination of coverage types. So together, full coverage can pay out for a bunch of different situations like damage to both your car and that other person’s vehicle if you caused an accident, and it also includes comprehensive coverage, so if your car is stolen or it’s damaged from hail, flood or another weather event. Then minimum coverage is now on the other end of the spectrum. It’s probably exactly what you’re thinking. It’s the minimum amount of insurance you need to drive, and that’s determined by your state. So it really depends on your location.
Sean: Correct me if I’m wrong here, but some people aren’t actually eligible for full coverage depending on their car. I have a friend whose car is technically totaled but is still running and her insurer will not give her full coverage because of the state of her car. It’s the classic thing with a Honda Civic where the engine will run forever, but then everything else will come apart, and so the car is worth nothing. I had one of these cars in college.
Kayda: Oh, wow. And you found the same thing or you just were not even trying to get it?
Sean: I wasn’t handling insurance at that point.
Sean: That was my mom. But yeah, it was a nice ’93 hatchback Honda Civic that only the engine worked. Everything else was falling apart.
Liz: So they’re basically giving her liability insurance, but not collision?
Sean: Because the car just isn’t worth it.
Kayda: Yeah, I find that interesting because NerdWallet, we recommend to definitely not get full coverage if you have an older car that isn’t worth much. I guess I’m impressed in a way that the insurance company isn’t trying to get more money where they can.
Sean: Yeah. I wonder if part of it is that they don’t want to have to pay out if something else happens to the car because it’s totaled. I’m not entirely sure.
Kayda: I mean, the way I think about it, let’s say this car is worth $500, you have a $1000 deductible, I feel like, in that sense, the insurer would win. And that’s why we say not to get full coverage. If your car isn’t worth the amount that you’re going to pay for your deductible, then it doesn’t make sense.
Sean: Even beyond that, it also seems like the coverage that you want will just come down to personal preference too, right?
Kayda: Yeah, definitely. I think that’s fair. So say, Liz, you might care about a company that’s easy to interact with and has that seamless tech experience.
Kayda: But I know a lot of people right now, they’re not driving as much during the pandemic, so they might want to try pay-per-mile insurance. And that’s where your rate is based on how many miles you drive. So yeah, not every company is going to have the option you want. So you really need to check that they have what you need before you go ahead with them.
Liz: And the pay-per-mile, they’re actually having you put something in your car to keep track of you, right?
Kayda: Yeah. So you have an app or you have a plug-in device and then that will track the miles you drive. But it depends on the company you go with how it’s being tracked. Another option that’s a little similar to pay-per-mile is pay-as-you-drive, and that is going to track hard braking, speeding, and just how you’re driving in general, and then your rate is based on how you’re doing.
Liz: Oh, being judged for how I drive. Interesting.
Kayda: Yes. So if you have any anxiety around that, maybe not for you.
Sean: No, I have a lead foot, so I’m not going to be going for that.
Liz: Uh-huh. Sean, just wait until you get an electric car and you can press down on that accelerator and go like 60. It’s awesome.
Sean: Oh yeah, another fine.
Liz: I hope my insurer’s not listening to this. OK, many customers are going to go towards the big name insurers because they spend a lot of money on advertising, but smaller insurers could be better, right?
Kayda: I think it’s human nature to gravitate to that big insurer first. It’s a familiar name and it has some degree of trust. But small insurers do often have cheaper rates, and not only that, they can get higher marks in customer service and low consumer complaints.
Sean: I have one final question for you, Kayda. How can people find the “best” policy?
Kayda: Unfortunately, I don’t have a sure-fire answer for that because it really depends on your own situation. You just have to ask yourself, “Do I need the cheapest policy so I can afford other bills, or is peace of mind or ease of use a big enough factor that I’m willing to pay for it?” Again, besides checking those insurer complaints and customer service records, I think it’s just really key to think about your own unique needs. After all, if that cheap insurer you find doesn’t have a mobile app and you’re looking for a company with an easy-to-use tech experience then that’s not going to be the best company for you.
Sean: Right. Well, Kayda, thank you so much for talking with us.
Kayda: Yeah, thanks so much. This was great.
Sean: With that, let’s get onto our takeaway tips, and I can kick us off. First up, shop around. Compare quotes from at least three insurers once a year to find the best policy.
Liz: Next, don’t make price your only deciding factor. Look for an insurer that has the coverage types you want and consider consumer complaints and customer satisfaction ratings.
Sean: And lastly, give small insurance companies a chance. Regional insurers might have the cheapest price for you and still provide great customer service.
Liz: And that’s all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected] Visit nerdwallet.com/podcast for more information on this episode and remember to subscribe, rate and review us wherever you’re getting this podcast.
Sean: And here is our brief disclaimer, courtesy of our lovely legal team at NerdWallet. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Liz Weston: And with that said, until next time, turn to the Nerds.
The article Smart Money Podcast: Health Insurance Deadlines and Getting the Best Car Insurance Rates originally appeared on NerdWallet.