Money Management

Could no-deductible car insurance help drivers save money — or could they end up paying more? 

Car insurance is a necessary expense, but it comes at a cost. An insurance policy with a higher deductible could cause some policyholders additional financial stress. For drivers who want to avoid spending a lot of money on a deductible when making a car insurance claim, a no-deductible car insurance policy is one coverage option to explore. Here’s what you should know about this type of car insurance coverage.

What is no-deductible car insurance?

With a no-deductible policy, drivers aren’t required to pay anything when making an eligible insurance claim. This type of coverage is also referred to as zero-deductible car insurance.

Most traditional car insurance policies have deductibles. When a policyholder is in an accident or their car is otherwise damaged, they’re responsible for paying their deductible when making a claim. Insurers may outline different deductible amounts depending on the type of coverage — for example, a driver’s collision coverage deductibles and comprehensive coverage deductibles may not be the same.

While no-deductible policies exist, not all car insurance companies offer them. Finding this type of coverage can be tricky because many insurers don’t want to deal with the financial risk. When a policyholder with this type of coverage has an accident, the insurer is responsible for the full cost.

Some insurers may offer no-deductible rates for certain types of coverage but not others. For example, an insurer may offer no-deductible comprehensive coverage but may not provide no-deductible collision coverage.

Pros and cons of a no-deductible policy

Drivers considering switching to this type of car insurance should consider the decision thoroughly. Below we highlight a pro and several cons of no-deductible car insurance.

Pro

Policyholders aren’t responsible for paying a deductible: A no-deductible policy could be advantageous for drivers with minimal funds in their savings accounts. A $0 deductible can feel like a win for their wallets.

Cons

Premiums cost more: Drivers who want a $0 deductible must pay for the privilege. Since the insurer is taking on risk, the policyholder will usually need to pay more for their premium. A more expensive premium can increase monthly expenses, negatively impacting their budgets.

This type of policy isn’t available in all states: Car insurance laws vary greatly. Some states have minimum coverage rules for certain types of coverage. Depending on a driver’s location, they may not have the option to purchase a no-deductible policy.

This type of coverage may only be available for certain situations: No-deductible car insurance coverage may not be available for all accidents and incidents. For example, some states allow drivers to have separate glass coverage that doesn’t require a deductible for auto glass claims. Finding a policy that promises no deductible for all situations may be difficult.

Is a no-deductible policy worth it?

Drivers interested in this type of coverage should first consider the total cost of their premiums and the age and condition of their cars. For some people, it may not be worth paying a higher policy premium for a $0 deductible.

Some drivers may want to explore other solutions to make their car insurance deductibles more manageable. Choosing a lower deductible policy instead of a no-deductible policy may be an option to explore. However, drivers should expect to pay a higher premium for a lower deductible.

Alternatively, some drivers may want to consider choosing a policy with a higher deductible to save money on premium costs. Those who do this should plan to commit to saving extra money while they maintain this level of coverage. This way, they have enough money in their emergency fund to cover a pricier deductible if they need to file a claim in the future.

Review car insurance coverage and compare insurance rates

All car insurance policyholders should consider reviewing their insurance policies to ensure it meets their current needs. It’s also good practice for drivers to get car insurance quotes regularly to compare rates. Check out our reviews of the best cheap car insurance to learn more.

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Is this something you could try with your kids? 

My kids are a long way away from being teenagers. But, as the person who has to shuttle them around to all of their myriad activities already, I look forward to the day when they’ll be able to drive themselves places.

Of course, many teens end up not being able to buy a car because of the high price of used (or new) vehicles as well as the high costs of auto insurance. The good news is, my kids are not going to have to worry about where the cash for their first car will come from. That’s because I’m setting them up to be in a position to pay for a car outright when the time comes.

Here’s how I’m doing that.

This simple approach will make a big difference in their lives

During my son’s first Christmas, I realized that I had a few options available. I could buy tons of toys that he would probably play with for a few days or weeks and then get bored with. Or, I could instead get started on a plan to enable him to buy his first car when he turns 16 — something that I’m sure would mean a whole lot more to him since he’d be old enough to be aware of the gift and it would enable him to have the freedom young people crave.

Since he already had a ton of toys, the decision was a no-brainer for me. Rather than spending a fortune on items that he wouldn’t get a lot of value out of for the long run, I bought a few small items for him to unwrap at a garage sale and I put the rest of my holiday budget for him into a high-yield savings account. I also enlisted his grandparents in the plan as well, encouraging them to buy just a token item or two and then contribute money to his savings account.

We made the decision that this would be separate from his college savings since we wanted this to be a fun gift he would enjoy, and we ended up being able to put a total of $500 in the bank for him. We decided to do the same thing on his birthday as well. And we committed to doing this process each year.

This means he’ll end up getting $1,000 deposited into his account for a total of 16 years until he becomes old enough to drive — at which point, $16,000 will be available to help him get a pretty nice used vehicle. And when my daughter was born, we decided we would do the same for her.

When my kids turn 16, I’ll let them know about these accounts and give them the choice. They can buy a car with the money stashed in them, or choose to use it for something else fun like funding a study abroad trip. They’ll be old enough to appreciate the money much more and use it for something that’s a lot more valuable than the disposable toys young kids so often get.

Could this technique work for you?

If you also find yourself struggling to decide what to buy your kids or wishing they didn’t get so much disposable stuff for holidays and birthdays, you may want to consider putting the money into savings for them.

We still have great holidays and they appreciate the fun of opening the small inexpensive gifts they receive — and they’ll appreciate it even more when they find out about their big savings account balances later in life.

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It’s definitely worth employing. 

Whether you’re buying assets to put into your brokerage account or IRA, your goal is no doubt to see those assets gain value. But that doesn’t always happen from one year to the next.

Take a look at how the stock market performed in 2022. Many investors have lost money (at least on screen or on paper) in their brokerage accounts and IRAs due to a broad market downturn. And so investors who bought stocks at the start of 2022 with the intent to sell them at the end of the year at a profit may be pretty discouraged right about now.

But buying assets to sell off quickly generally isn’t your best bet on the road to growing wealth. And if you want to be successful as an investor, there’s one strategy worth employing.

It pays to buy and hold

It’s important to research the assets you invest in. In the case of stocks, that means looking at different companies’ financial data to make sure they’re managing their money well and don’t have too much debt.

But once you identify quality stocks or assets to buy, you should plan to hold them for many years. Over time, the assets you buy are likely to gain value. But that may not happen in the short term. And if you sell assets too quickly, you might lose out on the opportunity to enjoy larger gains.

In fact, in a recent tweet, Graham Stephan addressed the importance of being a long-term investor. He’s a firm believer that the longer you invest, the lower the risk of losing money.

Case in point: The stock market has had a pretty terrible year. But over the past 40 years, it’s up quite a lot. So if you’re going to invest, have a long-term mindset. Don’t expect to get rich quickly.

Some assets are worth selling

You may be sitting on assets in your investment portfolio that have been consistently underperforming for years. Those may be assets worth selling, because they’re clearly not gaining value.

But if your portfolio is down on a whole this year due to general market volatility, don’t get discouraged — and definitely don’t dump all of your investments because you’re unhappy with the events of the past 11 months and change. Doing so will only guarantee that you end up taking losses, whereas if you wait things out, there’s a good chance your portfolio will recover over time and you won’t lose so much as a dollar.

Holding onto quality assets for a long time is a great way to grow wealth. And as long as you’re taking that long-term approach, you might as well remind yourself that in the grand scheme of your investing career, this year’s stock market performance is largely irrelevant. So rather than get bummed out about the state of your portfolio, keep your eyes on the big picture and note that 30 years from now, you probably won’t even remember how your IRA or brokerage account fared in 2022.

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Taking proper steps when opening a new checking account can help you continue to pay your bills on time and avoid extra fees. 

You likely already have a checking account, but there may come a time when you decide to open a new one. Whether you’re relocating, want to switch banks, or prefer a bank account with more features, you want to take the proper steps to set yourself up for success as you make the switch. Find out what moves you should make when opening a new checking account.

1. Prepare to open a new bank account

You should do some thorough research before opening a new account. Take time to compare checking account options to ensure you choose an account that meets your needs. Don’t forget to look into fees and other account details to avoid surprises.

You’ll likely be asked to present documentation and provide personal information when opening your new account. You can avoid delays by ensuring you’re prepared for the process.

2. Fund your new account

You’ll need to make a small deposit when you open your new account. But you also want to consider moving additional cash over to the account to have enough funds to cover your bills once you get your account set up to use it regularly. If you have some money in a savings account, you may want to transfer some of it into your new account for the time being.

3. Review and update your automated bill payment settings

You probably pay at least a few of your bills through your current checking account. You’ll want to review the existing automated checking account and debit card payments you have set up through your existing bank account, so you know what payment settings need to be changed.

Reviewing several months of bank statements can be helpful, so you don’t miss any bills. Remember that some of these payments may be scheduled through your online bank account, while others may be scheduled directly through the biller’s payment portal.

Assessing bill pay settings and updating them to list your new checking account details can ensure you experience no issues when your automated bill payments go through.

Of course, you’ll want to ensure you have plenty of money in your new checking account before making this move. Otherwise, you could overdraw the account and may have to pay fees. If you didn’t fund your account yet, as mentioned in the step above, do that first.

4. Update your direct deposit settings

Another move you’ll want to make is updating your direct deposit settings. If your paychecks are deposited directly into your existing bank account and you plan to close it, you’ll need to revise your direct deposit paperwork to list your new bank account details. Do this as soon as possible to avoid a delayed paycheck. The last thing you need is extra financial stress because an expected paycheck isn’t in your account when you’re counting on it to be there.

5. Don’t rush to close your old account

If you don’t plan to maintain two checking accounts, you may want to wait a few weeks before closing the old one. By holding off a bit, you can protect yourself in case an unexpected transaction is posted to the older account. Even if you take extra care when updating your payment details, mistakes can happen — so it’s a good idea to wait to close the old account.

You’ll also want to keep some money in the old checking account as a buffer during this period. Review your account terms to see if you need to maintain a minimum balance to avoid maintenance fees. Checking account fees add up and can eat away at your bank account balance.

6. Close your previous account when your affairs are in order

When everything is set up, you’ll want to go ahead and close the account. You can do this in person at a local bank branch, or in most cases, you can do this online. Your bank may ask you to write a letter stating that you wish to close the bank account. Once finalized, getting written confirmation that your account has been successfully closed is a good idea.

Now you know what actions to take when opening a new checking account. Taking the above steps can help you continue to pay your bills on time and avoid paying extra fees. If you’re looking for a new bank account, review our list of best checking accounts to learn more.

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A personal loan could be a good choice, but you may have other options, too. 

Some people purchase homes knowing full well that they’ll want or need to make improvements at some point in time. Maybe you bought a home with an outdated kitchen. Or maybe your basement needs to be finished so you can add another floor of living space to your home.

In an October survey by Thumbtack, 90% of current homeowners said they’re planning to make at least one improvement to their home within the next year. And so if you have similar plans, you’re in good company.

Improving your home could add nicely to its value, and it could also make your daily life a lot more pleasant and comfortable. The only problem with making updates is having to swing the cost. If you don’t have a massive pile of cash sitting around in your savings account, you’ll need to borrow money to finance your home improvements.

Now you may be inclined to take out a personal loan to pay for your upcoming renovation project. But before you start the process of shopping around for a personal loan, you may want to look at another option that could end up being more affordable for you.

Do you have equity you can tap?

A personal loan could be a great bet for financing home improvement projects. These loans let you borrow money for any purpose, and they tend to come with fairly competitive interest rates.

But if you own a home, there’s a good chance you have some equity in it at this point. That’s because home values are up on a national level. And if that’s the case, you may find that a home equity loan allows you to borrow money for a renovation at a lower interest rate than what a personal loan will cost you.

Why might that be the case? Home equity loans are secured loans — they’re based on the equity you have in your home. If you fail to keep up with your home equity loan payments, your lender has some recourse, because in an extreme situation, your lender could force the sale of your home and use the proceeds to get repaid.

Personal loans are a bit more risky in this regard. Personal loans are unsecured, so they’re not tied to a specific asset. Because of that, personal loan lenders take on more risk than home equity loan lenders.

Now if you have a strong credit score, you might qualify for a relatively low interest rate on a personal loan. But even so, you might manage to borrow at an even lower rate if you go the home equity loan route. So if your goal is to reap the most savings in the course of financing a renovation project, a home equity loan may be your better bet.

How much risk do you want to take on?

Of course, home equity loans aren’t without risk. As mentioned, if you fall too far behind on one, you could risk losing your home. That won’t happen with a personal loan, so you may feel more comfortable with that option.

But do be aware that falling behind on personal loan payments can still have pretty bad consequences. It could damage your credit score, making it very difficult to borrow money if you end up in a jam.

So either way, you’ll want to make sure that whatever loan you take out to pay for home improvements is affordable for you. And if you’re worried about keeping up with your loan payments, you may want to put your renovation plans on hold until you’re more financially secure.

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It’s important to know what unemployment coverage might look like if you end up losing your job. 

At this point, financial experts have been sounding warnings for months about a potential recession. And while we’re not guaranteed to see economic conditions decline in 2023, it’s a possibility everyone should prepare for.

The Federal Reserve has been aggressively raising interest rates to slow down inflation. That’s making it more expensive to borrow. And higher borrowing rates could cause a serious pullback in consumer spending, leading to a recession.

Now recessions can play out in different ways. Some can be mild and short-lived. Others can be long and painful. Either way, if a recession hits in 2023, there’s a good chance it will lead to a notable uptick in unemployment.

Right now, the job market is in good shape, and unemployment levels are fairly low. But things could change if economic conditions decline. In fact, in a recent Clarify Capital survey, 66% of respondents say that a recession would likely cause layoffs at their company.

Now the good news is that if you’re laid off from your job through no fault of your own, you’re generally entitled to receive unemployment benefits. But before you bank too heavily on those as a fall-back option, do consider these points.

1. Unemployment benefits won’t replace your paycheck in full

It’s a big myth that if you have to go on unemployment, the weekly benefits you’ll receive will be enough to take the place of your missing paycheck. In reality, your unemployment benefits probably won’t replace much more than half of your missing income if you’re an average earner. And if you’re a higher earner, those benefits might replace less of your income, percentage-wise. That’s because states have a weekly maximum benefit that applies whether you earn $50,000 a year or $250,000.

For this reason, it’s important to have an emergency fund to tap in case your unemployment benefits fall short on providing you with the income you need to cover your bills. In fact, ideally, you should have enough money in your savings account to pay for at least three months of essential bills.

2. Unemployment benefits may not kick in right away

You might file for unemployment benefits as soon as you’re laid off at work. But that doesn’t mean you should expect that money to start hitting your checking account a few days later.

It can take time to process an unemployment claim even during periods when job loss is low. And during a recession, when jobless claims pick up, you may be subject to longer delays than usual. That’s yet another reason why it’s essential to have money in savings — so you can keep up with your bills before your unemployment benefits start to arrive.

3. You can’t collect unemployment if you’re self-employed

Maybe you have different companies you work for on a contract basis. If a recession hits, they might choose to stop using your services to cut costs. And in that case, you’ll generally be out of luck, since people who are self-employed usually are not entitled to unemployment benefits.

Now you may remember that freelance workers were able to collect unemployment in 2020. But that was due to a special provision that was put in place by lawmakers due to the extreme nature of the unemployment crisis that erupted in the spring that year. In most cases, those who are self-employed don’t get unemployment benefits — which is all the more reason to pad your emergency fund if you aren’t a salaried worker.

If a recession strikes in 2023, the unfortunate reality is that many people could find themselves out of job. Knowing what to expect from unemployment benefits could help you better prepare for that possibility.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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