FORECASTS & TRENDS E-LETTER
By Phil Denney
August 6, 2024

IN THIS ISSUE:

1.  Rising Cost of Auto Insurance 

2.  Auto Insurance Companies Ranked by Satisfaction

3.  How About Home Insurance?

4.  Have a Sufficient Cash Reserve

I am very sure that readers of Forecasts & Trends are as diligent as I am in following the news. We hear every day about how expensive groceries, energy and housing have become. But for those of us who are empty nesters or with just a 1- or 2-person household, our family expenses have already been reduced as we approach retirement.

Even if we have paid off our primary residence and don’t drive as much, there’s an expense that has hit us particularly hard in the last year – insurance.

I am sure you have noticed that insuring your car and home has gotten horribly expensive. We will explore this today and give you a few ideas on how to reduce those costs.

Rising Cost of Auto Insurance 

It is no surprise that auto insurance rates are skyrocketing. According to research by J.D. Power, the average cost of auto insurance is up over 22% year over year through March 2024, more than any other category of household expenses. Half of U.S. customers of auto insurance have shopped for a new policy in the last year, up from 41% in 2021. And it isn’t just that they look for new policies, they are also making changes to existing policies.

“As inflation has affected all sectors of the economy, the costs of repairing and replacing damaged vehicles, medical costs and all other costs associated with an auto insurance claim have increased substantially,” the report states. “Consequently, auto insurance premiums have increased at an unprecedented rate during the past two years.”

Insurance agents said more customers are asking about or opting for higher deductibles. The total savings by choosing this option vary. For example, raising your deductible to $500 from $200 can reduce premiums of both collision coverage and comprehensive coverage from 15% to 30%.

Other costs related to owning a car are rising faster than the consumer price index. A trip to the mechanic, the price of a parking space and highway tolls are also up, offsetting the savings from one of the big exceptions – falling gas prices.

And if you own an electric car, the auto insurance rates you see are rising even faster than gasoline powered vehicles.

Do you remember the insurance commercials advertising lower rates if you plug a special sensor into your car’s service port to monitor your driving? A handful of insurance companies would offer you a lower rate if you proved you drove less than the average and were a “safe driver.” These “usage-based insurance,” or UBI plans, are even disappearing. Only 15% of insurance shoppers were offered UBI programs in the last year and in most cases UBI only showed a 6% decrease in the rates paid.

Auto Insurance Companies Ranked by Satisfaction

In a final note on auto insurance, the April 2024 study surveyed over 41,000 auto insurance customers on customer satisfaction. Here’s their list of top companies by region:

• California: Auto Club of Southern CA (AAA)
• Central: Shelter, for a fourth consecutive year
• Florida: Auto-Owners Insurance
• Mid-Atlantic: Erie Insurance, for a third consecutive year
• New England: Amica
• New York: Travelers
• North Central: Erie Insurance, for a fourth consecutive year
• Northwest: PEMCO Insurance
• Southeast: Alfa Insurance
• Southwest: CSAA Insurance Group (AAA)
• Texas: Texas Farm Bureau
• Usage-Based Insurance (UBI): Nationwide

How About Home Insurance?

Even if you can afford to buy a home these days, Americans must ask themselves if they can afford to insure it. A study by Rate Insurance, a national insurance brokerage firm, shows home insurance prices have increased 19% in 2023 and 55% since 2019.

The states with the highest home insurance costs are prone to hurricanes, namely, Florida, Louisiana, Mississippi and Texas. California, Colorado, Nebraska and Texas face growing wildfire risk, while Arkansas, Nebraska and Texas are highly vulnerable to tornadoes.

Rate Insurance expects the insurance market to improve slightly this year, but there still will be a persistent trend of homeowners policy premiums increasing, deductibles rising and insurance carrier restrictions. The purchase of additional products, such as private flood insurance to protect against increased exposures, will likely continue.

So what can you do to reduce the cost of home insurance? Their recommendations include:

• Compare insurance rates
• Increase deductibles
• Bundle Home & Auto
• Ensure proper coverage limits
• Assess roof condition
• Reduce risk through smart technology
• Consider purchasing private flood insurance
• Proactively protect property
• Monitor credit rating
• Estimate insurance costs prior to purchasing a new home

Have a Sufficient Cash Reserve

But don’t simply spend those insurance cost savings. Add them to your cash reserve. The size of your cash reserve depends on the security of your job and how much you may need to cover unexpected expenses like insurance deductibles.

A rule of thumb is three to six months of living expenses. I have learned that the higher your take-home pay, the larger your cash reserve needs to be. A credit card with a high limit is not a cash reserve.

One last point on insurance: If your vehicle is worth less than $4,000 or an amount that makes sense to you, perhaps all you need is liability insurance. Of course, you would also need enough money in your cash reserve to cover a replacement vehicle.

Thanks for reading,

 

Forecasts & Trends is published by Halbert Wealth Management, Inc., a Registered Investment Adviser under the Investment Advisers Act of 1940. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of the named author and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific advice. Readers are urged to check with their financial counselors before making any decisions. This does not constitute an offer of sale of any securities. Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have their own money in markets or programs mentioned herein. Past results are not necessarily indicative of future results. All investments have a risk of loss. Be sure to read all offering materials and disclosures before making a decision to invest. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.