It is what it is they are what they are….

An awesome advertising company that happens to sell insurance.  Every week of the year your mailbox is likely infiltrated by a mailing from Geico.  Not always a letter, sometimes just an insert in something else but they are there.  The message is always the same ” How much could you save on your car insurance?”  They use that goofy gecko, a pig, a caveman, random “b list” celebrities, etc in order to try and get your attention in a crowded place and they do a really good job at it.  This is based on them recently being ranked the #2 car insurer in the United States.

So good for them!  They actually make it easier for me to stand out with a commoditized product.  The thing is they completely dumb down what is more often than not an important piece of a financial plan.  Let’s look at this weeks mail; 5 Important tips to help you save money on car insurance

1. Insure more than one car on  your policy;  Is that the best you can do for number 1?  Really, insure another car?  In many cases it is actually considered fraud to not disclose other vehicles in a household NEXT

2.Make sure your car is equipped with safety features:  Come on man(thanks CC)  you then point out Anti-lock brakes, air bags and anti theft systems.  2 of those three are basically standard features of any car 2000 and newer.  As far as anti-theft, the discount is so small since it is a percentage of comprehensive which is your least expensive coverage.

3. Find out if your alumni association, credit union or professional group partners with Geico.   Ok now you are offering something, nice play.  Enjoyed this for years at Liberty Mutual until I realized it was more of a marketing ploy than an actual discount.

4.Insure more than your car with Geico.  Great a multi-policy discount, how original.

5. Educate your young drivers, or encourage them to get their own policy.  Although I like this idea from an overall responsibility perspective there is a small chance of savings.  See do you think the 18-22ish year old can afford the rate?  If the parents still need to subsidize the cost where is the savings?  

My key take away on this and anything else Geico presents is this; They do what they say they are going to do.  They do not promise a solid policy, they do not promise great coverage they do not promise that this policy is a great piece of your financial plan.

Good for them, but most people want better value not better price.

Just some thoughts.

Math and value and flood insurance

Woke up early and was immediately thinking about one of my last conversations yesterday.  Let’s start with some math;

If you spend $1000 and in return I lower the cost of something by about $3000 what could you consider your return on investment(roi)?  $2000 not bad.  Not bad at all.

So in the first year of this new product you saved $2000 by spending $1000.  Now in the second year(assuming current numbers stay the same) you actually save $3000 since you do not spend the $1000 again.  So you have now made $5000 by investing $1000.  500% return.

Now let’s say you need to keep that product for 10 years so $2000 the first year plus $3000 *12 = $36,000 for a total of $38,000 . **Average time in a home is 13 years** All because you invested $1000.

DISCLAIMER; This is math based on the current situation in flood insurance.  Where a provisional rate is approximately $6000 but if  you invest $1000 there is a very good chance you will see that reduced by about $3000.  With this being a brand new situation(roughly 4 months old) it is to early to make these figures more accurate.

**Real Estate version;

Is not spending $1000 worth losing a buyer?

Is not spending $1000 worth delaying a sale…and possibly losing the buyer?

Is not spending $1000 today worth saving maybe $38,000?

This is no different than upgrading your bathroom, lighting, landscape, paint, etc.

So at the present time here is my explanation as to why I will not guarantee the above;

Let’s look at it another way; DEDUCTIBLE math

So you are getting $250,000 in coverage and want the same $1000 deductible as your home.  Your rate is $6370 BUT factor in you think FEMA is nuts (they are) and you firmly believe there will be NO FLOOD at your home.  So you take a $5000 deductible.  New rate of  $4988 savings of $1382.  The math looks weird, you take on $4000 more in risk but this year you save $1382 plus year two $1382 plus year three and what do you know you are now in the clear (assuming you saved this savings)  risk averted.

Remember insurance is an exchange of risk.  Flood rates are nuts because people were not paying enough into the big pool of insurance.  The only act of government that I believe will fix this is when the government GETS OUT OF THE FLOOD INSURANCE BUSINESS.

When deciding on how to spend your insurance budget don’t just settle for what the crowd says is right.  Your willingness to take on more risk is rewarded with a savings which you should value.  Especially if you place no value on the flood insurance you have to buy.

Just some thoughts.  Please open your mind to some new ideas.