3 Things 2-21
Although MAS is a financial services company, not everything published herein will be about numbers or investing. But no matter the topic, we hope for three things: 1) That you find the time you spend engaged worthwhile. 2) That you’ll reach out to us for help in any of our areas of expertise if something we discuss creates an urging in you to do so. 3) That you’ll share this with somebody new each time you read it.
Know Your Limits
If you drive a car and are responsible for the insurance payments, you are at least familiar with the term, “limits”, as it relates to your coverage. In that regard, you’ve likely seen numbers presented in three-slash format e.g., $25,000/$50,000/$25,000. These are the liability limits of your insurance coverage and they simply convey what your insurance company will pay in the event you are at fault in a covered accident.
In the above example, the first number represents the maximum amount the insurance company will pay to each person who makes a bodily injury claim in an accident in which you are deemed at fault. The second number represents the maximum amount your insurance company will pay, in total, to all persons making bodily injury claims in a single accident in which you are deemed at fault. And the third number is the maximum amount your insurance company will pay for all property damage claims associated with a single accident in which you are deemed at fault. It’s important that you know your limits and know what they mean for you. Taking the limits mentioned above, let’s delve further.
Assume you are at fault in an accident in which your car hits a vehicle occupied by three people. Let’s say the vehicle you hit is a 2022 Ford F-150 King Ranch (MSRP $57,110). Upon advice from their ambulance-chasing lawyers, all three decide to file claims against your insurance company. You are driving a Mercedes Benz and the lawyers assume you have substantial assets. They each file a bodily injury claim for $25,000 ($75,000 in total) and the driver files an additional claim of $50,000 for his truck since it was a total loss.
The individual bodily injury claims are within the limits of your coverage but your insurance company will only pay two of them since your limit per accident is $50,000. And it will pay $25,000 of the claim made for the total loss of the truck. That will leave you with the task of trying to settle the remaining $50,000 in claims (the unpaid bodily injury amount of $25,000 and the unpaid property damage amount of $25,000). It will also leave you wondering why you didn’t have better coverage.
Many people skimp on coverage thinking that the costs of it go up in a straight line. In other words, they think if they double their limits, they double their premium. This just isn't true. See the below analysis from carinsurance.com:
The nationwide average cost for state minimum liability coverage is $574.
Increasing that coverage to $50,000/$100,000/$50,000 averages only $644. So, you only pay another $70 a year ($6 monthly) by increasing your coverage.
If you increase state minimum coverage to full coverage, $100,000/$300,000/$100,000 with comprehensive and collision and a $500 deductible, the average goes up to $1,758, which is $1,184 more per year or about $99 per month.
CarInsurance.com consumer analyst Penny Gusner advises anyone with assets such as a home or savings to buy at least 100/300/100, but even higher limits of 50/100/50 are much better than your state minimum required to drive legally. After all, you’re on the hook for whatever your insurance company doesn’t pay. ........ Please note the bold text we highlighted above is consistent with the view that your insurance should look more attractive (to lawyers) than you. Think about this the next time you are in the market. Better yet, contact us and let us help.
Thing Two Wealth Is Knowledge The title of this post was the title of a recent Wall Street Journal article. Here is an excerpt of the piece: ……….… I asked the author and economist George Gilder about wealth creation. “Wealth is most essentially knowledge,” Mr. Gilder says. “Let’s face it, the caveman had access to all the materials we have today. Therefore, economic growth is learning, manifested in ‘learning curves’ of collapsing costs driven by markets.” Yet these learning curves get waved away by economists. Mr. Gilder says information, not materials, drives growth: “Crash a car and all its value disappears, though every molecule remains.” Another paradox is the belief that entrepreneurs like Tesla CEO Elon Musk and Meta CEO Mark Zuckerberg are driven by greed despite capitalism’s charitable characteristics. Rep. Alexandria Ocasio-Cortez of New York, showing her misunderstanding of economics, said in 2020, “No one ever makes a billion dollars. You take a billion dollars.” Have you ever noticed that those who criticize capitalists the most are too lazy to be capitalists? Mr. Gilder counters, “Capitalism is not chiefly an incentive system, where entrepreneurs act in rote response to rewards and punishments like in a Skinner Box. It’s an information system governed by the unveiling of surprising truths, innovation. If the creativity of entrepreneurs wasn’t a surprise, socialist planning would work.” Karl Marx didn’t—and Bernie Sanders doesn’t—understand productivity! Some recent surprising truths: mRNA, neural networks, Crispr, quantum computing. These two paradoxes are related, Mr. Gilder says: “You can keep your wealth only if you are willing to give it to others.” Think about that. If you have knowledge and capital, the only way to produce wealth is to invest in things that lower costs to consumers and slide down new learning curves. In effect, by providing something they will find productive—the iPhone, artificial-intelligence software—entrepreneurs expand their customers’ wealth. This is what I call societal wealth. Capitalism isn’t greedy, it is the sincerest form of charity. Sadly, too much capital gets redistributed before it can be invested and provided to others in wealth-enhancing form. So wealth is knowledge but, Mr. Gilder explains, “the biggest constraint of the processes of learning is time. Time is what remains scarce when all else becomes abundant. The Fed can print money, but it can’t print time…” ………. A very interesting take, huh? I would add to this that our lack of time (or poor use of it) often causes us to take mental shortcuts to understanding. We default to our political party’s platform, our social group’s ideology, our own prejudices, etc. And in the process, we get in the way of our own wealth creation.
Thing Three Just A Thought "Without education, we are in a horrible and deadly danger of taking educated people seriously." - G.K. Chesterton