SUZE ORMAN
The Ultimate Protection Portfolio
™
Auto/RV/Boat Records
This product provides information and general advice about the law. But laws
and procedures change frequently, and they can be interpreted differently by
different people. For specific advice geared to your specific situation, consult
an expert. No book, software, or other published material is a substitute for
personalized advice from a knowledgeable lawyer licensed to practice law in
your state.
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Copyright © 2003 by Suze Orman Media, Inc. All rights reserved.
Suze Orman® is a registered trademark of Suze Orman.
Suze Orman—The Ultimate Protection Portfolio™ is a trademark of Suze Orman.
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All rights reserved. No part of this guidebook may be reproduced by any mechanical, photographic, or electronic process, or in the form of a phonographic recording;
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ISBN 13: 978-1-4019-0345-9
ISBN 1-4019-0345-2
11 10 09 08 7 6 5 4
1st printing, November 2003
4th printing, May 2008
Printed in China
Auto/RV/
Boat Records
Just as it’s important to keep safe the deed and mortgage to
your home, it’s also important to protect the ownership and loan
records of your cars, trucks, recreational vehicles, boats—even
your airplane, if you own one! By putting these documents in
your Protection Portfolio, you and your loved ones will have one
less thing to worry about.
I’ve divided this booklet into four sections: First, I’ve outlined the information that everyone needs to know before buying an automobile, recreational vehicle, or boat. Then, for each
one of these purchases, there’s a special section dedicated to the
concerns unique to them—including a checklist of the vital documents to be stored in your Protection Portfolio and valuable
information that every car, RV, and boat owner should know.
Before You Make a Purchase,
Determine How Much You Can Afford
In the home-ownership booklet, I asked you to “play house”
before you purchased a new home. Playing house is a way of
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trying on new financial situations for size. Now I want you to
do the same thing before you purchase a new or more expensive automobile, boat, RV, or other luxury item.
Here’s how to do it: Open up a brand-new savings account.
This is something I want you to do well before you’re really serious about buying a vehicle or boat. Set a date once a month—
for instance, the 15th. For the next six months, on that date, I
want you to deposit into your new account the exact difference
between what your current vehicle or boat costs (total payments you’re making on the vehicle or boat you currently own)
and the amount you project you’ll have to pay on your new vehicle or boat. For example, let’s say that you have a $300 car payment. The car you want to buy will cost you $600 a month. You
must deposit the difference between the two ($600 - $300, or
$300 a month) into the new savings account, no later than the
date you set. (If you don’t currently own a vehicle or boat, or
you own one but don’t have a monthly payment, you’d deposit
the entire amount into the new savings account.) To really do
a thorough job with this exercise, you should also factor in the
estimated cost for all the extra fees—expenses such as maintenance, gas, parking-garage fees, and boat-dockage fees.
After “playing” like this for six months, it’s time to evaluate
how stashing away that extra money each month has affected your
lifestyle. If you’ve made all the payments comfortably and on time,
you know that you can truly afford this particular vehicle or
boat right now. Better yet, you’ve already accumulated funds to
put toward increasing your down payment, title costs, or even
doing a few small repairs or upgrades on the new purchase!
If, on the other hand, you missed payments or were late in
making any, then you can’t afford the vehicle you were thinking about buying—at least not yet. I want you to take a look at
your situation and determine what payment amount you would
have been comfortable with. Maybe the solution is to consider
a smaller vehicle or a larger down payment, or you may just have
A U TO / RV / B O AT R E C O R D S
to wait until your finances improve. The good news is that you
now know how much you can realistically afford at this time
without having lost any money finding out. You should also have
a nice sum of money in your savings account that will help you
achieve your future goals.
Know Your FICO Score Before You Apply for Any Loan
While you’re in the playing stage—and long before you
apply for a loan—be sure to find out your FICO score, if you
haven’t already done so. Just as with a home mortgage, the
higher your FICO score, the lower the interest rate you’ll qualify for on your auto, RV, or boat loan (for information on FICO
scores, see page 32 of the “Credit: Cards, Records, and Debt”
booklet). Likewise, as your FICO score goes down, the interest
rate you may have to pay goes up.
For example if you applied for a 36-month auto loan for
$25,000 in the winter of 2008, here are the interest rates you’d
most likely qualify for at each FICO score level.
FICO Score
720–850
690–719
660–689
620–659
590–619
500–589
Interest Rate (percent)
6.363%
7.276%
8.803%
10.583%
13.948%
15.124%
Notice that if your FICO score falls in the range of 660–689,
it could cost you up to almost 3 percentage points more in
interest than if your FICO score fell in the best range. Why is this
important for you to know? Well, let’s say that your FICO score
is 680. If you were applying for an auto loan and the above inter-
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est rates were in effect at that time, you’d have to pay an interest
rate of 8.803 percent. Given this, you might be better off waiting to apply for a loan while you take the necessary steps to
improve your FICO score. Raising your score by just a few
points would put you into the next range, where your interest
rate would be 7.276 percent.
The following chart illustrates how a low FICO score can
cost you nearly $100 per month in payments on a 36-month,
$25,000 car loan.
HOW YOUR FICO SCORE
AFFECTS A $25,000 AUTO LOAN
FICO Score
Interest Rate
Monthly Payment
720–850
690–719
660–689
625–659
590–624
500–589
6.63%
7.276%
8.803%
10.583%
13.948%
15.124%
$765
$775
$793
$814
$854
$868
How to Protect Yourself When You
Sell a Car, Boat, or RV
The most important thing to remember when transferring ownership of a car, boat, or RV is not to give the buyer physical possession of the vehicle until you’ve received a copy of the
new registration from the Department of Motor Vehicles showing the new owner on title. That way, you won’t be liable in case
of an accident or other mishap after the vehicle leaves your
possession. Please check with you state Department of Motor
Vehicles to get specific regulations and guidelines regarding
transferring of title of your vehicle or boat.
Automobiles
AUTOMOBILES
Please locate and collect the documents listed in the “Automobile Documents Checklist” below and file each document in
your Protection Portfolio. Please be sure you always have a
copy of your auto-insurance policy in your portfolio. In case
there’s an accident or theft, easy access to this document will
spare you much time and trouble.
AUTOMOBILE DOCUMENTS CHECKLIST
❑
❑
❑
❑
Titles to any automobiles
Auto leases
Auto-insurance policies
Auto-loan documents
Buying a New Car
For most people, a new car is second only to a home as the
most expensive purchase they’ll ever make, so it’s important to
do your research before you even consider making an offer on
a vehicle. Give some careful consideration to the car model
and options you want, as well as how much you’re willing to
spend. Prior to discussing price with any dealer, shop around
to compare prices, models, and options—in ads, on Websites,
and at competitive dealer showrooms—so you’re educated
about the vehicle you’re looking to purchase.
Make sure you know both the invoice price and the sticker
price for the vehicle and all the options you’re considering, and
plan to negotiate on price. In most cases, dealers will be willing
to reduce their profit margin between 10 and 20 percent.
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Usually this is the difference between the invoice price and the
manufacturer’s suggested retail price (MSRP).
When negotiating, always negotiate up from the invoice
price. For an estimate of the invoice price, you’ll need to do some
research on the Internet. Two great resources are Edmunds.com
(www.edmunds.com) and Kelly Blue Books (www.kbb.com).
Links to both of these Websites are provided on the Protection
Portfolio CD-ROM. Use the “Buying a New Car” worksheet on
pages 10–11 to keep track of your findings and compare the various options and pricing (this worksheet can also be found on
the Protection Portfolio CD-ROM). By being an informed
shopper, you’ll be less likely to feel pressured into making a hasty
or expensive decision at the showroom, and more likely to get
a better deal.
Buying Terms
Negotiating for a new car requires mastering a unique
vocabulary. Here are some terms you may hear at the dealership:
•
Invoice Price. This is the manufacturer’s initial
charge to the dealer. It’s important for you to
know that dealers receive rebates, allowances,
discounts, and incentive awards, so the invoice
price is usually significantly higher than the
dealer’s final cost. The invoice price should
include destination and delivery or freight. If
you’re buying a car based on invoice price (for
example, “at invoice,” “$100 below invoice,”
“2 percent above invoice”), and if freight is
already included in the invoice price, make sure
freight isn’t added again to the sales contract.
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•
Base Price. The base price is the cost of the car
without options, but including standard equipment and factory warranty. The base price is
printed on the sticker displayed in the car window.
•
Manufacturer’s Suggested Retail Price (MSRP), or
Monroney Sticker Price. The MSRP lists the base
price, the manufacturer’s installed options with
the manufacturer’s suggested retail price, the
manufacturer’s transportation charge, and the
fuel economy (mileage). The Monroney sticker
(or label), which lists the MSRP, is required by
federal law to be affixed to the car window, and
may be only removed by the purchaser.
•
Dealer Sticker Price. The MSRP listed on the
Monroney sticker plus the suggested retail price
of dealer-installed options, such as additional
dealer markup (ADM) or additional dealer profit
(ADP), dealer preparation, and undercoating
adds up to the dealer sticker price. It’s usually
listed on a supplemental sticker that’s affixed
next to the Monroney sticker.
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WORKSHEET FOR BUYING A NEW CAR
Year:
Make:
Model:
Base Price:
Invoice Price* Sticker Price
Feature
Drive train:
Two-wheel
Four-wheel
All-wheel
Transmission:
Automatic
Manual
Engine:
Size____
Doors:
Two-door
Four-door
Brakes:
Two-wheel antilock
Four-wheel antilock
Power-assisted
Power features:
Power locks
Power windows
Doors (van)
Mirrors
Seats:
Power
Heated
Leather
Wheels and tires:
Alloy wheels
All-season tires
Mirrors and lights:
Illuminated dual
vanity mirrors
Map lights
Exterior power mirrors
Difference
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Feature
Audio system:
AM/FM
Cassette
Single CD
Multiple CD
Additional features:
Alarm system
TV
VCR
DVD
Remote keyless entry
Sunroof/moonroof
Other:
Invoice Price* Sticker Price
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Difference
* You can obtain the invoice price by looking at the dealer’s invoice, reviewing car
publications, or visiting Websites such as www.kbb.com or www.edmunds.com.
Cash Back or Zero Percent APR?
These days, almost every major car dealer is offering either
zero percent financing or cash-back deals. But before you start
figuring out how you’ll spend the money you’ve saved, read the
fine print. To qualify for the zero percent APR offer, your credit
record must meet certain standards set by the manufacturer.
Usually, the decision on whether or not to approve is based on
your FICO score as well as your income.
Unless you have an above-average income and a FICO
score in the upper ranges, you won’t likely qualify for the zero
percent APR offer. Experts estimate that only a third of car
buyers who apply for zero percent APR actually qualify. Even if
you do qualify, you may discover that a cash rebate is a better
deal. It will depend on a number of factors, including how long
you plan on keeping the car and the interest rate you’ll be
charged if you take the rebate. Generally speaking, if you only
plan on keeping the car for a few years, say two or three, the
rebate will most likely be the better deal, since you’ll only be paying interest for a short amount of time.
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If you don’t qualify for the zero percent offer, I don’t want
you to automatically sign a deal for a cash rebate from the
dealer. It’s important to shop around for the best loan
deal. Check out what your credit union or bank will offer
you before you look into dealer financing. Another place to comparison shop for the best auto loan is on the Internet at
www.bankrate.com or www.lendingtree.com. Links to both of
these Websites are provided on the Protection Portfolio
CD-ROM. On the CD-ROM you’ll also find an “Auto Rebate vs.
Low-Interest Financing” calculator to help you determine
whether you should take advantage of low-interest financing or
a manufacturer rebate.
Now just because you’re getting a zero percent APR or cash
back, don’t forget to negotiate. The zero percent APR or cash
back is subsidized by the manufacturer, so remember to start
with the price the dealer is paying the manufacturer—also
known as the invoice price—and negotiate up.
Trading in Your Old Car
If you’re considering trading in your old car, don’t bring this
up in negotiations until after you’ve negotiated the best possible price for your new or used vehicle. Prior to entering the dealership, make sure you’ve researched the market value of your old
car (you can find the market value of used cars at the Kelly Blue
Books Website, www.kbb.com, or the Edmunds.com Website,
www.edmunds.com). If your car is a popular model in good
condition and you’re sticking with the same brand, you might
get a great deal from the car dealer as a trade-in. But if the car
dealer offers you significantly less than the market value of
your car, consider selling it yourself—or take it to the used-car
lot or other dealer for a price quote.
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Please know that you can typically get more money for
your car if you sell it yourself, rather than trading it in. But you
also need to ask yourself whether you’d have the time to sell the
car on your own.
Refinancing Auto Loans
Refinancing an auto loan is similar to a refinancing a mortgage, but the process is much simpler and less expensive. And
with auto-loan interest rates at historic low levels, now is a perfect time to take advantage of refinancing. Typically, the only fees
associated with an auto refinance loan are fairly standard transfer of lien holder fees (usually $5 to $10) and state re-registration
fees(usually $5 to $75). These estimated fees may vary by lender
and state of residence. Also, be sure to check if your existing
lender has any prepayment fees: While these fees are uncommon,
they could eliminate the advantages of refinancing. How much
you save by refinancing your auto loan depends on factors such
as the remaining balance of your existing loan, the difference
between your old interest rate and the new interest rate, and the
length of the term of your new loan. You can visit the Website
www.lendingtree.com and use the loan calculator there to get an
estimate on how much you could save. A link to this Website is
provided on the Protection Portfolio CD-ROM.
Extended Warranties and Service Contracts
Are extended warranties warranted? The answer is: “It
depends.” Extended warranties, also known as service contracts, are usually better deals for the dealer than the consumer.
The extended-warranty provider figures out the average repair
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cost for the vehicle, then they add a percentage to that amount
to cover their operating expenses and their profit. Let’s say the
average repair cost for your car, less any deductibles, is $1,200
over the next five years. The extended warranty company might
charge you $1,500. Like most types of insurance, an extended
warranty exists because the consumer doesn’t want to risk
costly repairs in case a major component (such as a transmission) breaks down.
When shopping for an extended warranty, you have two
options: a factory-backed warranty or an independent contract. Factory-backed warranties tend to be a bit more expensive, but they’re generally more accepted by dealers because
they come from the manufacturer—there’s more of an incentive to keep customers satisfied. Extended warranties from
independent contractors may be less expensive, but they tend
to have restrictions, and dealers are often hesitant to accept
them if they’re not familiar with the company. If you decide you
want an extended warranty, make sure you shop around to get
the best deal. Once you have a few quotes, ask your dealer to
match the price. Warranties are usually negotiable.
Before deciding to purchase a service contract, read it carefully and consider these factors:
•
The difference between the coverage under the
normal warranty and the coverage under the
extended warranty
•
What repairs are covered, and what repairs aren’t
covered
•
Whether or not routine maintenance is covered
•
Who pays for the labor and parts
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•
Who performs the repairs (that is, can you have
repairs made outside the dealership)
•
When the extended warranty goes into effect,
and how long it lasts
•
Cancellation and refund policies
Buying a Used Car
When buying a used car, it’s essential that you do your
homework. Check out the car’s market value, repair record
(www.carfax.com is a good resource), maintenance costs, and
safety and mileage ratings in consumer magazines or online.
If you’re purchasing from a dealer, you have the following
rights under the federal regulation called the Used Car Rule:
•
You have the right to see a copy of the dealer’s
warranty before you buy. Warranties are
included in the price of the product; service
contracts cost extra and are sold separately.
•
You can check out the dealer with local consumer protection officials.
•
You have the right to ask for the car’s maintenance
record from the owner, dealer, or repair shop.
•
You can test-drive the car on hills, highways, and
in stop-and-go traffic, and have the car inspected
by a mechanic you hire.
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Keep in mind that if you buy a car “as is,” you’ll have to pay
for anything that goes wrong after the sale, and the Used Car
Rule generally doesn’t apply to private sales. (For more information about the Used Car Rule, visit the Federal Trade Commission Website: www.ftc.gov. A link to this Website is provided on the Protection Portfolio CD-ROM.) Make sure all
oral promises are written into the Buyers Guide.
Repairs
One of the reasons we don’t like to keep our cars for very
long is that we don’t like to pay for repairs. But this doesn’t make
good financial sense. Would you rather pay $1,000 a year in
repairs on a car, or $5,000 a year on finance payments? If you
do buy a reasonably priced used car and it starts to need repairs,
you can use the money you’ve saved by not buying a new car—
even a new used car—to pay for those repairs in a pinch. In the
long run, it’s a far better use of your funds to keep a car as long
as you can. Your insurance will cost less and registration fees may
be lower. In addition, because older cars invariably show signs
of wear and tear, you may be less concerned every time yours
gets a scratch—and thus be less inclined to spend money repairing every little scrape or dent.
Leasing vs. Buying
As I stated previously, apart from a mortgage payment,
financing your car is one of your biggest financial undertakings.
A car serves not only as transportation, but it also sometimes
serves as a status symbol—one way you may choose to show the
world who you are or want to be financially. And sometimes the
only way you can afford to get behind the wheel of this status
symbol is by leasing, rather than buying.
A U TO / RV / B O AT R E C O R D S
That said, I’ve never liked leasing, and I will never like it, and
no one will ever convince me that it’s an intelligent thing to do
with money. Buying is preferable to leasing if your goal is to be
debt-free, even if it means you have to pay for your car over time.
Why? Because at any time, if you find that you can’t afford a payment to a bank or other lender, you can sell the car. As long as
you’ve made a good deal initially and have treated the auto
well, you can usually get close to what it’s worth. And when it’s
time to acquire a new or used vehicle, a car dealer will almost
always give you a trade-in value in order to get your business.
When you lease a car, you take on a monthly expense that,
in most circumstances, you’ll continue to have to pay for the rest
of your life. Here’s why: With leasing, you don’t own the car
you’re driving—you’re paying a monthly fee merely to use that
automobile for a few years. At the end of the leasing period, you
either have to give it back or purchase it for a predetermined
price—a price that’s usually set in such a way that it may make
no sense for you to go ahead and make that purchase. That’s
because these days the leasing companies entice you with a
lower monthly fee to draw you in and then make up their profits with an inflated residual price (the price you’d have to pay
to buy the car outright) at the end of the lease. So what most
people do after their lease period expires is turn in their auto to
the dealer and lease another. And then what happens a few
years later? They do it again . . . and then again—for the rest of
their lives.
How to Get Out of a Lease
Let’s say that you’re leasing a car when an unforeseen crisis hits, and you find you can no longer make your lease payments. What are you going to do? Even if you give the car back,
you’re not off the financial hook; you still owe the remaining
money on your lease. On top of that, the leasing company
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sometimes even charges you additional penalties and fees, such
as “recapture of depreciation.”
To get out of your lease, you have three options. You can:
1. Buy the car outright or finance it.
2. Sell the car for as much as possible and pay that
amount plus any additional amount you may
still owe to the lease company.
3. Try to find someone to assume the lease
obligations.
If you can’t sell your car outright, you may want to try to
find someone who will assume your lease payments. However,
keep in mind that when a person assumes a lease from you, it
still doesn’t mean you’re off the hook! If the new leaser doesn’t
make the payments, the lending company will come after you.
So be careful with whom you make your agreement to assume
the lease.
If you decide to sell the car on your own, you’ll have to come
up with the difference between what you owe the lease company
and what you sold the car for. And what happens if you don’t
have the money? You’re in trouble again. Therefore, to make sure
you don’t find yourself short, you need to prepare for this
unknown when you first consider leasing.
Signature Loans
When you lease a car, see if you can also get approved for
a signature loan. Try to get a $10,000 loan. If you’ve been
approved for a car lease, you can usually qualify for this other
loan, and it will give you a backup income source if you hit a
rough patch. Here’s how:
A U TO / RV / B O AT R E C O R D S
Let’s say you’ve leased a car and an unforeseen problem happens and you can no longer make the payments. Before you
return the car to the dealer or lender, see if you can sell it on your
own. The way you can do this is to run an ad to sell your car for
the payoff only—don’t try to increase the price to make money,
because it won’t happen (you want to attract buyers who can
solve your problem, not scare them away). When a potential
buyer makes an offer on your car, negotiate the best price you
can in a nice manner. Hopefully, you’ll arrive at a sum that will
help you pay off the lender with what you’ve negotiated plus
your signature loan. If you have any portion of the signature
loan left over, pay it back to the bank immediately. You have now
eliminated a large car payment for 48 to 60 months and the lease
is closed, or, more important, paid as agreed upon according to
the lease’s terms.
If you decide to return the leased car to the leasing company
without trying to repay, be aware that there’s a big downside:
After you return the car, the company may try to sell the car at
an auction. Yet even if the car sells at auction, you’ll still owe the
difference between the balance on your lease at that time and
the auction proceeds for the car. Again, the company may even
charge you more for penalties and recapture of depreciation. It’s
likely that your lease company also owns a used-car lot, and the
person who runs that used-car lot can go to the auction and buy
your car for, say, $4,000. The problem is that you owed $12,000
on the car at the time you had to give it back. So even with the
$4,000 from the sale of the car at auction, you’ll still own $8,000
to the lease company, and now you have no wheels to get
around.
In the meantime, the lease company has your car back on
its used-car lot, and the car is up for sale. The company can
probably sell it quickly for $10,000. Between the $8,000 you still
owe and the profit the company is collecting on the sale of the
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car, someone is making out like a bandit—and it isn’t you.
You’re still paying for a car that you don’t even have. Now this
is what’s known as a bummer.
Tax Write-Offs of Leasing?
I know that some financial experts want you to ignore all the
dangers of leasing. They’ll show you the tax advantages of leasing over buying, and why, in your case, you should lease. I don’t
care about the tax advantages for most people. They’re not significant compared to your overriding need to know how you’re
going to handle any unforeseen financial crisis in your life.
Many people who lease just love getting those great tax
write-offs for the first year, and they also love how they look
driving a fancy car. However, I’ve seen these same folks become
absolutely depressed after their car is carted away because they
can no longer make their lease payments, and yet they’re still
responsible for those payments.
If for some reason you still want to lease rather than buy,
please know that the Federal Reserve, which oversees leasing,
forces dealers to disclose all the terms of their leases in a onepage document. Please make sure you read this document thoroughly so you understand what you’re getting into.
How Much Car Insurance You Need
If you own a car or truck, you’re required to carry certain
types of coverage by the state you live in and—if you borrowed
money to buy your car—by the lending institution that gave you
your loan. Standard car insurance includes four types of protection: auto liability, medical payments, collision, and comprehensive coverage.
A U TO / RV / B O AT R E C O R D S
Auto liability coverage protects you in case you cause an
accident. It has two parts: The first is bodily injury liability,
which pays your medical expenses and those of anyone else
injured in the accident. There’s no deductible for this portion
of the coverage. Most states require you to have a minimum
amount of liability coverage, but bear in mind that the minimum may not be adequate if, for example, you cause a serious
accident and get sued for pain and suffering. You can also buy
medical-payments coverage, which will pay your expenses and
those of your passengers if you experience a serious injury in a
car crash, whether you caused the accident or not. Note, though,
that car-insurance medical benefits won’t pay all medical
expenses—there are limits.
The second part of the standard liability policy pays the
repair expenses if you accidentally damage somebody else’s
property (like another person’s vehicle or house) with your
car. Collision insurance is an option, and it’s not typically
required by the state. But among other things, it protects your
car in the event of an accident, whether you caused the accident
or not. If your car is valuable, it might make sense to purchase
this type of insurance. You can choose whether or not to have
a deductible.
Comprehensive insurance, which is also optional, pays for
the repair or replacement of your car if a fire, falling object,
earthquake, flood, theft, vandalism, or another type of nonautomotive accident damages it.
No-Fault Auto Insurance
Most states use a no-fault auto-insurance system, while
others use traditional third-party systems to settle claims. Nofault states require drivers and their insurance companies to pay
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their own costs after a car accident, whether they were responsible or not. But you still may need liability insurance, because
if you cause an accident and the costs to the other injured people are above a certain threshold, they can sue you. If they win
a judgment against you and you don’t have sufficient liability
coverage, the difference may have to come out of your own
pocket.
In a state with a traditional third-party system, or a “fault”
state, your insurance company pays your claim only if you can
prove that you didn’t cause the accident. No-fault states typically require you to buy medical-payments coverage, while fault
states don’t. But you may want to consider buying this type of
coverage anyway, as it pays no matter who caused the accident.
Replacement-Cost Policies
Premiums for replacement-cost coverage may be more
expensive, but they can also be worthwhile, because such coverage will replace or repair your car without deducting for its
depreciation. Actual cash-value policies only pay you for the
value of the car at the time it’s stolen or damaged, which is
reduced to account for depreciation.
Uninsured and Underinsured Motorist Insurance
Uninsured motorist coverage protects you if a driver with no
insurance damages your car in an accident. (There is also uninsured motorist property damage and a collision deductible
waiver.) Some states require you to have this coverage; it kicks in
if an uninsured driver hits your car and you have medical bills.
There’s also something called underinsured motorist coverage,
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which makes up some of the difference if a driver hits you and
has some, but not adequate, insurance. In other words, you can
make a claim on your own insurance policy if the person who hits
you doesn’t have any insurance for you to make a claim on.
However, note that all of these policies have benefit limits.
How Much Insurance You Need
To determine the level of coverage you need, answer the following questions and think about what will make you feel safe.
•
Is your car brand new or a few years old?
•
How much would it cost you to replace your car?
•
Do you have the resources to pay for medical
bills and car repairs?
•
Do you have valuable assets you want to protect?
After answering these questions, if you feel you don’t have
adequate insurance, contact your insurance provider and discuss increasing your coverage.
Standard minimum recommendations for homeowners
and people with significant assets are at least $100,000 in bodily injury coverage per person, $300,000 in bodily injury coverage per accident, and $50,000 in property-damage liability.
Those with fewer assets should consider $15,000 in bodily
injury coverage per person, $30,000 in bodily injury coverage
per accident, and $10,000 in property-damage liability.
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Finding a Good Auto-Insurance Policy
Car-insurance premiums have been increasing—even for
those who maintain a clean driving record and drive safe and
reliable cars. The insurance industry claims that the increases
are necessary due to rising medical and car-repair costs, as well
as increasing jury awards and insurance fraud. So it’s essential,
more than ever, that when your auto-insurance premium is
up for renewal that you shop around to get the best deal. Finding a good deal on an auto-insurance policy can be even more
difficult if you live in a high-cost state like New Jersey, New York,
or California. One of the best resources to comparison shop is
the Internet. At www.lendingtree.com, you can get multiple policy quotes from competing lenders. Before signing up with any
company, though, make sure they have a good credit rating
with one of the rating services listed below (links to these Websites are provided on the Protection Portfolio CD-ROM):
A.M. Best
(908) 439-2200
www.ambest.com
Duff & Phelps
(312) 263-2610
www.fitchratings.com
Moody’s
(212) 553-0377
www.moodys.com
Standard & Poor’s
(212) 438-2000
www.standardpoor.com
A U TO / RV / B O AT R E C O R D S
How to Reduce Auto-Insurance Costs
Premiums on your car insurance are based on your age, sex,
where you live, the type of car you drive, and your driving
record, among other things. There are a number of actions you
can take to reduce your insurance costs.
•
Increase your deductible. By increasing your
deductible, you can cut your premium dramatically. Insurance was meant to cover the major
expenses, not smaller ones.
•
Drop some coverage. If you have an older car—one
that’s worth less than ten times the amount you’d
pay for coverage—you may want to consider dropping collision and comprehensive coverage.
•
Strive to have a high FICO score and a good credit
rating. Insurance companies look at an insurance
score to determine whether or not they should
insure you and what they should charge. This
score, similar to your FICO score, is based on
information found in your credit file.
•
Take advantage of discounts. Most policies give
discounts for the following:
–
A clean driving record, with no points on
your license
–
Preferred age, sex, and marital status (typically, single women over age 25, single men
over age 30, and married women of any age)
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–
Good grades in high school, college, or even
graduate school
–
A car supplied with air bags, antilock brakes,
or an alarm system
–
Defensive-driving classes
–
Multiple cars in your household insured by
the same company
–
Insuring your home and car with the same
company
These discounts may seem arbitrary, but they aren’t—the
qualifications mentioned are statistically correlated with drivers who have fewer accidents. Make it a point to see if your family qualifies for any of these discounts with your insurance
provider.
Recreational Vehicles
RECREATIONAL VEHICLES
Please locate and collect the documents listed in the “RV
Documents Checklist” below and file each document in your
Protection Portfolio. Please be sure you always have a copy of
your insurance policy in your portfolio—in case there’s an
accident or theft, easy access to this document will spare you
much time and trouble.
RV DOCUMENTS CHECKLIST
❑
❑
❑
Titles to any RVs
RV-insurance policies
RV-loan documents
The term recreational vehicle (RV) can be used to describe just
about any vehicle that’s used for recreational purposes, but it generally refers to a transportable, motorized or nonmotorized vehicle that contains, at the very minimum, a bed for sleeping. Most
RVs also contain a kitchen, bathroom, dinette, and a sitting area.
Not to be confused with motor homes, which are generally pulled
once to a location where they will serve as a home, recreational
vehicles are highly mobile. RVs are generally between 10 and 45
feet long, with most in the 15- to 35-foot range.
Rent Before You Buy
Renting is a great way to take an RV on an extended “test
drive” to see if purchasing is right for you. More than 400
national rental outlets and local RV dealerships offer rentals, and
driving an RV requires no special license. For an additional fee,
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S U Z E O R M A N — T H E U LT I M AT E P R O T E C T I O N P O R T F O L I O ™
some rental companies offer housekeeping packages that include
linens, cookware, and other necessities for life on the road.
RV-rental rates vary by season, region, and unit size. Larger
dealerships operate an extensive emergency repair network and
a toll-free renter’s assistance and information phone service.
Vacationers interested in renting an RV locally should consult
their yellow pages under “Recreation Vehicles—Renting and
Leasing.”
Buying an RV
As with buying an automobile, before walking onto any
dealer’s lot, it’s essential that you do your homework. Give
careful consideration to the model and options you want, as well
as how much you’re willing to spend. Prior to discussing price
with any dealer, shop around to compare prices, models, and
options—in ads, on Websites, and at dealer showrooms—so
you’re educated about the vehicle you’re looking to purchase.
Before you purchase an RV, you’ll also want to make sure
you’ve done everything possible to increase your FICO score. RV
financing is credit-score driven—similar to automobile and
mortgage financing—and interest rates on RV loans range from
5.25 percent to 6.25 percent on loans over $50,000. Since an RV
is considered a luxury item, applying for a RV loan is more complex than an auto loan, and you’ll be required to fill out a personal
financial statement.
For most RV owners, the interest on their loan is tax
deductible as second-home mortgage interest. To qualify, the RV
must be used as security for the loan, and it must have basic
sleeping, toilet, and cooking facilities. For more information on
the tax deductibility of RV-loan interest, visit the IRS Website
at www.irs.gov (a link to this Website is provided on the Protection Portfolio CD-ROM).
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Insurance for Recreational Vehicles
Insurance for RVs isn’t the same as standard auto insurance.
The value of the vehicle and the potential for damage in the
event of an accident means that ordinary auto-insurance minimums are too low. You may be able to get a policy with higher
limits from your regular auto-insurance provider, but probably
not—most auto-insurance providers don’t cover RVs. So if
you’re planning to buy an RV, you’ll need to do some homework
to find an insurance provider.
When shopping for an RV policy, you’ll want to consider the
following specialized coverage that you won’t find in a standard
auto policy:
•
Replacement Cost (Total Loss Replacement):
This type of coverage ensures that you get a
comparable new RV if you have a total loss in
the first five model years.
•
Replacement Cost Personal Effects: With this
coverage, items carried onboard the RV—such as
clothing, dishes, computers, cameras, and sporting equipment—will be covered at their replacement cost.
•
Purchase Price: In the event of total loss, this
policy pays your purchase price. Coverage begins
at the beginning of the sixth model year and
continues as long as the premium is paid. Note:
This type of policy is only available to owners of
manufactured RVs less than ten years old.
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•
Disappearing Deductibles: Under this policy,
your comprehensive and collision deductibles
are reduced by 25 percent for each year that
you remain claim free. In other words, if a loss
occurs after four claim-free years, you pay no
deductible. After a comprehensive or collision
loss occurs, however, deductibles return to original amount and the disappearing deducible feature resumes all over again.
•
Towing/Roadside Assistance: With this coverage, towing and roadside assistance are provided
in the U.S. and Canada by means of a toll-free
number. The service usually includes fuel delivery, flat-tire changes, lockout service, jump starts
for batteries, and towing in case of mechanical or
electrical breakdown.
•
Emergency Expense: If your vehicle isn’t drivable or livable due to a covered loss, this policy
will pay for emergency lodging and transportation expenses.
•
Full-Timer: This type of coverage provides personal liability similar to a standard homeowners
policy. Coverage for personal effects and emergency expenses is usually available as well.
•
Agreed Value: If there’s no established market
value on your RV, under this policy an insurance
provider will pay the agreed-upon value (based
on a professional appraisal) in the event of a
total loss.
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•
Campsite Liability: This policy pays for bodily
injury or property damage to others occurring at
your campsite.
How to Reduce RV-Insurance Costs
The premiums on your RV insurance are based on your age,
sex, where you live, the type of RV you drive, and your driving
record, among other things. There are a number of actions you
can take to reduce your insurance costs:
•
Increase deductibles to whatever you can afford.
You can cut your premium dramatically by
increasing your deductible. Remember: Insurance was meant to cover the major expenses.
•
Don’t duplicate roadside assistance. Check your
other insurance policies to see if you’re already
paying for roadside assistance. If so, see if that
coverage extends to your RV.
•
Strive to have a high FICO score and a good credit
rating. Insurance companies look at an insurance
score to determine whether or not they should
insure you, and at what rate. Like a FICO score,
an insurance score is based on information
found in your credit file.
•
Take advantage of discounts. Most policies give
discounts for:
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–
A clean driving record, with no points on
your license
–
Completion of a safe driving course
–
Preventive and antitheft features, such as
antilock-brake systems and alarm systems
Check the Credit Rating of RV-Insurance Providers
Before signing up with any RV-insurance provider, make
sure they have a good credit rating with one of the rating services listed below. Links to the Websites listed are also provided
on your Protection Portfolio CD-ROM.
A.M. Best
(908) 439-2200
www.ambest.com
Duff & Phelps
(312) 263-2610
www.fitchratings.com
Moody’s
(212) 553-0377
www.moodys.com
Standard & Poor’s
(212) 438-2000
www.standardpoor.com
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Refinancing an RV Loan
Refinancing an RV isn’t as simple as refinancing other auto
loans. One of the main reasons is that RV loans are upside
down—meaning that most people owe more on their RV than
it’s currently worth. In the first year of ownership, the value of
a new RV drops by 40 percent. When an RV loan is refinanced,
the financial institution bases the loan on the current value of
the RV—not how much is owed. Many RVs are purchased with
less than 20 percent down, so if you owe several thousand dollars more than your RV is worth, in most cases refinancing
doesn’t make sense.
If you have significant equity in your RV and you plan on
keeping it for a few more years, refinancing may make sense for
you—especially with the current low interest rates. The rate on
your RV loan will be determined by the finance amount, length
of loan, and your credit quality.
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Boats
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BOATS
Please locate and collect the documents listed in the “Boat
Documents Checklist” below and file each document in your
Protection Portfolio. Please be sure you always have a copy of
your insurance policy in your portfolio—in case there’s an
accident or theft, easy access to this document will spare you
much time and trouble.
BOAT DOCUMENTS CHECKLIST
❑
❑
❑
Titles to any boats
Boat-insurance policies
Boat-loan documents
Boat Leasing or Renting
Before purchasing a boat, you may want to try one on for
size to make sure that the boat—and the boating lifestyle—is
right for you and your family. There are renting opportunities
at almost any port that has a marina or dock. Before renting,
please thoroughly research licensing, fees, and any applicable
seasonal restrictions.
Another option is to lease a boat. As you know, I’m not a
big fan of leasing and never will be, because at the end of your
lease you’ll have neither equity nor a boat to sell should you
desire to purchase a different boat. One popular type of boat
leasing is called “timesharing.” Timesharing allows you to use
a boat for specified periods of time during the year—essentially
as an extended, reserved rental.
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Purchasing a Boat
Purchasing a boat can be an expensive proposition. You can
generally expect to pay a minimum of $1,000 per foot, depending on features and locale. So before discussing price with any
dealer, shop around to compare prices, models, and options—
in ads, on Websites, and at dealer showrooms—so you’ll be
educated about the boat you’re looking to purchase. Don’t forget to negotiate!
Due to the high cost of purchasing a boat, you’ll probably
need to consider financing options from a boat dealer or financial institution. Boat loans are typically simple interest loans of
up to 15 years, with 10 percent down and generally no prepayment penalty. Similar to auto loans, if you don’t have a good
credit report or FICO score, you may pay a higher interest rate
or be asked to contribute a larger down payment. If your FICO
score is in the lower ranges, you may have a difficult time getting a loan, so it’s to your advantage to work on improving your
score prior to applying for a boat loan—especially since boat
loans aren’t as easy to qualify for as car loans.
The IRS has expanded the meaning of a second home to
include boats and motor homes. For tax purposes, the interest
paid on a second home is tax deductible. So if the boat you purchase has sleeping, bathroom, and cooking facilities, the interest paid is tax deductible. For more information on the tax
deductibility of boat-loan interest, visit the IRS Website:
www.irs.gov (a link to the IRS Website is provided on the Protection Portfolio CD-ROM).
Insurance for Boats
Boats are easier to insure than RVs, but to find a good policy you must still do some research. Your homeowners insurance
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may include coverage for watercraft, but such coverage is typically very limited. Usually the coverage on a homeowners policy is only about $1,000 in damages for the boat, the engine or
outboards, the trailer, and accessories. Other restrictions also
apply—for example, the boat must be housed on your primary residence, there may be rules on where you can use your
boat, and there are usually low limits on theft coverage. If you’re
a prospective boat owner and plan on docking your boat in a
marina, you’ll probably be required to have a separate watercraft
policy or rider with your insurance provider.
The insurance industry separates watercrafts into the following categories:
•
Boats (usually 16' to 25'11" long)
•
Yachts (26' or longer)
•
Personal watercraft (Jet Skis, Wave Runners, and
other personal watercraft)
The cost of your policy will be dictated by the type of boat,
its size, age, where it will be used, and the skill level and age of
the operator.
Boat Insurance
Vessels that fall under the category of “boat” are smaller
powerboats and sailboats that are less than 26 feet long. Boat
insurance typically covers physical damage and liability to the
boat itself, outboard motors, the boat’s trailer, and personal
property kept aboard the boat that’s part of normal operation
(such as boat furniture, deck chairs, and seats). The physical
damage coverage pays to repair or replace your boat if it’s
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damaged or destroyed by hurricanes, tornadoes fire, theft, lightning, vandalism, or windstorms, and the liability coverage protects you if your boat damages property or a person is injured
on or by your boat. Liability coverage is usually offered in increments of $100,000, up to $1 million.
However, personal property that isn’t part of the normal
operation (such as cameras, clothing, and portable TVs) generally aren’t covered. Some policy providers will allow you to
purchase additional coverage either as an add-on or as a separate policy to cover fishing equipment, cell phones, and computers that you use aboard the boat.
Yacht Insurance
A yacht is typically a boat that’s 26 feet in length or longer.
Sport-fishing boats, larger sailboats, and cruisers normally fall
into the category of yachts. Similar to boat insurance, yacht
insurance offers two main types of coverage: property damage,
called “hull coverage”; and liability, referred to as “property
and indemnity coverage.”
Hull coverage is for the entire yacht. It covers any items used
to operate or maintain the yacht, such as sails, furniture, and
outboard motors. Dinghies and trailers generally aren’t covered
under hull coverage, but can be added as a separate policy. Hull
coverage pays for damage due to fire, theft, windstorms, lightning, or vandalism.
Protection and indemnity coverage protects you if your
yacht damages property, or a person is injured on or by your
yacht. Similar to boat liability coverage, it’s usually offered in
increments of $100,000, up to $1 million.
Yacht owners also have the option to purchase a hurricane
protection endorsement. A hurricane protection endorsement
pays to haul your yacht out of the water if a hurricane watch or
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warning is issued, and it also pays to place the yacht back in the
water after the hurricane (or hurricane threat) has passed. The
coverage would also pay the costs of hiring a professional to get
your yacht to a safe harbor because of a looming hurricane.
The major difference between yacht insurance and boat
insurance is that yacht-insurance policies usually have several
different warranty options. The most common is a navigational warranty, which restricts the area of water you can operate your yacht in. Each region of water has a different rate. For
example, for areas where bad weather is more prevalent, your
insurance coverage would be more expensive. The insurance
coverage would only be valid for a specific region of water, but
most policies allow you to purchase a trip endorsement to
expand your coverage should you want to travel to a body of
water outside of your coverage area. Most yacht policies also
include a lay-up warranty, which allows you to get lower premiums if the yacht will be used for a specific period of time. So
if you don’t use the yacht from January to March, your premium
would be reduced since you’re not using the yacht year-round.
Personal Watercraft Insurance
You’ll need to shop around for an insurance company that
specializes in personal watercraft insurance. Many insurance
companies won’t cover Jet Skis, Wave Runners, or other personal
watercraft unless they’re part of a larger policy. The main reason coverage can be difficult to obtain is that the majority of all
boating accidents involve personal watercraft.
When purchasing personal watercraft insurance, I recommend that your policy include coverage for bodily injury, property damage, liability, and theft. The standard liability limit is
generally $15,000, but it usually can be increased for an additional fee.
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How the Age of Your Boat Affects Your Insurance
Yachts and boats less than 15 years old are generally insured
on an “agreed value” basis, meaning that the insurer will pay you
the full insured amount in case of total loss. In standard policies, there’s no depreciation deduction. Because the value of the
vessel declines over time, insurance providers typically reevaluate the market value of the boat every five years.
Yachts and boats more than15 years old are covered on an
actual cash-value basis. Therefore, the insurance provider would
pay you what the boat is valued at, less depreciation, in the case
of a total loss.
Regardless of the age of the vessel, insurance providers will
only pay the actual cash value of certain items, such as sails, covers, or outboard motors, in the case of a total loss. If you experience a partial loss, the damaged items are generally replaced
with new ones.
How to Reduce Boat-Insurance Costs
As I mentioned, the premiums on your boat insurance are
based on the type of boat, it’s age, where it will be used, and the
skill level and age of the operator. So similar to auto insurance,
there are a number of actions you can take to reduce your boat
insurance costs.
•
Take an approved boating-safety course. The
U.S. Coast Guard Auxiliary and the U.S. Power
Squadrons offer these safety courses throughout
the country. Taking an approved boating-safety
course can reduce your insurance premium by
5 to 10 percent.
A U TO / RV / B O AT R E C O R D S
•
Increase your deductible. A higher deductible can
reduce your premium by up to 10 percent.
•
Strive to have a high FICO score and a good credit
rating. Insurers look at an insurance score to
determine whether or not they should insure you
and what rate they should charge. An insurance
score, similar your FICO score, is based on information found in your credit file.
•
Install antitheft and other protection devices.
When you have your vessel equipped with
antitheft and protection devices, such as a depth
finder, ship-to-shore radio, or burglar alarm,
you’ll typically get a reduction in your boatinsurance-policy premium.
Check the Credit Rating of Boat-Insurance Provider
Before signing up with any boat-insurance provider, make
sure they have a good credit rating with one of the rating services listed on page 34 of this booklet. Links to the Websites
listed are also provided on your Protection Portfolio CD-ROM.
45
About the Author
Suze Orman has written six consecutive New York Times
bestsellers: Women & Money; The Money Book for the Young, Fabulous
& Broke; The Laws of Money, The Lessons of Life; The Road to Wealth;
The Courage to Be Rich; and The 9 Steps to Financial Freedom, as well
as the national bestsellers, Suze Orman’s Financial Guidebook and
You’ve Earned It, Don’t Lose It. In addition, she has created Suze
Orman’s Identity Theft Kit, Suze Orman’s FICO Kit, Suze Orman’s Will
& Trust Kit, Suze Orman’s Insurance Kit, The Ask Suze Library System
and Suze Orman’s Ultimate Protection Portfolio.
Orman has written, co-produced, and hosted six PBS specials based on her New York Times best-selling books, and she is the
single most successful fundraiser in the history of public television.
She twice won a Daytime Emmy Award in the category of Outstanding Service Show Host, and her latest PBS Special “Women
& Money” began airing nationwide on PBS in March 2007.
Orman is a contributing editor to O, The Oprah Magazine in the
United States and South Africa and to O at Home. She has a biweekly column, Money Matters, on Yahoo! Finance, and writes a
syndicated newspaper column entitled Women & Money. Suze hosts
the award-winning The Suze Orman Show, which airs every Saturday night on CNBC and on XM & Sirus radio, and also hosts the
Financial Freedom Hour on QVC television. In September 2007, Hay
House Radio began airing Suze’s radio show, The Spirit of Wealth.
Orman, a CERTIFIED FINANCIAL PLANNER™ professional, directed the Suze Orman Financial Group from 1987–1997,
served as Vice President of Investments for Prudential Bache Securities from 1983–87, and from 1980–83 was an Account Executive
at Merrill Lynch. Prior to that, she worked as a waitress at the
Buttercup Bakery in Berkeley, California, from 1973–80.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certificate requirements.