A Crash Course in What a Poor Driver Can Expect From Insurance Firms
Q: I recently bought a brand-new truck, but because I had six speeding tickets on my record, I had to go to a broker who divided my coverage up between two small companies. To make a long story short, I inadvertently let one of the policies lapse but didn’t find out I wasn’t covered until I rear-ended someone and the company refused to pay. It’s been a nightmare. I almost had a nervous breakdown, and I’m only 27 years old! What can I do?
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A: You’ll have to pardon me; I’m still trying to get over your first sentence. Six speeding tickets? How does anyone get six speeding tickets? One or two is a rite of passage on Southland freeways. Three is cause for concern. But six?
You may be 27, but you’re acting like someone way too young to drive. You expect customer service when you’re lucky to find anyone to take your business at all.
It’s true that those little companies you wound up with--they’re officially known as nonstandard insurers--will treat you badly. They will drop you given the slightest chance. They will give you an enormous runaround if you make a claim. They will fail to return your calls.
You know why? Because they deal with awful drivers like you. And awful drivers have lots of claims, commit lots of fraud and then expect the rest of us to pay the bill.
I was briefly tempted to congratulate you for carrying insurance at all, since about 1 out of 4 California drivers doesn’t. But it’s the law.
It was your responsibility, no one else’s, to make sure your premiums were paid. Yes, long-term customers at major insurance companies are often given some slack if they’re a little late paying their premiums. But the kind of companies you’re dealing with won’t give you a minute’s slack, so mark the renewal dates in big red marker--on your forehead, if necessary.
If nothing else, treat your accident as a wake-up call. Trade in that shiny new truck for a wheezy old Volvo that couldn’t break 50 mph with a tail wind. Next, yank out the radio, the cell phone and everything else that could distract you. Stick to the slow lane for the next three years, and maybe you’ll qualify to be treated with some respect.
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Q: Is it true that I must get a credit card to establish good credit? I’m just entering college and don’t really need it, but my friends say it’ll look good on my credit record. By the way, I am already taking out thousands of dollars in student loans--will that help?
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A: Student loans don’t count for much yet, since you’ve only incurred the debt, and lord knows any idiot can incur debt. It’s how you handle paying off debt that counts.
Using a credit card responsibly is one of the best and quickest ways to build a good credit history. Using a card irresponsibly could trash your hopes of getting a decent job, apartment or home loan for the next decade.
Scared? You should be. It’s way too easy to get in trouble with credit, and you pay for your mistakes for years.
If you do decide to start building your credit history with a credit card, charge only small amounts and pay your bill in full every month. Credit card companies make it easy for you to pay only the bare minimum on your account, because they want you to pay (usually outrageous) interest rates on your debt. But the people who will be looking at your credit report care only that you pay your debts on time.
Getting in the habit of paying off your bill in full--even if it means eating macaroni till the next payday--is one of the smartest things you can do for your future economic health. In fact, a couple of those macaroni-only spells will just reinforce the message that Consumer Debt Bites. Because it does, and the sooner you learn that, the smarter (and richer) you’ll eventually be.
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Liz Pulliam is a personal finance writer for The Times and a graduate of the certified financial planner training program at UC Irvine. She will answer questions submitted or inspired by readers on a variety of financial issues in this column. She regrets that she cannot respond personally to queries. Questions can be sent to her by e-mail at liz.pulliam@latimes.com, or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.
