Smart Money Podcast: When Travel Insurance Is Worth It and Buying an Electric Car

Sean Pyles: Welcome to the NerdWallet Smart Money Podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I'm Sean Pyles.

Liz Weston: And I'm Liz Weston. To have your money questions answered on a future episode, turn to the Nerds. Call or text us on the Nerd hotline at 901-730-6373. That's 901-730-NERD, or email us at [email protected].

Sean: In this episode, Liz and I answer a listener's question about how to buy an electric car. First, though, in our This Week In Your Money segment, we're talking with travel Nerd Elina Geller about travel insurance and why you might want it this summer.

Liz: Hey Elina, welcome to the podcast.

Elina: Hey, how are you? Thank you for having me.

Sean: So good to have you. I want to start off by hearing about what travel insurance typically offers. Can you give us a rundown?

Elina: Absolutely. Travel insurance offers a bunch of benefits. Some common terms include trip cancellation, trip interruption, trip delay, baggage delay, lost luggage, coverage for medical expenses, emergency evacuation and repatriation, 24-hour assistance and a few other benefits. But these are the main ones.

Liz: And our understanding is a lot of people are looking at getting travel insurance for the first time, given all the disruptions last year. How much should they expect to pay if they want to get this kind of coverage?

Elina: So the cost varies, but generally a comprehensive travel insurance plan for a domestic trip averaged about 6% of the total trip cost, and for an international trip averaged about 7% of the total trip costs. And that information is for the last 12 months ending April 2021. And it's from Squaremouth, which is an insurance comparison site and also a NerdWallet partner.

Sean: Well I'm wondering if these costs might actually go up over the coming year, as we've seen a lot of prices have gone up since things have begun to reopen, people are traveling and spending more money again. I realize it might be hard to answer that question, but what's your initial take on that, Elina?

Elina: It’s hard to predict what the policy costs could become. But generally, the price of a policy depends on a couple of factors. So on the length and the cost of the trip, the local cost of local health care, medical conditions you want covered — let's say you have preexisting conditions, it may cost more to include those — and the amount and the breadth of coverage.

Liz: And that's a good point about the cost of local health care, because when you travel in Europe, for example — as you well know, Elina — health care is super, super cheap. So that typically is not something that's going to take your breath away, covering that. If you are a foreign national coming to the United States, boy, look out. It's going to be expensive.

Elina: Yeah, I think it really makes a difference where you are and what the cost of the health care is going to be. Because if you're somewhere where it's relatively inexpensive to go to the doctor, you might not need the same level of medical coverage that you would in the U.S., where health care is very expensive.

Liz: How do you pay for health insurance? How are you covered as a nomad?

Elina: I have nomad travel insurance. And it basically provides ongoing travel insurance for wherever I am. I don't have to put in a trip destination, I don't have to really do anything, it's just ongoing. It's just long-term travel insurance.

Sean: So I'll admit that I am kind of a travel insurance skeptic. I've never purchased it before and I guess I've been lucky enough to not have to have had it. So I would like to hear about a time when you were actually glad that you had this travel insurance.

Elina: It's come in handy quite a few times. Most recently, I had to cancel a trip to Dominican Republic with my mom because my grandfather was hospitalized a couple of days before we were supposed to depart for the trip. Luckily, I put this all on a credit card that offers travel insurance. The airline provided a refund of the flights. All we had to do was provide notice from the hospital. Basically, it just qualified as a family emergency and they were really reasonable.

But the hotel provider ... So we booked through a website where you could just buy a discounted hotel. It was a really nice hotel, but I think the website was shady or the company was shady, because when I tried to get my money back and explain to them what happened, they were basically ignoring my emails. They were telling me that they don't have an extenuating event policy. They just didn't want to help at all. I tried to reach out to their supervisor — my emails went unanswered. A couple of months later, the company actually went out of business, which I was very glad about.

Sean: Yeah.

Elina: But it made perfect sense. I wasn't able to get the refund and I tried to dispute the charge on my credit card, but the credit card was like, "No, it's a valid charge, but you could submit this claim to the travel insurance department." So I did, and I ended up getting a full refund.

Liz: I've had the experience of having a problem with a rental car. A rental car got damaged while it was in my care. I refused to say it was my fault. But of course, I'm on the hook for it. And the credit card offered primary coverage, which means I didn't have to involve my insurance company at all. The credit card took care of it. And that was it.

Sean: Well, that's another thing that I wanted to talk with you two about, which is credit cards that do offer travel insurance as a perk. Does it tend to be as comprehensive as what you would purchase from a specific travel insurance policy? Or is it a little bit more bare bones? How does it compare?

Elina: So generally the benefits will be the same in terms of the things that get covered, but the limits are going to be lower. So let's say trip cancellation may be limited to $5,000 per trip, but let's say if you're on a $20,000 trip, and I'm just throwing any random number out, a comprehensive travel insurance policy will usually cover 100% of the trip. But on the credit cards, it's usually stated as a dollar amount. It varies per credit card, and anything could change at any time. With the credit cards, it's a good starting point. As long as you purchase the nonrefundable reservations with your credit card, you've received the coverage. But a comprehensive policy is going to give you much more coverage.

Sean: So it seems like the more expensive the trip, the more you really want to basically protect your investment by getting a more comprehensive travel insurance policy.

Liz: And Sean, if it helps, I don't buy travel insurance when I'm traveling domestically, because my health coverage covers me everywhere. It's only when we're going overseas and our health coverage doesn't go with us that I go ahead and buy the extra policy. And it's for not just the medical coverage, but also for medical evacuation, which we've talked about before. If you need to get home, that can be a very, very expensive flight.

Sean: Right.

Liz: So you want to make sure that you can get out of wherever you are.

Sean: Right. It does seem to make sense, as you were saying, Liz, for something like an international trip where maybe your health insurance wouldn't apply, or just the trip itself is so much more expensive that you would want to get that money back. And your credit card maybe wouldn't cover the entirety of what you've spent so far.

Liz: Or if you're in a situation where you have major health issues or you're getting older, that can be another reason you might want to have medical evacuation, even if you're just traveling domestically.

Sean: Elina, is there anything else that you think folks should know about travel insurance? If they're maybe on the fence, like I was going into this conversation?

Elina: If you're on the fence, I would just think about your risk tolerance, because if you don't get travel insurance, you're basically hoping that nothing goes wrong. That's a big risk to take because anything could happen. So I would just say think twice about it. And also remember that if you don't want to purchase a policy but you're thinking about getting a travel credit card, take a look and see if the card you're considering offers travel insurance, because those are some very important benefits that you can get for just the cost of the annual fee that you're going to get on the card.

Sean: Great. Well, thank you so much for talking with us.

Elina: You're welcome. Thank you so much for having me.

Sean: And now let's get on to this episode's money question.

Liz: This episode's money question comes from Marie. They wrote us asking, "I'm preparing to buy my first new car, and I'm very excited that it will be electric. This will be the first time that I use a car loan to purchase a car. In the past, I purchased used cars with cash." Oh, I love you, Marie. OK. "I read on NerdWallet that it's advisable to be preapproved for a car loan to improve your negotiating position. However, I have seen some car dealerships advertise 0% car loans, and I wonder if those are a really good deal or if there's some fine print to look out for in order to really compare the cost to a loan from a bank or credit union. Could I get preapproved but then also inquire about the 0% offer after settling on the price? Also, I'm in a unique position in that I live in California and my finances qualify me for several state and federal financial incentives for purchasing an electric car. How should I handle a negotiation conversation if the dealer tries to factor in those incentives? Thanks, Marie."

Sean: I love these questions. So, to help us answer Marie's question this episode of the podcast, we're talking with autos Nerd, Phil Reed.

Liz: Hey Phil, welcome back to the podcast.

Phil Reed: Good to be back. Thanks guys.

Sean: Great to talk with you. So our listener Marie seems pretty savvy about car buying and is really excited about getting an electric vehicle. I'm wondering what you think about how they're approaching car buying?

Phil: Getting preapproved for buying a car is always a good idea at dealerships, and financing is one of several what they call incentives. It can drastically reduce how much money you wind up spending on the car over time. A lot of people aren't quite sure where they are in terms of their credit score or what they will qualify for. Applying for preapproved financing answers those questions. So then you can go into a dealership with financing in hand, and that removes one of the — I guess you would call it the main weapon of the car salesman or salesperson — which would be what would you like your monthly payment to be? So that's probably one of the first questions that they ask you.

Sean: Right. And that's a really key question, because a car dealer can make your monthly payment pretty much whatever you would want it to be, but then you might be paying off this loan for several years, right?

Phil: Yeah, absolutely. They actually sort of make it sound as if they're doing you a favor.

Sean: Right.

Phil: "Oh, what would you like your car payment to be?" They can get you to that car payment a number of ways. The biggest one is by extending the term or the length of the loan. They could extend the loan to 60 months, 72 months, even into the 80s to get you where you want to be. And they're not talking about the interest rate. And there's a lot of dangers to financing too long, because you don't want to be in your sixth year of making car payments and you're starting to get repairs on the car and maintenance and so on, and you're still making a fairly high monthly payment. So, that's not a good situation to be in. And it's a good idea, as much as possible, to take control of all of the financial aspects of your car deal, rather than turning it over to a car salesperson.

Liz: I feel like Marie read your cheat sheet about how to do this because she phrases very specifically, "Could I get preapproved but then also inquire about the 0% offer after we've settled on the price?" So Phil, can you talk about why it's so important to settle on the price first, before you talk about financing?

Phil: If you walk in and you've already been preapproved, you can deflect the question that we discussed: What do you want your monthly payment to be? You can basically just say, "I'm a cash buyer. I have financing all set up. Now let's just talk about the car and the price of the car." You've kind of boiled it down to one pretty simple figure, which is fairly easy for you to control. What happens — and a lot of people aren't prepared for this — is that once you make a deal with the car salesperson, you're not done. You're not anywhere near done.

In fact, what they do is they hand you off to what they call the finance and insurance officer. You need to remain vigilant and alert, and this is when your preapproved financing can really help because what will happen — like just reading over Marie's questioning and she said, "But can I then also inquire about 0% financing?" — you probably won't even need to inquire. In fact, from a negotiating standpoint, it probably works better if you don't. What will happen is, they really want to finance you. So if you've already got a loan in place, they know that you've probably been qualified and approved someplace. So they know you're in pretty good shape. So they would probably say, "Well, who's your financing with?" And go ahead and tell them. And "What are you financed at?" would be the question. And you would really probably be better off not answering that question, but instead saying, "Well, what's the best that you could do for me?"

Liz: Ohhh.

Phil: And this is kind of one of those subtleties of negotiating, which is if you tell them, "I'm preapproved at 3.5," they'd say, "Well, you know what? I think I could get you 3." They'll just undercut by a little bit. But if you were to say to him, "Well, what's the best you could do? I know that Toyota or whoever offers 0% financing." And they'll go, "Well, we'll run your credit and take a look." And people are concerned about getting too many hits on their credit scores, but they bracket them, right? You can make, like, 14 inquiries. If they're all coming from car dealerships, they're treated as one credit report. Is that right?

Liz: All your inquiries that are related to car buying, getting a car loan are grouped as one, and any inquiry made within the previous 30 days is ignored. So as long as you shop for loans within a compact period of time, you should be fine. What you don't want to do is apply for other types of credit. Like you don't want to go apply for a credit card or mortgage or anything else. You need to separate those activities from your car buying.

Sean: All right.

Phil: Right. So go ahead and let them run your credit and see what the best is that they can do for you. And if you have really solid credit, you can probably get the 0%, and it would be good to go with them. So essentially, just to summarize, your preapproval becomes like a bargaining chip. You kind of throw it out there and they say, "OK, we can beat that." And then they go ahead and do it. And I want to underscore a couple of things. First of all, this would probably be more important for used car buying than nearly anything else. It's also extremely important for people who have mid-tier credit and they're not quite sure what they qualify with, and this could prevent them from marking up the loan. Because if you merely went into a dealership and said, "Give me the best rate," you might wind up 2 or 3 points above where you really could be. So it simplifies, and it also provides a bargaining chip.

Liz: One of the dangers of talking about financing before you settle on the price is they'll mark up the price, right? They'll give you 0%, but then you pay more for the car?

Phil: They really want to finance you. They make a lot of money on financing. And to them, a car deal is about five — at least five — different factors. Price of the car, the money that they make off the financing, things that they sell you in the F and I room, and if you have a trade-in, the profit that they make off of the trade-in. And if all of those things fail, they hope that you come back and service the car there. So they're looking at a much bigger picture than you probably are. Holding back the financing until later is a good idea, and you can kind of tease them by saying, "Well, maybe we'll look into that, but let's settle the car question first." That keeps them interested in it. In fact, two cars ago that I bought, I agreed to finance even though I didn't need to, because I got a better deal and then I just paid off the loan. So that's one of the things you can do. They get all kinds of incentives for writing a number of loans, but they don't have control over how quickly you pay them off.

Liz: Phil, I just wish we could send you along with anybody who is trying to buy a car. I think you would get them so much of a better deal than they could get on their own.

Phil: Well, thank you very much for saying that. The main thing is I like to think that I can keep people from making mistakes, because it's the mistakes that can really hurt you. Lots of times what happens is people do a pretty good job buying a car, but they hit a wall and all of a sudden something comes up and they're like, "I have no idea what to do right now."

Liz: Yeah.

Phil: "Is this super important or is it one of those things that doesn't really matter?" That's where I think I could add some value, yes.

Liz: Well, the car dealerships do this 24/7, whereas we only buy a car every few years. So it's really hard for us to have the same weaponry at our disposal that those guys have.

Sean: I think it's important for people to realize that they can walk out of the dealership at any moment, and the car dealership will fight tooth and nail to get you to make that purchase that day; they're kind of relying on that. You could go at any second. In fact, I remember a story from my partner's mom. She was buying a minivan in the '90s, and she walked out of that dealership somewhere between three and five times. And they were chasing after her. At one point, she got in her car and was driving away and they were trying to get her to get this new car. And eventually she got the deal she wanted, and they weren't happy about it, but they sold that car and she got her deal.

Liz: Oh, I love that.

Phil: Well, that's a good form of negotiating. First of all, you've demonstrated that you will leave if you don't like it. I used to have a friend and his negotiation process was simple. He said, "Walk out three times and then take the deal," whatever it is at the end. And also walking out, it gives you a chance to really think things over.

Sean: All right. Well, let's turn to the part of Marie's question about buying an electric car specifically. And Phil, you told me that you actually just leased an electric car. So I'd like to hear a little bit about your experience and about buying an electric car in general.

Phil: I generally recommend leasing electric cars because the technology's moving very quickly, and probably the primary element that's moving quickly is the range of the car. So this is my third electric car. I had a Nissan Leaf, which had a range of about 70 miles, which is very restrictive. Then I got the Toyota RAV4 EV — that had about 120 miles of range, which actually made a huge difference. This time around, I now have a Hyundai Kona EV. The stated range is 258 miles, but I charged it to the top and it was showing me 300 miles.

Liz: Wow.

Phil: And I drove 140 miles keeping track of how many miles were deducted from the range. And it was pretty accurate, so it may in actuality be 300 miles. For example, some of the VWs — VW is going heavily toward electric cars now to overcome the diesel scandal — a lot of them get much higher than what they're rated at, and they under-promise and they over-deliver, which is a good way to be. So that's a good reason to lease is that in three years from now, you can get something that's better. You can also buy the car. Also, batteries tend to degrade over time. For example, I have a friend that has a Chevy Bolt. It started out being rated at about 240 miles, but now the battery is dropping to the point where — he's had it for over four years and he's driven it a lot — it's down to like 160 at max.

Liz: Whoa.

Phil: Now, I don't know whether they're all like that, but they do pretty much say that they are diminished or the capability is reduced over time. So what they tell you to do is not charge to 100% if you don't need to. Charge to 80%, and that preserves the battery.

Liz: Oh, that's good to know.

Sean: Liz, you have a Volt, right?

Liz: I do. Actually, this is my second one. And when the lease was done on the second one, I think I drove about a dozen cars trying to find a replacement. And I didn't like any of them. I really like having a plug-in hybrid. I like the fact that it's mostly on electric and I still have the option of using the gas engine as a backup. So I can literally drive across the country and never charge it. But most of the time it is on electricity. I love that combination. Anyway, long story short, I wound up buying the car after the lease, which you shouldn't do, but I just love this car. So there you go.

Phil: Oh, well, sometimes it makes sense. And just to kind of reinforce that, the Chevy Volt — as opposed to the Bolt, it's a little confusing — it kind of stands alone as probably being one of the best plug-in hybrids, because the range is really pretty good. Isn't it like 40 or 50 miles all electric?

Liz: Yeah. And it has degraded a little bit, but I haven't noticed what your friend noticed, not anything nearly that dramatic.

Phil: I guess that would be my first point for Marie is you could look for leasing, and this is kind of an overall comment, which is that almost all of the manufacturers — if you go to the manufacturer's website, not a dealership website — they will state what kind of incentives they are running that month. So month to month, depending on what cars are selling well and what aren't, they're trying to boost the sales. Certain cars, they will offer specials.

And in my particular case, I found that there was a special for the Hyundai Kona EV, which was literally $1,999 down, and then a monthly payment of $199.

Liz: Wow.

Phil: Yeah.

Liz: For a brand-new car?

Phil: Yep. And then to touch on another point, which we need to discuss, the state of California sends you a check for $2,000. So that wipes out the $2,000 down.

Liz: Nice.

Phil: So you're basically paying a monthly payment plus insurance, which is a little higher for electric cars. So I don't know whether Marie would be interested in leasing. If she's thinking about buying a used electric car, then she's on target with the preapproved financing and so on. If she's looking at a new electric car, she might consider leasing if her credit is good and she could qualify for one of these specials.

Liz: And Phil, both of the times that I leased the car, I think the dealership got the federal rebate and I got the state one. Is that normal? Is that the way it usually works?

Phil: Yeah. So the federal rebate is a tax credit. If you're leasing, they basically use the federal tax credit as a way to reduce your monthly payment. So you don't really negotiate about that. Now, the state incentive is a cash rebate, and I've gotten it twice. I haven't gotten my check yet for the Hyundai, but I've gotten it twice. So I'm not sure — I don't think that there's a limit.

These incentives are always changing, and a really good starting point is just to search for what kind of incentives are available in your area and what you really think you use. A lot of people may not have enough to write off where the tax credit really helps them.

Liz: Good point. Yeah.

Phil: I just had a friend get the Toyota Mirai. Are you familiar with that?

Liz: No.

Phil: It's a fuel cell car. Fuel cells basically just generate electricity that then drives the car. So it drives like an electric car, but instead of having a huge battery, it has a fuel cell. So the Toyota Mirai has a $7,500 tax credit. And my friend is an investment counselor, and he was like, "Oh, I'm all over this." It also came with $15,000 fuel credit. So he got a credit card to use to fill up — $15,000 worth. Plus, he gets $4,000 back from the state of California.

Liz: I know that these incentives tend to be richer and then as they sell the cars, they get less rich or they may not be available. So that's why it's important to do all the research, right?

Phil: It can be sort of a complicated matrix to put together, but it's also fun because it's reducing your price and in some cases, actually putting cash back into your pocket.

Liz: That is really cool. I'm glad you made that point about the tax credit, though, because not everybody has a tax bill that they can offset. So that's something to keep in mind.

Phil: Exactly.

Sean: All right, Phil, well do you have any final thoughts for Marie or anyone else who's in this situation?

Phil: We've talked about the financial things to consider. There are a whole number of other things to consider when you're getting an electric car or thinking of going electric. I completely endorse it. Electric cars are much more fun to drive. They're very quick, very quiet, they handle well because the battery is heavy and it hangs on the bottom of the car, but you need to make sure that you can charge it.

Sean: Right.

Phil: So if you're in an apartment, you may not be able to charge it, which would be a bummer. I've written several articles about this — just sort of a checklist of don't forget to consider this and this and this. And so those are all separate from the economics about it.

And then one last thing, which is that if you live in a home and charge at night when the cost of electricity is lower, the cost of fueling and propelling your car will be much lower than buying gasoline, by perhaps a quarter. So it's a little bit like paying a dollar a gallon, and most people don't realize that.

Liz: Nice.

Phil: It's kind of amazing.

Sean: Right.

Liz: Yeah.

Sean: The car that I bought last year takes premium, and I am regretting it now because it costs so much to fill up my car. And this conversation has maybe encouraged me to look into electric.

Liz: Yay. Another convert.

Sean: Well, thank you so much for talking about this, Phil.

Phil: Oh, my pleasure. Good to be with you guys.

Sean: All right, and with that, let's get on to our takeaway tips. Liz, do you want to kick us off?

Liz: It would be my pleasure. First, explore your financing options before you choose a car. Consider leasing versus buying new versus buying used.

Sean: Next up, when it comes to electric vehicles, research incentives and how to apply them.

Liz: And finally, know how to find the best deals. Take the time to do the research and shop around. And that's all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected]. Also, visit nerdwallet.com/podcast for more info on this episode, and remember to subscribe, rate and review us wherever you're getting this podcast.

Sean: And here is our brief disclaimer, thoughtfully crafted by NerdWallet's legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.