NerdWallet's Smart Money Podcast - How to Get Ready for a Recession and Choose Enough Car Insurance

Episode Date: March 27, 2025

Learn how to prepare for a possible recession and make sure your car insurance coverage is enough to protect your finances. What should you do to get ready for a recession? How much car insurance coverage do you really need? Hosts Sean Pyles and Elizabeth Ayoola discuss recession risks and car insurance basics to help you understand how to protect your finances. Joined by NerdWallet senior news writer Anna Helhoski, they begin with a discussion of recession warnings, with tips and tricks on budgeting with the 50/30/20 rule, building an emergency fund, and prepping your credit and savings. Then, insurance Nerd Lisa Green joins Sean and Elizabeth to discuss how to choose the right amount of car insurance. They discuss the difference between liability, collision, and comprehensive coverage, what minimum insurance limits really protect you from (and what they don’t), and how umbrella policies and uninsured motorist coverage can add extra protection. You’ll also hear ways to lower your car insurance bill by shopping around, raising your deductible, and finding overlooked discounts. Compare auto insurance rates in 2 minutes with NerdWallet’s auto insurance finder: https://www.nerdwallet.com/insurance/l/auto-insurance-finder  In their conversation, the Nerds discuss: how to prepare for a recession, signs of a recession, what happens during a recession, 50/30/20 budget rule, building an emergency fund, credit during a recession, umbrella insurance, what is umbrella insurance, car insurance basics, collision vs comprehensive coverage, liability car insurance explained, full coverage car insurance, what is full coverage insurance, auto insurance deductible, underinsured motorist coverage, car insurance tiers, how to save on car insurance, shopping for car insurance, car insurance comparison tips, high liability coverage, car insurance for old cars, what is property damage liability, what is bodily injury liability, best car insurance coverage, understanding insurance limits, home and auto umbrella policy, recession impact on prices, recession and interest rates, how long recessions last, economic indicators of recession, consumer sentiment recession, car insurance for risky drivers, and auto insurance discounts. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Well, Elizabeth, there's a word out there that we haven't heard bandied about for a while now. It's not a word we like, but it's a word we need to address. Is this the R word, Sean? It is. Recession. It's cropping up in discussions of the economy, so today we're going to talk about the likelihood of one and how to prepare for it. Welcome to NerdWallet's Smart Money podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Piles. And I'm Elizabeth Ayola.

This episode, we're answering a listener's question about car insurance. Car insurance 101. What's the difference between collision and comprehensive? We'll ask our nerdy expert for some definitions and best practices. But first, some definitions of another kind in our weekly Money News Roundup, where we break down the latest in the world of finance to help you be smarter with your money.

Today, our news colleague, Anna Helhawski, is here to talk with us about recessions. So Anna, are we in a recession right now? Are we in danger of entering one? Should people be preparing? Hey, so the short version is no, maybe, and it's not a bad idea. And that's the end of today's episode. Thanks for stopping by, Ana.

All right, now hold on, not so fast. Let's take a step back and get into what we mean by a recession and what is stoking some of those fears right now. So we are not in a recession right now. The traditional definition is quote, a significant decline in economic activity spread across the economy lasting more than a few months. In simpler terms, growth stops and the economy begins to shrink. The National Bureau of Economic Research officially determines and dates recessions and they look at a range of economic research officially determines and dates recessions. And they look at a range of economic indicators, including economic growth, income, inflation, unemployment, manufacturing, consumer spending, and retail sales.

And how long do recessions usually last? The timeline for recessions have been anywhere from two months to several years. Now, the recession during the COVID lockdown in spring 2020 only lasted two months, and that was the shortest one on record. Now the longest recession ever was actually after the Civil War, and it lasted more than five years. Next would be the Great Depression,

which lasted from 1929 to 1938. So since 1948, which we can call the modern era, there have been 12 recessions, and most of those recessions lasted just one year. But there were a few that lasted for two, including the Great Recession, which kicked off in 2007 and ended in 2009. So it's important to remember that economic declines begin before recession is officially declared.

So things are shaky before it's technically a recession. Some recessions are mild and they end quickly. With others, the bounce back takes longer, so the effects can linger even after it's technically over. Are we seeing some economic declines now? The economy has been fairly healthy in the last couple of years despite the elevated inflation, right? Yeah, you're right, Elizabeth.

The economy is still generally okay, but there are some recent economic indicators and general mood that has consumers concerned and experts raising red flags. There's just still so much uncertainty. I'll get into those specific signs in a minute, but something telling happened earlier this month that didn't exactly quell fears. In an interview with Fox News on March 9th, President Trump wouldn't deny the possibility of a recession when he was asked. I hate to predict things like that.

There is a period of transition because what we're doing is very big. We're bringing wealth back to America. That's a big thing. And there are always periods of, it takes a little time. It takes a little time. It takes a little time. But I think it should be great for us. I mean, I think it should be great. What are the economists saying though?

Economists are pretty much aligned. Right now, there's certainly a higher risk of a recession than say last year, but they're watching and waiting. And on March 10th, former Treasury Secretary Larry Summers posted on X that he was projecting close to a 50-50 chance of a recession in 2025. And the UCLA Anderson forecast put the nation on a recession watch and said that if Trump's promised policies on trade, deportations, and workforce reductions are fully enacted, it could trigger recession in the next year or two. And also last week, Federal Reserve Chair Jerome Powell

said that the chance of an upcoming recession had risen, but the probability is still not high. So there's a lot up in the air right now. What about the data? What's happening there that's worrying experts as well as consumers? A few things are happening. Consumer sentiment is down on a month over month basis for the first time in nearly two years.

And then forecasts of GDP for the first quarter of the year, that's gross domestic product, which represents economic growth, are negative, which would be the first time that GDP declined since the first half of 2022. Inflation is certainly down from where it was, but prices are still elevated, especially for rent and everyday goods like eggs, which we've talked about before. Now, these are just early signs, but even if the data doesn't fully signal, yes, we are headed toward a downturn, the mood has already shifted that direction. Consumer sentiment has taken a dive since the start of the year.

Surveys that feed the major indexes show that the majority of concern is around price increases due to tariffs, as well as other uncertainty surrounding mass layoffs of federal workers. And Trump's policies are also influencing markets. Earlier this month, stocks sank to the lowest levels of the year, erasing all of the gains the markets had made since Trump's election to office. But on Monday, when Trump walked back some of his tariff plans, the markets rebounded. So there's a lot of volatility there. Okay, Anna.

So we aren't in a recession right now, but the possibility of it happening this year isn't entirely out of the question. What happens to things like interest rates and prices during a recession? Yeah, that's a good question. So let's start with interest rates. The Federal Reserve often lowers interest rates to stimulate the economy. The federal funds rate impacts interest rates for things like mortgages, auto loans, and credit cards.

One thing that we also see affected by rates are treasury bonds. During a recession, if interest rates drop, bond prices increase while bond yields decrease, which makes bonds less attractive for investors to purchase. As for prices, home prices generally go down during a recession since people aren't making a big purchase like that. But historically speaking, that also doesn't always happen. And things like food prices are volatile. And there are a lot of factors that influence prices.

So it's not clear what would happen during recession. Is there anything people can do to prepare for a recession? And should they? Like death and taxes, there will always be another recession coming. It's inevitable. What we don't know is when the next one will hit. So there are some ways to prepare your finances. Our first recommendation is to make a spending plan that reduces your must haves, which will

give you more wiggle room in the future, especially if bad economic times hit and you need to reduce spending due to something like a job loss. And those must haves are essential expenses, including your rent or mortgage payment, transportation, food, utilities, insurance, and minimum loan payments. At NerdWallet, we usually recommend the 50-30-20 budget. That limits must haves to 50% of your after tax income, 30% to want and 20% to debt payments and savings. An emergency fund is also crucial to sort building if you haven't already.

That could mean finding ways to make extra money, putting away more money from your paycheck by increasing automatic transfers and see if you can switch to a high yield savings account. What you're trying to do is have a plan B waiting and ready to go if necessary. You'll need to be able to meet your monthly expenses plus pay off debt. Credit is another big thing to pay attention to. It's often harder to get new credit during a recession,

but financial flexibility seems to be key in difficult economic times. You may need to lean on credit more to cover expenses if you don't have savings built up. So it's not a bad idea to set up access to additional credit that you can tap if you need to. Homeowners may be able to set up a home equity line of credit or if you already have a HELOC then try to replace it with one that has a higher limit. You can also have a few credit cards that you keep open and mostly unused. To stay in good standing with those cards you'll often

need to make a charge or two each month that you can easily repay the balance on, something like a Netflix subscription. Addressing your debt now is also critical, whether it's a student loan, an auto loan, or a credit card. Interest can add up quickly, so you might consider moving high-interest debt

to a credit card with a 0% APR offer on balance transfers. And of course, making extra payments on any high interest debt now will put you in a better position if times get tough. Now, when it comes to investing, it's hard to see beyond market drops. But you can think about the long term.

Don't look at the value of your portfolio every day. And remember that the market historically has been able to recover. And you should still devote what you can to retirement savings. It never hurts to be prepared. That's right. Well, Ana, thanks for walking us through that. Sure thing.

Up next, we're answering all your burning questions about car insurance. But before we get into that, a reminder to send us your money questions. Are you wondering the best way to manage investments ahead of a recession? Or what this uncertainty might mean for your financial goals?

Whatever your question is, leave us a voicemail or text us on the Nerd Hotline at 901-730-6373. That's 901-730-NERD. Or you can email us at podcast at nerdwallet.com. Now let's get to this episode's money question. That's coming up in a moment. Stay with us. We're back and answering your money questions to help you make smarter financial decisions. This episode's question comes from Gerson,

who sent us an email. Here it is. How much coverage should I have on my car insurance? Regards, Gerson. To help us answer Gerson's question on this episode of the podcast, we are joined by Lisa Green. Welcome back to Smart Money, Lisa. Thanks so much, Elizabeth.

I'm glad to be here and chat about insurance. So we have a short and sweet question from our listener here, but I have a feeling that the answer is not so simple. Lisa, where should people start when they're evaluating how much car insurance they should have? Let's start by thinking about why you should have car insurance at all. Driving is a pretty risky business. I mean, think about it. You're whizzing along at 50 or 60 miles an hour driving a 3,000, 4,000, or 5,000 pound machine. And so are thousands of other people. So think of it like a giant bumper car situation. Bad things are going to happen sometimes. Sometimes those bad things might happen to you. Even if you are the

safest driver ever and you obey every rule of the road. Remember those thousands of other people? Some of them might be texting or eating a sandwich or putting on makeup in the rearview mirror. I had a neighbor tell me once that he read an entire book while driving from Tennessee to North Carolina. He just propped his paperback up on his steering wheel. Those are the people you're sharing the road with. Well, Lisa, that is thoroughly terrifying.

I can't believe your neighbor admitted that to you. That's really scary. So what you're saying is that we need to soberly evaluate the risks that we're all facing on the road when we consider how much auto insurance coverage we might need. Exactly, Sean. When you start thinking about how much car insurance

you should have, think about it this way. What's the worst that can happen if your two ton hunk of metal crashes with another one somewhere out there. Maybe you're in the hospital with really bad injuries and you'll need months of rehab. Maybe the other person is in the hospital and you are held responsible for paying their medical bills

because you were at fault in this accident. The amount of car insurance you should have is the amount that makes you feel you could even dare to get behind the wheel of a car when you think about what could happen there. Wow, I know nobody asked me but my biggest fear is dying in a car accident. Let's talk about the different coverages you're paying for with car insurance. Lisa, can you run through maybe the top three most important coverages people should keep in mind as they look for car insurance? Absolutely, Elizabeth.

Let's talk first about liability insurance. Liability means that you are legally responsible for damage that you cause as a driver. So if you hit a person with your car, you are probably liable for their injuries. You are legally responsible and so you may be required to pay for their medical treatment. If you hit someone's property with your car, you are probably liable for the property damage that you caused and you may be required to pay the cost to repair that damage Because of this liability insurance is the first type of coverage that you'll buy

Liability insurance is designed to pay the expenses that you are liable for if you cause an accident In most states you must have liability insurance in order to legally drive. But people should know that liability insurance doesn't cover damage that happens to your own vehicle as a result of an accident or some other automotive misfortune that you might be responsible for, right? That's right. Liability insurance is mostly about protecting other people from you. If you smash into someone else's car, liability insurance will pay to fix the other person's car, but for fixing your own car, you're on your own.

This is why a lot of people will want two other types of car insurance. First, we have collision insurance. Collision insurance will pay to fix or replace your car in a crash that you cause. You'll normally have a deductible to pay, like let's say the first thousand dollars of repair expenses, and then the collision insurance will cover the rest.

Collision insurance will also pay to fix your car in certain other situations, like if you're the victim of a hit-and-run. And then there's comprehensive insurance. This helps replace your car if it's stolen or fix it if it's damaged by something like a tornado or a fire or hitting an animal. So there you have the three major types of coverage liability, comprehensive, and collision. A lot of times people will buy these three types together and that's called full coverage. If you have a loan or a lease on your car, your lender will probably require you to have

full coverage. So Lisa, it sounds like liability coverage is the most important for many people. So can you tell us what goes into liability coverage? Sometimes people may not understand why liability insurance is so important. It doesn't pay to fix your car, right? So people may not see the value of it. But in truth, liability is where you run into huge financial risks. Let's say I cause a wreck and my car is totaled.

Now I drive a 10-year-old Altima and now I have nothing to drive. And Kelley Blue Book says that my car was worth about $6,000. So I've lost $6,000 and that's bad. If I had been driving a brand new car, maybe I would have lost $6,000 and that's bad. If I had been driving a brand new car, maybe I would have lost $50,000. But what's really bad is if my wreck caused a lot of injuries and property damage to other people and I had to pay for these,

that is where the costs can run into hundreds of thousands of dollars or more. And that is why liability is the most important coverage of all. Lisa, you just mentioned the two big areas of liability, injuries to people and damage to property. And those are two different types of liability coverage. Can you explain what each covers?

Bodily injury liability insurance covers other people's medical costs when they are injured in a crash that you caused. In addition to medical bills, it can also cover things like pain and suffering, lost wages and even funeral costs. And then there is property damage liability insurance. Now this pays to repair damage to other people's property after a wreck that you cause. This can be fixing the other person's car.

It could also mean repairing fences or buildings or government infrastructure like road signs or guardrails that you might have taken out. In a car insurance policy, you'll typically see your liability coverage written as three numbers, something like 100, 350. Here's what that would mean. The first number, 100, means that you would have $100,000 of bodily injury coverage for each person injured. But then the second number, 300, means that there's a $300,000 cap on the total bodily injury expenses per accident, no matter

how many people are injured. So let's say four people are injured in the same wreck and they each have $100,000 in medical bills. That adds up to $400,000 in medical bills and your policy is covering a maximum of 300,000 per accident. So Here you are exceeding what your policy will pay for that accident and then that third little number 50 That means your policy would cover 50,000 in property damage per accident going back to gerson's question How can people determine how much liability coverage they might need? Elizabeth, I think people can think of this in terms of tiers. The first tier would be

the minimum liability coverage required by your state. You must have at least this much liability coverage in order to legally drive. States don't necessarily agree on what that amount should be. As an example, Georgia requires $25,000 in property damage liability coverage, while Florida, right next door, says you can get away with just $10,000 of this coverage. So you'll need to check the requirements of the state where you live. But that's the first tier. Let's talk about why that first tier probably isn't enough for most people. Let's say you live in Colorado. Nice state. I was just out there this past fall for my niece's wedding.

Colorado requires $25,000 in bodily injury liability per person, $50,000 in bodily injury liability per accident, and $15,000 in property damage liability per accident. So now you're driving along in Colorado and you get distracted by an elk and you run a red light and you cause an accident and this crash is your fault. The other driver is in the hospital and you are liable for the costs. How far do you think your $25,000 policy will go toward covering that other driver's hospital bill? Have you seen a hospital bill lately and you're also responsible for fixing that other driver's shiny new SUV your policy says it'll pay $15,000 well let get you a bumper and a headlight maybe.

I don't think it's gonna get you where you need to go. So for the hospital bills, for the car repairs, you may be personally responsible out of your pocket for whatever the insurance does not pay. Lisa, I just wanna say I have never heard such an engaging explanation for car insurance. So thank you. I have another follow such an engaging explanation for car insurance. So thank you. I have another follow-up question, which is, what would the next tier cover?

Okay, so for a second tier, let's look at what you might get with a typical full coverage policy. Here at NerdWallet, we publish sample rates for the 100, 350 policies that I mentioned earlier. That's 100,000 in bodily injury coverage for each person injured, up to a total of 300,000 in bodily injury per accident, plus $50,000 in property damage liability. And by the way, you don't have to get full coverage

in order to get these higher liability limits. If you drive an old car like mine and you don't think it's worth having collision and comprehensive coverage on it, you can still get a liability-only policy with a limit that's above your state's minimum requirement. So this bigger policy will hopefully get you closer to paying those costs that you would otherwise have to pay out of your pocket. And maybe that's still not enough. Medical expenses are high these days, and so are vehicle repairs.

It is possible to go to an even higher tier of coverage. One suggestion is to buy enough liability insurance to cover your net worth. Now, your net worth is the amount of assets you own after you subtract your debts, sort of like the money you could get your hands on if you absolutely had to. It could include your cash, the equity you have in your house, your investments, or anything else of value that you have. The idea here is that if you don't have enough liability

insurance and you cause an accident, you could have to give up those things you own in order to pay the cost of the wreck you just caused. If you have enough liability insurance, your policy can pay the costs instead, and you get to keep your stuff. Personally, I prefer to have the extra coverage. I have an auto insurance policy with liability limits of 250, 500, 100.

That's the highest standard limits that my insurer offers. And then I layer an umbrella policy over that. Lisa, I'm glad that you mentioned umbrella insurance policies. A lot of people may not be aware of them or really how good a deal they can be. Can you give us a brief explanation of what umbrella insurance is and why it might be a good idea?

Umbrella insurance is an extra layer of liability coverage that starts where your regular car or home insurance policy ends. I'll use my own situation as an example. As I mentioned, I have an auto insurance policy with limits of 250, 500, 100. My home insurance policy also has $500,000 in personal liability coverage

for things that I might be liable for that aren't related to my car. And then I have a three million dollar umbrella liability policy that stretches over both of these policies. That's pretty typical for an umbrella policy to supplement both auto and home insurance at the same time. But since we're talking about auto insurance, I'll use an auto insurance example to explain how this works. auto insurance. I'll use an auto insurance example to explain how this works. Let's say I cause an accident that looks like one you might see in an action movie. Now I'm going to leap to safety, just like the stunt men do, but my car keeps going and it crashes into a building and the entire building

explodes and it burns to oblivion. The $100,000 limit for property damage on my regular car insurance policy is not going to cover the cost of the problem that I just caused. Let's say it's going to take $2 million. So my regular policy would cover up to its limit of $100,000 in property damage. And then the umbrella policy would kick in to cover the risk and nobody is going to be coming after me for $2 million. Umbrella policies also sometimes cover things that your underlying policy doesn't.

For example, it might cover legal fees and damages if I'm sued for libel or slander. Lisa, I don't want anyone coming after me for $2 million either, so I'm definitely going to consider this umbrella policy. So Sean said these policies can be a good deal. What does that mean in practical terms? Sean is right. An umbrella policy can be surprisingly cheap. Mine gives me anywhere from six to 30 times as much liability coverage as my base auto

insurance policy, but it only costs a few dollars a month. You can kind of see why it's cheap. Chances are I am not gonna drive my car into an exploding building. If I file an insurance claim, it will probably be small enough that my regular car insurance policy will cover it. So the umbrella policy probably will never need to pay out.

It's just that extra measure of coverage in case of a catastrophe. So do you need it? Kind of depends on your circumstances. A lot of everyday activities can put you at a higher risk of being sued, like owning a dog that might bite or coaching kids sports where parents might get angry.

If you end up in a lawsuit, having an umbrella insurance policy can be a relatively cheap way to shield your assets against the possibility of a legal judgment against you. I think that's a really helpful way to think about it. And in general, when it comes to insurance, people want to think about what risks they are realistically likely to face and what exposure that could mean for them financially and personally.

And then on top of that, what helps you sleep at night? And for me, umbrella insurance helps me sleep very well at night. So guys, it sounds like you're saying that you have to think about your risk tolerance in some cases, right? To see what level of insurance that you need. Absolutely. All right, Lisa, can you think of any other coverages that people might not think of as important but are worth considering? That is a good question.

If you have the types of coverage that we've already talked about, you have most of your bases covered. But I will mention some coverage options that you might be grateful for if you get into an accident that is not your fault. These are called uninsured and underinsured motorist coverage. It's a sad fact that a lot of drivers out there don't have car insurance or don't have as much as they need. Where I live in Tennessee, more than 20% of drivers don't have insurance,

according to the Insurance Research Council. It's illegal for them to drive without insurance, but they're on the road anyway. They have to get to work or school or the grocery store. So if I do get hit by someone, there's at least a one in five chance they won't have insurance to pay my expenses that they are liable for. So to deal with that my policy has uninsured and under insured motorist coverage. Uninsured motorist coverage is for cases where the other driver doesn't have auto insurance at all and under insured motorist

coverage is for cases where the other driver does have some insurance, but it's not enough to pay for the damage they caused. For example, maybe they caused an expensive accident and they only have the state minimum required coverage, which as we've already discussed is typically pretty low. Now the last time that another driver crashed into me, I was lucky. He had insurance. But the next time I might not be so fortunate, so I'm glad to have this coverage in place. So Lisa, shifting gears here, pun intended, we know that insurance costs have gone up dramatically over the past few years. According to NerdWallet data, the median auto insurance rate for full coverage increased 14% from 2023 to 2024.

What are maybe the top two or three things that folks can do to save money on their car insurance? Sean, it is tough to see those premiums keep on rising. In this environment, especially, I think the most important advice is to shop around. Every insurer has its own formula for setting rates. And when we crunch the numbers every month at NerdWallet, I'm always astonished at how widely the rates can vary for the same driver. For example, one

company might really penalize you for getting a speeding ticket, while another one might not raise your rate at all. One company might think you're really risky because you drive a red sports car, while another company might just think you're cool, and on and on. So the cheapest company for your neighbor may not be the cheapest for you, and the cheapest company for you last year may not be the cheapest company for you this year. Don't be afraid to switch insurers. Nerd Wallet recommends comparing quotes from at least three insurers once a year to make sure you're getting the best rate. Those are some good tips. I'm

definitely shopping around every few months to see if I can get anything cheaper. Do you have any other tips for how folks can save money on their auto insurance? I know in the past when I've called trying to lower my insurance, they've offered discounts in exchange for tracking my driving habits, which I think is also known as telematics. So what do you think, Lisa? Yes, absolutely ask about discounts. Insurers don't always volunteer this information.

For example, I save $200 a year by taking advantage of my insurers auto pay discount. You can also take a look at your policy and see if you're paying for coverage that you don't need. I dropped roadside assistance and towing coverage after I realized that they just duplicated coverage I already had elsewhere. And you can consider raising your deductible, the share of a comprehensive or collision claim that you pay. By choosing a deductible of $1,000 instead of $500, I was able to reduce premiums by more than 10%. Now, be careful if you try this.

It can make your policy cheaper, but you're now responsible for paying a lot more money up front if you do have a claim. So only raise it to a level that you're confident that you can pay in a pinch. And of course, NerdWallet has an insurance finder that lets you compare rates in just a couple of minutes. We'll link to that in today's show notes or just search online for NerdWallet auto insurance finder. Well, Lisa Green, thank you so much for coming on and sharing everything we need to know in today's show notes or just search online for NerdWallet Auto Insurance Finder.

Well, Lisa Green, thank you so much for coming on and sharing everything we need to know about shopping around for auto insurance. Well, thank you so much for having me. That's all we have for this episode. Remember listener that we are here to answer your money questions. So turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-6373. You can also email us at podcast at nerdballot.com.

You can follow Smart Money on your favorite podcast app, including Spotify, Apple Podcasts, and iHeart Radio to automatically download new episodes. And here's our brief disclaimer. your financial or investment advisors, this nerdy information is provided for general, educational, and entertainment purposes, and it may not apply to your specific circumstances. This episode was produced by Tess Vigeland, Hillary Georgie helped with editing, Megan Mauer mixed our audio, and a big thank you to NerdWallet's editors for all their help. And with that said, until next time, turn to the nerds.