Auto insurance dilemma

I used to look forward to birthdays. Now I dread them. Ever since buying my very first car in 2009, my birthday has become synonymous with expenses.

Ontario’s Ministry of Transportation sends its warm regards by reminding me to shell out roughly $75 to get my vehicle validation sticker renewed. My car insurance provider also sends notice that my policy has been updated. This is code for price increase.

This year is particularly bad for me. (MoneySense’s Canadian Capitalist has some good news for the rest of you drivers in his latest blog post.)

After more than 10 years of clean driving I got in my first fender bender last September.

I was deemed 100% at fault. My broker kindly pointed this out in the letter last week—as if I’d forget.

As a result, my premiums will jump by $75.50 per month or $906 per year, it said.

I’m pretty sure I felt my eyes jump out of their sockets and hit the page. I decided then and there to call my provider and figure out a way to lower my premiums.

Raising your deductible is often a good place to start when looking to lower premiums. My deductible is already high at $1,000 so bumping it up to $1,500 would only save me $30 annually, a representative told me.

Without reducing my coverage, there’s nothing my provider can do to dramatically lower my bill, he said.

“Fine,” I said. “What are my options?”

That’s when he suggested scrapping my 5-year replacement benefit. The coverage—which costs me $351 per year—means my insurance company will buy me a brand new vehicle if my car is written off in a collision, as oppose to offering me the value of the car at the time.

“I’ll have to think about it,” I said.

I own my car outright and God-forbid I’m ever in a serious accident my car, already 3 years-old, will be almost worthless. A new car compact sedan on the other hand will cost in the neighbourhood of $15,000 to $20,000.

So the question is: Do I pay an extra $351 a year for the peace of mind that comes with knowing I’ll get a brand new car if this one is sent to the scrap yard in the next couple years? Or do I save the $351 and take whatever they give me if and when the time comes?

If you want to lower your premiums you’ve got to make some painful cuts, says Jack Hungelmann, author of Insurance for Dummies. But you want to make them in areas that are just going to pinch.

“I agree with your adviser,” he said.

“You won’t be ruined financially if you don’t get a new car…$351 is a lot of money.”

Fair market value for the car plus the money I’ll save is not a bad deal, according to Hungelmann.

He also recommended shopping around.

“I recommend people shop for agent expertise rather than coverage because having the right expertise to help you design the right coverage is going to make all the difference in the world.”