Car insurance: Driving for discounts

When was the last time you heard someone at a cocktail party state that auto insurance companies charge fair and reasonable fees? Thought so. If there’s one thing consumers agree on, it’s the exorbitant cost—and seeming randomness—of auto insurance premiums. Rates vary not only by vehicle type, driving record and region, but also from company to company. If you do your homework, however, you can save big on both cost and aggravation.

Building your policy

Think of your auto insurance policy as a mix-and-match wardrobe. Aside from a few de rigueur colours like basic black, the build is up to you. Below are the main components you have to choose from:

Third-party liability insurance. This insurance is mandatory, and is considered “your first line of defence if anyone decides to sue you,” says Fairview Insurance Brokers principal Fred de Francesco. You have some say over the amount of coverage you get, but he cautions against skimping in this area. “What happens if you run into a streetcar or bus? Bumping up your coverage from $200,000 to $1 million only hikes up your premiums by about $100, so it’s well worth the cost,” he says.

Accident benefits: Also mandatory, this component covers your medical expenses—everything from ambulance services to chiropractic treatment—if you’re involved in an accident, whether you’re at fault or not. A tip from Allstate Canada’s Saskia Matheson: “Your employee benefits may overlap with this coverage, so find out about your medical and disability coverage. If you have enough, you don’t need to buy extra coverage on your car insurance.”

Collision and Comprehensive: Collision insurance covers damage to your vehicle resulting from an impact with another vehicle or object—including the classic hit-and-run in the grocery-store parking lot. Comprehensive coverage takes care of such nasties as theft and vandalism.

While both collision and comprehensive insurance are optional, Margot Bai, a former insurance agent and author of the book Spend Smarter, Save Bigger, advises against waiving collision and comprehensive coverage, “unless your car is so old that the increase in premiums you’d face when making a claim exceeds the value of the vehicle.” Think $5,000 or less.

In combination, collision and comprehensive will set you back by a few hundred dollars. You would think that the premiums would go down as your car ages, but Toronto consumer advocate and auto insurance expert Lee Romanov says it doesn’t always work out that way. “If your insurer has had problems with your type of vehicle, the rates could go in any direction,” she says.

Waiver of depreciation: This option entitles you to receive the list-price value of your car if it gets totalled or stolen within the first 24 months. Otherwise, “you would have to pay back the difference between the list price and the depreciated cost,” says Nancy Hamilton, a manager at Hugh Wood Canada.

Rental car coverage: If you frequently rent cars, consider this extra coverage, “which only costs $25 to $50 per year and may be more affordable than paying for insurance every time you rent a car,” says Matheson.

If you want to lower your premiums, consider raising the “deductible” on your collision and comprehensive insurance. This is the amount that you have to pay if you make a claim. Personal finance guru and media personality Gail Vaz-Oxlade recommends “raising your deductible from the standard $250 to $500, which could save up to 20% on your premium. Go for a $1,000 deductible and you could save 30% or more.”

Shop ’til you drop

Every insurance company has a different way of assessing risk, says Marlene Landry, manager of consumer and industry relations for the Atlantic region of the Insurance Bureau of Canada. “Some companies will hike up your rate after one accident, others won’t change your rate until you’ve had two.”

That’s why you should consider enlisting an independent insurance broker to shop for you, rather than going directly to one provider. “A single broker may have contracts with five or six insurance companies, and you need to talk to several,” Landry notes.

A further stone to turn: the group insurance packages offered by many professional associations and university alumni societies. “If your association consists of accountants who drive Volvos to work, they might be able to offer you a lower rate than you’d get from an individual policy,” says Automobile Protection Association president George Iny.

The claim game

Say you run into the car ahead of you at an intersection, crunching its rear bumper. Should you involve your insurance company? In fact, “the law requires you to do so,” says Michael Turk, legal counsel for the APA. Otherwise, “you run the risk of voiding your policy.” Turk acknowledges that many people skirt around this bit of law and pay for minor collision damage out-of-pocket (assuming the other party agrees). After all, why make an $800 claim if your premiums will go up by $500 a year for the next six years?

Here’s one reason: “The person you rear-ended could make a personal injury claim against you down the road—perhaps because of chronic back pain they incurred after the collision,” says Turk. If you didn’t go through the insurance company at the time of the accident, “you now have a huge problem. The company could decline to cover you.” You’re on safer ground if you write your neighbour a cheque after rear-ending her parked car, “though it’s still a breach of policy,” says Turk. “Consider yourself warned.”