How to cut your insurance costs
One thing to keep in mind when we are looking into any insurance product is that the person selling the insurance is likely a commission-based salesperson. This means that they face a conflict of interest because what is in your best interest may mean a smaller or no commission for them. Even if the salesperson is not working on commission there will at the very least be sales goals they are expected to meet and have a bonus, a raise, or a potential promotion tied to their ability to meet those sales goals. In short, you can not trust the advice you are getting to be in your best interest, you have to do your homework. I am going to review how to cut your insurance costs related to various insurance products we all use or are offered.
There is a legal requirement to carry auto insurance on your vehicle. However, many people do not realize what portion of the insurance they carry is legally required and what portion is optional. Rules vary by province, but in general, the only thing you are required to carry is third party liability insurance. This insurance covers damages to other people and their property if you cause an accident, such as compensation for missed work due to injury or fixing the other person’s car.
Most people also carry Collision and Comprehensive, which is normally optional coverage. Both cover damage to your vehicle. Collision covers damage as a result of an impact with another vehicle or object and comprehensive covers other things like thief and vandalism. When deciding if you should pay for collision and comprehensive you need to look at the value of your car, the financial impact to you if you had to pay to replace the car yourself, and the impact on your insurance premiums if you put a claim though.
My rule of thumb is to have collision and comprehensive coverage until the loan for the car is paid in full and then remove it. This saves me a few hundred dollars in premiums. By the time the car is five years old the value has dropped significantly, and I would not put a claim through for small items because the insurance company would just increase my premiums next year. In a worst-case scenario if the car is written off, I would simply buy a new one with a new loan. If you are not in a financial position to purchase a new or used car if you had to, then you may feel the extra premiums are worth to cost.
Creditor protection insurance (mortgage or loan insurance)
When you take out a mortgage or loan most often you will be offered life insurance to cover the credit balance. This is not a good idea in most situations. Getting a new policy or increasing your existing coverage through a separate insurance company will likely be a better and cheaper option; that is if you actually need additional coverage. Some companies (common for car dealerships) make you pay the full premiums for the term of the loan upfront and add the cost to the loan. If the loan were paid out early you will not be refunded, plus you are paying interest on the premiums. But the main reason not to accept this type of coverage is that it costs more for most people and you get less in return.
With the mortgage or loan insurance, the amount you are covered for goes down with every payment you make because you are only covered for the amount still owing. If you get a separate policy for the amount of the mortgage or loan you will be covered for the full amount for the full term. If you are in good health, the premiums could be cut in half by meeting with an insurance broker.
Extended warranty insurance
We get offered this more and more these days. Pretty much any time you buy an appliance or an electronic item, it is being offered. I have even been offered it buying batteries. This insurance costs around 20% of the purchase price and only adds a year or two onto the warranty. Even if you could use this insurance, the claim process is often so time-consuming that many people don’t bother going through with it. If you buy the item on a credit card chances are you are already covered by some sort of extended warranty through the card. Unless losing the item is going to have a major impact on your life and you would not be able to afford to replace it just say no.