Friday, 3 May 2013

Personal Finance: Breaking Up With My Insurance Provider

I’ve known for a while now that my car insurance fees were some kind of rort. My small, reliable, low cost car is worth somewhere between $10,000 and $12,000, and I was paying $143 a month for comprehensive car insurance. $143 a month is $1,716 a year. That means I’ve been paying almost 20% of the car’s value every year to insure it, despite my little household’s perfect driving histories, low annual kilometres and a locked garage. I’m the proverbial little old lady who only drives her car once a week to the supermarket, and instead I was being charged like I’m the stereotype of an 18 year old p-plater who’s quite keen on street racing and drink driving.

My dream car! I will own one someday.
Luckily for me, my crappy car insurance company gave me a push to change policies by increasing my fees yet again. To $157 a month, which is $1,884 a year. I repeat: $1884 a year to insure a car worth $12,000 at most. Take a moment to consider how ridiculous that is. I would have to total my car every six years to make that policy worthwhile!
I’d already created a “car replacement fund” able to well and truly cover the cost of replacing the car if I was to total it, as it seems to me that any frugal girl should be preparing for the future. So what was the obvious solution? To take out a third party fire and theft policy so that I wouldn’t be screwed if I hit a Ferrari, and cancel the comprehensive car insurance.
When I called the insurance provider I’d picked as a good bet for a new policy, the very helpful customer service rep explained an amazing phenomenon to me: if your car is worth over $10,000, you can’t get covered for anything less than comprehensive car insurance because it would give you the right to sue the insurance company for under-insuring you. I asked if this was standard across the insurance industry and he told me that for some insurers the limit is only $5,000. Basically, insurance agencies and our legal system assume that you are unable to make decisions for yourself and that you don’t understand what the policy you’re taking out actually means. Otherwise how can you have the ability to successfully sue for your choice to buy a policy that doesn’t cover your car’s value in its entirety?
I was not impressed that my plan to only have a third party policy wouldn’t work. I don’t want to go without insurance at all in case I hit that Ferrari.
However, this story has a happy ending. The customer service rep was able to sell me a policy for $1,074 a year, or just under $90 a month. That’s cheaper than any of the quotes I received from other insurance providers for comprehensive car insurance. It’s not as cheap and cheerful as that third party policy would have been, but it’s an annual saving of $810. It turned out to be very good timing as I had to pay close to $800 for dental work this week. 
My actual car! Which is clearly a Beetle copycat. I love you, Micra.
Just because a service provider was the cheapest option when you last looked, doesn’t mean that’s still the case. When I first had to purchase car insurance three years ago, the provider I picked was by far the cheapest for my circumstances. Now they appear to be very overpriced compared to market standards. My circumstances have changed in that time, and maybe the insurance market has too. This doesn’t just apply for insurance: when was the last time you shopped around for an internet provider, or ran a price comparison on different mobile phone contracts?
Look at whether you really need insurance. I’m still planning to drop down to a third party policy when my car’s value is lower. A different policy may be a better fit than your current one, and if you have a very large savings fund and the value of your vehicle is low, think about what you’re gaining from having insurance coverage. Some people wouldn’t be comfortable with the thought of paying for a new car out of pocket and would rather have insurance just for peace of mind, and that’s okay too.
If you’re friendly and you ask questions, you will receive a wealth of information. The customer service rep was willing to chat to me about all kinds of insurance issues. For example, do you know that if you live in a suburb with lots of car parks (e.g. close to the central business district or a shopping centre) your insurance premiums will be higher? That’s because people are causing accidents by reversing into each other’s cars in car parks and your premium is partly based on the statistics for your suburb.


  1. Great work Sophie.

    You could also reduce the premium slightly by increasing your excess. Not sure if your insurance person explained that to you.

    1. Good point! I did choose the largest excess possible, and I have a cheaper policy because we don't drive much (less than 5000 kilometres a year, including our annual road trip). Unfortunately my premium will always be higher because I live on the edge of the cbd - lots of car parks and peak hour accidents!

  2. “If you’re friendly and you ask questions, you will receive a wealth of information” - This is so true! If you want to get the best insurance deal, you must accumulate facts. Don't settle with just one inquiry; they are free anyway. Call each insurance company and talk nicely to their costumer service rep and make a comparison. By the way, those are helpful information, Sophie! Thanks for sharing them!

    Cayla Dupont

  3. It's beneficial to have a car insurance. It shouldn't be seen as an additional monthly fee you have to pay, but rather an investment, you can make full use of in the right time. Shop around and find a car insurance that will fit your budget and your needs as well. Always make an informed decision.

    -Marlin Kelsey @ JohnClarksOnInsurance