Leo- Wednesday, May 12, 2010
A trying situation has got you wondering why and how you got yourself into a certain thorny dilemma. Self-doubt may suit some people, but it certainly doesn’t go well with you. Confidence is about to come around for a visit. This time it’s going to take up permanent residence. You’ll be surprised with the successes that are about to come your way.
You can save now, but pay a lot later
Skimping on auto insurance options could prove costly for you and your family
James Daw
Business Columnist
Buying the right amount of automobile insurance coverage could prove far more important to you and your family than buying the right new car.
You may not be able to afford any more than the minimum coverage required by law. But if you can afford more, and you have assets and income to protect, skimping on coverage could prove costly to you and your family in the event of an accident.
There is always a chance you could cause more damage to someone else than the basic policy will cover, or that you will suffer more damage than another driver’s policy will cover.
The importance of optional additional coverage will rise starting Sept. 1. That’s when Ontario will cut the base level of medical and rehabilitation coverage from $100,000 to $50,000. So you may wish to buy an optional increase in statutory accident benefit coverage.
The amount drivers will pay in future for accident benefit coverage for serious injuries will depend in part on whether other government-approved changes reduce costs.
For example, treatment of minor injuries is to be controlled by a new $3,500 cap that will also apply after August.
We won’t know the effect on prices for a while. So the best we can offer now is a look at an example of current costs for basic and optional coverage for a new car buyer.
The price you pay will depend on a number of factors: The claims experience of the insurer you choose, your age and driving record, the neighbourhood where you live, your vehicle, plus the distance and type of driving you do.
Other factors include whether you also insure another car or a home with the same insurer, and how long you have stayed with that insurer. The price of optional benefits may also depend on these many variables.
Lets look at cost of policy options for a driver we will call Tim.
We were provided sample figures by Anne Marie Thomas of InsuranceHotline.com, a sister company of the Toronto Star that is one of three free, online, rate comparison services available to Ontario drivers.
Graphic: The difference between insurance policies (PDF)
Tim is married, 35 years old, with 19 years of driving experience. He lives in the Willowdale district of Toronto. He has committed no driving infractions. He has not been at fault in a collision.
The minimum
Tim would have to pay one insurance company $1,881 to buy Ontario’s basic auto insurance policy for a 2010 Honda Civic sedan. Of that total, $1,055 would pay for third-party liability coverage, direct compensation for property loss and uninsured automobile coverage. The remaining $826 would pay for various statutory accident benefits.
Accident benefit coverage nows pay up to $100,000 of medical rehabilitation, plus other accident benefits such as a couple of years of disability income, and $72,000 for attendant care after a serious injury. These two amounts can rise to $1 million for a catastrophic injury, such blindness or loss of a limb.
The accident benefits would be paid regardless of who was at fault in a collision.
Basic liability coverage, as per current regulations, will only protect Tim or someone he gives permission to drive his car for legal claims for damages of up to $200,000, and for Tim’s legal defence. This might not be enough if the person injured could prove they lost their ability to earn an income.
Under direct compensation, the insurer would pay to repair or reimburse Tim for up to the market value of his car, but only if the accident occurred in Ontario and was caused by a driver covered by an Ontario insurer.
The amount paid to Tim would be reduced by whatever percentage he was deemed to be at fault for the collision. Fault is determined by a set of regulations that describe common accident situations.
Uninsured motorist coverage would pay Tim up to $200,000 for damages he or his family suffered as a result of the negligence of an uninsured or hit-and-run driver. From that $200,000, 5 per cent or $10,000 would be available to pay for damage to his vehicle.
Important options
To increase the protection he would enjoy if he injured someone else, Tim could buy $1 million of liability coverage for an extra $175 a year. A further $1 million would cost $83 more, and bring the total of $2 million of coverage to $258 a year.
Brokers and agents would strongly recommend to Tim that he also pay for family protection, which is described in Ontario Policy Change Form (OPCF) 44R. This option would make his $1 million or $2 million of third-party liability coverage available to him or an eligible member of his family if a hit-and-run driver or someone without enough insurance or wealth caused them to be injured.
This extra coverage is relatively inexpensive, and well worth the money. For Tim it would cost an extra $27 if he chose $1 million in liability coverage, or $43 if he chose $2 million of coverage.
Tim could further protect himself or his family in the event of serious injury with OPCF 47. This policy option would provide an additional $1.17 million of medical, rehabilitation and attendant care coverage, regardless of who was at fault in the accident.
Few drivers buy this additional medical coverage, but it could make life a whole lot easier if a family member were ever injured seriously or catastrophically. Tim’s cost would now be $70 a year.
Protecting the car
It would cost Tim $452 a year for collision coverage to insure his vehicle in the event he ever caused a collision, or if his vehicle were ever damaged outside of Ontario or by an out-of-province vehicle. He might choose to go without this coverage once his car is much older.
For $138 a year Tim could also buy comprehensive coverage to protect his vehicle in the event of theft, fire, vandalism, storm damage, falling objects or aircraft and assorted other perils.
That would be the premium cost of collision and comprehensive coverage if Tim agreed that $500 would be deducted from his compensation. If he agreed to a $1,000 deductible with either type of claim, he would save a total of $21 a year.
It’s also possible to buy all-perils coverage for somewhat more. This combines the collision and comprehensive coverage, but also covers you for the theft of your vehicle by a resident of your home or an employee at your repair garage.
The OPCF 43 option at $35 a year would ensure Tim would be reimbursed the original purchase price of his new car during the first 24 to 29 months. The duration of this coverage will depend on the insurer he chooses.
Less vital options
There are numerous other options that Tim could consider.
It would cost $50 a year to protect himself from an increase in premiums after his first at-fault accident. (Some insurers charge nothing.)
OPCF 20 for $25 a year would ensure he got compensation for a rental vehicle while his own vehicle was being repaired after a collision he caused.
OPCF 27 for $25 a year would extend his liability coverage to a rented vehicle, but only in the continental United States and Canada.
He could double the basic death benefit coverage to $50,000 for him and his wife, $20,000 for a child and raise the funeral benefit from $6,000 to $8,000 for an extra $14 a year. But Tim should really have other, more comprehensive life insurance for himself and his wife.
It would cost $23 a year to increase caregiver benefits to $325 a week from $250 to look after one dependant, and to $75 a week from $50 for each additional dependant.
The sum of all these items mentioned would lift Tim’s annual premium from $1,881 to as much as $3,014, with $500 deducted from collision and comprehensive coverage.
Beyond that, Tim could increase his basic weekly income replacement amount from a maximum of $400 to a maximum of $600, $800 or $1,000 a week. But he may already have short-term and long-term disability insurance with his job, or coverage that he bought personally. And for a further fee, he could buy inflation protection for his benefit payments.
Tim could be eligible for various discounts, or he might find less expensive coverage with another insurer.
When Tim goes shopping for insurance, he can use one of three free online rate comparison services or approach three or more brokers that represent several insurers. He could also approach agents that represent a particular company, or call certain other insurers directly.
He should decide on what coverage he will need in order to get an accurate comparison of prices.
The names of all insurers and their recent average price changes can be found on the website of the Financial Services Commission of Ontario under auto quarterly rate approvals. http://www.fsco.gov.on.ca/english/insurance/auto/rates/default.asp
A broker, agent or representative of an insurer that sells directly to the public should be able to provide advice on coverage options to suit your circumstances. The more helpful that person is, the better service you are likely to get in future.
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