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Switching Auto Insurance Companies Relatively Painlessly

You may choose to terminate your auto insurance policy for any number of reasons. Maybe you're moving to another state, getting rid of your car altogether, or maybe you're just dissatisfied with your existing company's service. Beware, however, that if you don't give your insurer sufficient notice, it could end up costing you money, or negatively affecting your credit history.

Standard practice for most insurance companies is to allow you to cancel your policy at any time during the policy term by sending written notice stating the date of cancellation. Your car insurance policy does not necessarily terminate at the end of each policy term, so it isn't safe to assume that you can just cancel by failing to pay your next bill. If you don't send notice of cancellation, your insurance company will automatically bill you in advance for the next term's premium payment. If you don't pay it, they'll cancel your policy and it will go on your credit report.

Don't expect this information to be made explicit in your policy; while insurers are quick to inform you that your coverage will terminate at the end of the policy period if you don't pay your next premium, they don't always inform you of the repercussions you may face for not giving formal notice of your policy termination.

Another thing to keep in mind is that allowing your car insurance policy to be canceled may hurt your chances of obtaining auto coverage in the future. A cancellation in your insurance history may cause other companies to label you a high-risk applicant, thus giving them an excuse to charge you a higher premium. However, you can usually avoid this trap by officially terminating your policy in a timely manner.

Here's what to do: Call your insurer, let them know that you want to cancel your policy and give them an effective date. They will then send you a cancellation request form - review this form carefully before you sign and return it to your insurer.

If you're switching to another insurer, and you plan on driving your car throughout the process, you want to make sure there is no lapse in your car insurance coverage. Therefore, be sure to coordinate the effective starting date of your new policy with the termination date of your old policy. The last thing you want is to get in an accident during an uninsured interim - how stupid would you feel if that happened?

As long as you are considerate about giving your insurance company plenty of notice when you want to cancel your auto policy, and then go through the official termination process, you should avoid any negative repercussions.

Closing the Gap—With Gap Insurance

Just when you thought you knew everything about insurance — along comes gap insurance.

Though it may sound trivial, gap insurance is a must for leasing. And if you made a small down payment when buying a car, a gap policy can be lifesaver as well. But first, let's look at why it exists.

As the name implies, gap insurance covers what traditional auto insurance doesn't. In other words, it closes the gap between what your insurance company pays if your car is stolen or totaled and what you owe the finance company.

Let's take a test case. Say you bought your car two months ago for $25,000. You begin making payments at about $500 a month based on a 6 percent interest rate. Then, disaster strikes: a tree falls on your car and flattens it.

You call the insurance company and it looks into its crystal ball and decides at the time of the accident your car was worth only $20,000. The car may only be a couple of months old, but it has already lost 20 percent of its value. Unfortunately, the finance company still wants the full amount you owe them. With interest, tax and license fees, they figure that to be $27,000.

Yikes! There's a gap of $7,000 between the $20,000 that the insurance company is willing to pay you and the $27,000 the finance company is demanding. Most folks are going to be eating Spam dinners for the next two years, but if you have gap insurance you can safely order steak.

Apply the same scenario to someone who bought their car. If they left the dealer lot without putting several thousand dollars down, they likely owe more than the insurance company will pay if the vehicle gets totaled or stolen in the first few years. Once again, gap coverage can save the day.

And that's why gap insurance is a must for many drivers. In fact, gap insurance is usually mandated by lease contracts or included within them. If a gap policy is required but not included in your contract, you should shop around for this coverage (insurance companies sell it). If gap coverage is included in the lease, check to see how much is offered and how much you're going to be paying for it. (In some cases, lease contracts may include what is known as a gap waiver, which protects you from gap charges in the event that the leased vehicle is declared a total loss — eliminating the need for a gap policy.)

Is gap insurance necessary for people who finance their cars? Well, it depends on your coverage. If your regular insurance policy is written to pay off the fully financed amount, then you don't need gap insurance.

A few things to keep in mind when buying gap insurance:
Although most people purchase it when a lease is initiated, some insurance companies will sell you a gap policy anytime during the lease term.
You must be in compliance with all terms of the lease.
Your gap insurance policy may not be honored if you don't have collision and comprehensive insurance coverage. Further, lease contracts generally require that you carry collision and comprehensive at all times.
If your car is totaled, or stolen, carefully follow all requirements made by your insurance company. For example, some companies require you to continue making loan payments on your totaled car until the money from the gap insurance is paid out.

So when initiating a car loan or lease, always remember to ask your insurance agent or loan officer about gap insurance. If you have an accident you'll be glad you planned ahead.

OEM vs. Aftermarket: Decisions, Decisions... You've been in an accident, you're dealing with the nuisance of getting your car repaired, finding someone to chauffeur you around (unless your insurance covers the cost of a rental, which is always nice), and you've probably had to take some time off from work to recover and take care of the whole mess. Life couldn't get much more complicated, right?

Um...well, wrong.

Oh, did you think you could just turn your car over to the body shop and trust them to do the best job possible to make your car like new again? 'Fraid not, dear friend. You must decide whether or not to mandate that the repair facility use OEM (original equipment manufacturer) replacement parts, as opposed to aftermarket parts. What difference does it make, you ask? The answer is debatable.

According to non-OEM manufacturers and many insurance companies, the difference between OEM and aftermarket parts is negligible. And it's not surprising that insurance companies are such strong advocates of using aftermarket parts, seeing as how they are considerably less expensive than OEM parts. For that reason, many insurance companies will not reimburse 100 percent of your repair costs if OEM parts are used. Most insurers discourage the use of OEM parts by making the policyholder pay for the difference in cost between the non-OEM parts specified in the estimate and the OEM parts used. This can turn into a large sum of money, as OEM parts may cost nearly twice as much as aftermarket parts. For example, an OEM replacement hood for a '96 Ford Contour can cost close to $600, whereas an aftermarket hood can be had for about 300 bones.

A few insurance companies, such as Chubb Insurance Group, actually encourage their policyholders to use OEM repair parts, while not charging them a penalty. It should be noted however, that Chubb is one of the more expensive auto insurers.

The use of aftermarket parts can be called into question for two reasons. First of all, they decrease a vehicle's resale value. This should certainly be taken into consideration if you plan on reselling or trading in your car. Many dealers check the repair history of vehicles to see what kinds of parts were used. The trade-in value of a BMW with non-BMW parts can certainly be adversely affected. By the same token, using non-OEM replacement parts to repair a leased car could cost you all or part of your security deposit, because technically you would not be returning the vehicle in the same condition as when it was leased.

The other concern with aftermarket parts has to do with safety. Advocates of OEM parts claim that non-OEM parts aren't subjected to the same crash-testing procedures as OEM and therefore are not as safe. The Insurance Institute for Highway Safety (IIHS), however, contends that making cosmetic repairs with non-OEM replacement parts does not degrade the safety of a vehicle in a crash.

In the end, it's up to you to decide what type of replacement parts are used in your vehicle's repair. If you opt to save money and use non-OEM parts, you should make sure that they are approved by the Certified Automotive Parts Association (CAPA), which sets the standards that must be met in the manufacturing of non-OEM parts for collision repairs.

Obviously, you want to know your options before you turn your car over to a repair facility. If you are concerned with the depreciation of your car, especially if it's a high-end vehicle, you'll probably be wise to go with OEM parts at repair time, even if you have to foot part of the bill. But if your car's resale value isn't of extreme importance to you, and you'd rather not dig too deeply into your own pocket, you should consider allowing the body shop to use non-OEM parts.

Just make sure that you specify one way or the other with your repair facility - the last thing you want is to end up paying for OEM parts that you weren't concerned with using, or to get aftermarket parts put on the super-rare ride that you intend to keep in tip-top shape for the rest of your life. As long as you play an active role in choosing your body shop and then communicate clearly with both the repair facility and your claims adjuster, you shouldn't be caught off guard.

Deciphering Auto Insurance Lingo Here's a glossary of commonly used auto policy terms.

Actual Cash Value The cost to replace property minus the amount it has depreciated since the original purchase date.

Benefit The amount an insurance company pays to you or your beneficiary when you file a claim.

Bodily Injury Liability This covers medical expenses for injuries the policyholder causes to someone else.

Claim The policyholder's request for the reimbursement of a loss covered by their insurance policy.

Collision This covers damage to the policyholder's car from any collision. The collision could be with another car, a light post, parking curb, garage wall, etc.

Comprehensive For damage to the policyholder's car that doesn't involve hitting another car. Covers damage resulting from fire, theft, falling objects, missiles, explosion, earthquake, flood, riot and civil commotion.

Deductible The portion of losses that you agree to pay in the event of an accident. Higher deductibles lower premiums significantly, but will come back to haunt you in the case of an accident, especially if you're at fault.

Endorsements These are changes to the original insurance contract, such as a different deductible or an additional car or driver.

Exclusions Situations that are not covered by a given insurance policy; specific exclusions are listed on your insurance policy.

Extraordinary Medical Coverage Sometimes included in Personal Injury Protection, this coverage protects you if you suffer accident-related injuries that require serious and/or long-term medical care and begins once you have exhausted the limit on your standard medical benefitscoverage.

Full Coverage This indicates that you have all the minimum coverage for your state of residence; it does not necessarily mean you will always be fully covered.

Income Loss Coverage Sometimes a part of Personal Injury Protection, income loss coverage takes care of you if you're unable to work due to accident-related injuries.

Indemnity A predetermined sum paid for a covered loss.

Limits The maximum amount of money your insurance company will pay out for your losses; many states have minimum required limits.

Medical Payments or Personal Injury Protection (PIP) Covers the treatment of injuries to the driver and passengers of the policyholder's vehicle. At its most extensive, PIP can cover medical payments and the lost wages of those injured in an accident. It may also extend to covering the policyholder if he/she is injured while in another vehicle or is hit by a car while on foot.

No-Fault Insurance A no-fault policy usually will not require that someone be assigned the blame in order for the policyholder to receive his/her money. In no-fault states, insurance companies are required to have this type of policy.

Property Damage Liability Pays for damage the policyholder causes to someone else's property.

SR-22 A document that shows proof of financial responsibility in the case of a traffic violation.

Tort A legal term that describes circumstances when someone is deemed legally responsible for injuring another person or damaging his/her property. Some states encourage you to make a tort provision, thereby reducing the cost of your premium by limiting your right to sue for non-monetary damages.

Uninsured/Underinsured Motorist Coverage This is to pay for treatment and/or property damages of the policyholder in the event that he/she is injured in a collision with an uninsured driver. Underinsured motorist coverage is another policy option; it kicks in when an at-fault driver has auto liability insurance, but the limit of insurance is insufficient to pay for the victim's damages.

To delve even more deeply into the wonderful world of car insurance and find out your own minimum policy requirements, see the state-by-state table in our feature "How Much Auto Insurance Do You Really Need?"

#1) Raise your deductible.

Your "deductible" is the amount you pay when you make a claim before your insurance company pays. The disadvantage of raising your deductible is that when you do make a claim, you’ll pay more. The advantage is that your insurance costs yearly go down. Go a number of years saving money without making a claim and your ahead. This tip can be applied to collision and comprehensive sections of your insurance policy.

#2) Drop your collision and/or comprehensive insurance on older autos.

Sometimes it’s just not worth paying for these kinds of insurance- if your car is not worth that much to begin with. That’s because the amount you pay for the deductible plus the amount you pay for the insurance may not be more than the value of the car itself. An auto dealer or certain automotive magazines can help you determine the value of your auto.

#3) Buy a "lower profile" vehicle.

Part of what determines the coat of insurance is the kind of vehicle you drive. Some are favorites for thieves. Some are more expensive to repair. Generally these vehicles will cost more to insure. It pays to do your research before you buy.

#4) Take full advantage of low mileage or distance discount rating—Some insurance companies give discounts to people who drive less than a pre-determined number of miles each year or drive certain distances to and from their place to work.

#5) When you move, consider the cost of insurance

Yes, the cost of insurance varies from place to place, even right here in York Region. Some areas can be considerably higher. Keep your broker informed and this may save you money. The right territory!

#6) Make sure the rating and use of your vehicle is correct.

Many manufacturers offer similar model names for vehicles and insurance costs can vary. Even 2 or 4 doors or the wrong model can effect the cost .

#7) Have your broker check other insurance company discounts

Insurance companies try to reward good risks. That’s the kind of driver they want. A lot of companies offer discounts to drivers who also have other kinds of insurance with them such as their homes. This is called a multi-policy discount. Other discounts available might be - multiple vehicles, anti-theft devices, retirees, drivers education, abstainers from alcohol, age, and distance to university/colleges for students. To name a few. Check with your broker to all that are available---- it will save you money!

Now That I Have Saved Some Money What Should I Do?

After you have applied some of the information from the "7 Money Saving Tips" now what should you do?

Maybe have dinner out in a restaurant or buy a gift or something of that nature. But, perhaps an option more practical would be to increase your present liability coverage. For example - the minimum required by law in Ontario, Canada is $200,000 and you could increase this to $300,000, $500,000, $1,000,000 or perhaps $2,000,000 coverage if you don’t already have that protection. Another option is to perhaps increase your optional accident benefits coverage to reflect your actual financial income or situation.

The bottom line is quite simple .....and that is..... to review your policy and coverage. Ask your broker questions and let your broker know your financial circumstances, income, and occupational information so that you both can evaluate your situation and overall choices to protect you and your family from hardships resulting from an accident. Have you considered Personal Umbrella Liability Insurance

Personal umbrella liability is not just for the executive. It should form an important part of your overall insurance program. It is usually provided in combination with your home insurance as an optional and separately purchased type of insurance.

If you currently carry liability insurance on your automobile, your house, boat, etc. with limits of say $1,000,000 you may not have sufficient coverage in the event of a catastrophe. A personal umbrella liability policy can increase your amount of liability insurance at a reasonable cost and give you additional protection and peace of mind.

Umbrella liability policies can also provide coverage for areas not normally covered by a liability policy.

Some examples are:

* Personal injury including liable and slander

* False arrest

* Wrongful conviction

* Defamation of character

* Liability for volunteers to non-profit organizations such as service clubs or minor sports associations

* Liability for the use of water craft that you don’t own

* Liability you have agreed to accept under a contract or agreement


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