Spending Reduction Series: Bills & Utilities – Car Insurance

Ever since I ran the 2015 numbers for the Thriftyskate household spending, I’ve wanted to methodically attack the different budget areas. It’s easy to say, “Cut the budget!”, but where to start? How much to cut? What if spending actually goes up?

That’s why I, Mr. Thriftyskate, am starting a series of posts exploring the methods and tools I use to make actual spending cuts. I will focus on real budget items, present actionable information, and report actual results.

Impact

I want the best return on my time investment. I want a large spending reduction with minimal effort. I want results and I want them now.

Target acquired
Target acquired

Based on those wants, what’s the best way to get there? My approach uses a targeted method to identify the easiest and largest budget items to attack.

If you recall the recent post recapping our 2015 expenses, there was a chart with the different spending categories. There were three main groups, “one-time decisions”, “recurring expenses,” and “independent cumulative decisions”. These each had their own approaches “long-term planning”, “systematic evaluation of alternative,” and “vigilant spending habits”.

Since I want to only invest a little bit of time, the best approach is “systematic evaluation”. The other two approaches, “one-time decisions” and “independent cumulative decision,” either take too long until they make an impact or require a significant amount of time investment.

Given that, I will attack the “recurring expenses”.

Since I want the largest impact, that means I should attack the largest category, “Bills & Utilities”.

If you’ve read any of the recent posts, you know what’s next.

Can you pay my Republic Wireless Bills?
Can you pay my Republic Wireless Bills?

That’s right, a yummy pie chart of our bills and utilities.

I was shocked to learn the Thriftyskates were spending nearly twice as much to insure our cars as ourselves!

I placed expenses into three categories: act now, investigate further, no action.

 

Act now: Car insurance (MiEV)

Investigate further: Internet, electricity bill, water bill, engagement ring insurance

No action: Car insurance (Mrs. TS), life insurance, Republic Wireless, old car insurance (sold in 2015), HOA, trash service, remaining 3 categories (natural gas bill, earthquake insurance, AAA membership)

 

For the moment I will concentrate on the MiEV car insurance since it’s the largest expenditure and probably has the most room to save money. The expenses in “investigate further” are, I believe, good opportunities to pursue savings. However, as I stated, I want results now so I’ll focus on just one topic at a time and leave the others for later so I don’t get overwhelmed trying to save money.

Let’s get to the bottom of this. Of the $1,538 for car insurance: $878 was for the MiEV and $660 was for Mrs. Thriftyskate’s car. Seems like an awful lot.

I dug up the last bill for the MiEV insurance and noted where most of the payment was going: the liability and collision deductible coverages.

I typically drive in an area where there are expensive houses, cars, and other property that can be damaged in a wreck. I am comfortable with the relatively high amount of liability coverage we’re carrying.

However, I noticed the collision deductible was set to $500. For those who don’t know, in the event of an accident the collision deductible is the amount the insured (myself) is responsible to pay. Beyond that, insurance kicks in. So, if I get into an accident I’m responsible for the first $500 in claims.

The MiEV is a nice ride, but let’s face it. A collision is either going to be a minor scratch – damage will be below the deductible, or, it will cause some major damage. I’m basing this entirely on physics without any collision statistics to back it up. Either the cars will barely touch, or the MiEV is going to get it’s teeth kicked in.

At a curb weight of less than 2,600 pounds, the MiEV is significantly less than the average sedan weight of over 3,000 pounds. Guess which car will sustain more damage? And guess which car, as a result, will need more repairs or even be declared totaled? Therefore, I would expect a higher amount of damage, a higher repair bill, and a higher probability of significantly exceeding the deductible regardless of the amount.

Meaning, if the MiEV is in an accident the claim will be a high amount compared to the deductible. Therefore, the value proposition feels appropriate.

Well what about actual statistics? I did some research and couldn’t find reliable data to calculate my odds of getting into an accident. There were some vague average numbers about collisions and their resultant costs, but nothing appropriate for an odds-based decision.

Luckily, I haven’t been in a car accident during my entire driving career. To add to that, I feel I drive a fairly predictable route in a relatively safe manner. In addition, whenever I am driving outside my normal habitat I feel more aware of my surroundings and tend to drive even more safely. Yes this is all confirmation bias. However, I feel there is at least some merit to it since I do know myself best.

So if not a $500 collision, what should it be? A call to my friendly auto insurer gave me a quick answer.

I was currently paying about $327 per year for the $500 deductible. The next higher deductible level was $1000 which was quoted at $266 per year. Or, a yearly savings of about $62 if I switched. Some quick math told me it would take about 8 years to break even on this proposition. $500 increase in potential responsibility divided by $62 = 8 years.  

Do I plan on getting in an accident in the next 8 years? I don’t think anyone does. I decided to put that money to work over the next 8 years and went for the $1000 deductible.

While I was at it, I noticed I was also paying for rental car coverage. Meaning, if the MiEV was in a wreck and needed repairs, I was covered a certain dollar value in rental car fees for a given time period.

See my above comment about how it’s less likely my car would be salvageable in a high-repair-cost situation. More than likely it would be declared totaled so my car wouldn’t be in a shop getting repaired. I would, hopefully, in one uninjured piece, be happily on my way to purchase another low-cost used car with the insurance company’s check.

To make the rental car coverage more unpalatable, if a rental car situation were ever called for, the Thriftyskate household has a somewhat flexible car use schedule for getting to and from work.

What about the savings proposition? The rental car coverage was maximum $25 per day, total of $600 per year in coverage (24 days worth of rentals).

So what was the yearly rental coverage? $34. Some more quick math makes the break even point 17 years ($600 / $34). Well, I like to think I’m perfect, but odds are I’ll probably be in a collision in the next 17 years.

However, I don’t believe said collision will warrant a 24 day long car repair session. If I were to guess, 14 days, tops – the equivalent of $350 in benefit ($25 * 14). Again reference my comment about the damage being minor – a short time to repair – or so major it could probably total the car. A more realistic break even of about 10 years. Okay, this sounds a little more palatable with some more realistic numbers. Gone.

Add it all up and an 8 minute phone call saved me $106 dollars. About a 7% reduction in one of our bills. Forever*.

Sure, I probably could have lowered some of the other auto insurance coverages for the MiEV or Mrs. TS’s ride. But, I didn’t want to. I will fully admit there are some things I am comfortable paying money for and the other coverages made the cut. That’s a bit of insight into how Mr. Thrifyskate thinks. Optimize, optimize, then sometimes stop when you’re out of your safe zone, think rationally, further optimize if possible, then stop.

There you have it. The first documented reduction in our spending. Stay tuned for more!

 

*Until the rates inevitably rise due to inflation or other insurance industry changes.

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