Sunk Costs
Posted by Gail | Filed under Budgets
Ever heard of a “sunk cost”? That’s the expense that we’ve already reconciled ourselves to so we don’t think twice about spending the money anymore. It comes from the fact that we perceive our various pots of money as having different values, and we react to them in different ways.
Y’know the cable package and digital recorder that you pay for every month without a second thought. That’s you thinking about the cable bill as “spent” money. With one call you could cut your costs substantially and slam $50 or more a month against your mortgage or into your retirement savings.
You see the money you blow on your smart phone as “sunk” money; by the time you get the bill you’ve already spent the money. Never mind that a call to pick a better plan that gives you more for less money, or a switch to a pay-as-you-go plan, could save you hundreds of dollars a year.
Switching banks is too much trouble. Golly, just think of all the auto-debits you’d have to change. (Lazy!) Switching telephone providers is a major pain in the butt, even though you could reduce your long-distances charges significantly. Switching from buying new to buying used as just plain yucky. (Oh, get over it!)
If you’re whining about not being able the find the extra money to make a dent in your debt, if you’re concerned that you’re not saving enough for the future, if you wish you had an emergency fund so you could sleep at night, it’s time to look to your sunk costs.
Today, pick an expense you’ve been paying for a while – be it your gym membership, your book-of-the-month-club subscription, your car or home insurance – and look for ways to trim your costs. It is amazing how quickly small expenses start to erode savings potential simply because you’ve gotten used to spending the money. And it’s equally amazing how much you will accumulate in savings when you start small, consistently moving a little money away for the future. It’s not about giving up all the good stuff. It’s about becoming conscious about how you’re spending your money, and making sure you’re also saving enough so you can have a nice life later when it comes time to hang up your tool belt.
February 2, 2012 at 6:47 am
This is a great idea Gail! Going to call around to see if I can get cheaper car insurance today!
February 2, 2012 at 7:24 am
Feeling a little resistance here becuase I’m of the “if it ain’t broke don’t fix it school” but you know, I just changed grocery stores after over twenty years because I decided that all I was getting for my customer loyalty was price gouging. Maybe there’s hope for me yet.
February 2, 2012 at 7:36 am
Just a little note of caution regarding cell phone plans. If you’ve had yours for a while and it’s pretty decent, don’t change it. Cell phone companies are continuously changing the plans to give you fewer minutes for more money so the only way to keep a decent plan is to never change it.
February 2, 2012 at 9:07 am
Like what Amelia said, I wouldn’t change my cell plan because I signed up for it when it was at a promotional price. The only way to keep it at that price is to keep renewing my plan every few years. Which I do.
February 2, 2012 at 9:29 am
When I was shopping around for car insurance, I thought for sure that the lowest quote would come from the insurer who holds both of my parents policies (I’d been on their policies as an occasional driver for 10+ years), but they were by far the highest monthly amount of any carrier I checked.
The lowest insurer was one that I recieved a discount with by being an alumni at a University. Both Brock and Western alumni associations have discount plans available with TD Meloche Monnex, and after applying all discounts I am currently paying just under $104/month for condo/homeowners and car insurance (2009 Chevrolet Aveo).
By not just signing up with the insurer I thought would give me the best rate and hunting around, I am ’saving’ myself just over $500/year!
February 2, 2012 at 9:55 am
I agree with Amelia and momma, we will never change our cell phone plan unless they force us. We signed up for a $10 plan 5 years ago and just keep renewing it every 3 years. It’s the best plan ever and we don’t even have a home phone.
re Insurance: we have had home insurance with the same broker for 15+years. Every year we would call them and ask them to quote the different insurance companies. Yet, every year our premium would increase substantially. This year, we started to get quotes from other brokers and we let our current broker know that we are looking around. Guess what? After all said and done, our original broker was “able” to find a company with premium that was $300 less than what we were paying with all the same coverage. It makes me wonder if our broker actually did any work during all those other years or just forwarded us the paperwork to renew. Maybe we had show that we were serious in transferring our business elsewhere before they actually did some work.
February 2, 2012 at 9:56 am
Slightly off topic… We received our December hydro bill yesterday. We used 10kwh less per day than last year. (It helped that we were on vacation for a week!) but our bill was $20 higher! Wish there was a way to reduce the cost!
February 2, 2012 at 10:13 am
We changed our cell phone plan about two years ago. We were sucked in by the ‘free’ cell phone. The only catch was the 3 year contract. OOPS! We were paying almost $80 a month for 2 cell phones. Now we pay less than $20 a month for 2 cell phones. I do not have anything fancy. Just the basics. And thank goodness I have a cell phone. Yesterday morning I witnessed an assault and had to phone 911. That is what cell phones should be for. EMERGENCIES. Not the idle chatter I hear constantly. Amazing what people talk about out in public on their cell phones. Do they think people can’t hear them?
Our car insurance has been with the same company for about 20 years. It is bundled with our house insurance and the premiums lower each year. We also earn air miles with our insurance company. Bit of a bonus.
My gym membership is an expense that never lowers. However, I do go to the gym on a very regular basis. Typically 5 days a week and sometimes 7 days a week. That is my entertainment and exercise all in one, so it is worth the $$$.
February 2, 2012 at 10:23 am
Ha ha ha, I have the $10 cell phone package too! I will never change that. It is for emergencies only.
I cringe at the thought of the number of hours I would have to spend on the phone to change my home phone/internet/cable. You go through the process and then they bill you something that wasn’t agreed upon, and you spend more hours trying to sort it out, and it was only an introductory rate anyway. I won’t be switching because Rogers is the only high speed internet I can even get where I live. When Bell calls and I tell them that, they are very surprised, look into it , and sure enough I can only get dial up from Bell in my location.
Thank goodness I don’t pay any bank fees because of a multiple product discount.
February 2, 2012 at 10:49 am
We are currently working on trimming all of our monthly expenses. Just a note re: phone plans; we had a great Internet plan from Bell and when they introduced the bandwidth limits our unlimited bandwidth plan was grandfathered in. They have been adding fees and charging us more every other month it seems. It feels like they’re trying to muscle out of our great old plan into one of their new crappy plans. When I call to ask why our bill is higher or what a new fee is all about they always have an explanation and something to back up why they can charge us but it is getting ridiculous. I’ve stuck with Bell for a long time because we’ve always had OK service from them but we will be switching now.
February 2, 2012 at 10:59 am
We review our sunk costs anually. A few years ago we called up our car/home insurer and chatted to them about all our products and we were able to further reduce it with them just by asking “is there anyway we can make this less expensive?”
February 2, 2012 at 11:15 am
This post is timely. I recently made a number of small changes. I started to work from home (saving $60 in gas and $50 in parking per month). I cancelled my cell because my employer provided me with a smartphone ($15/month). I called my tv/internet provider and cut down on the channels that I don’t watch ($25/month). The only problem is, I wasn’t noticing the difference because I was blindly spending it elsewhere. I have an appointment with the bank today – my plans are to have them start automatically applying that $150 to my home improvement loan each month. By increasing my debt payments that much, I will be debt free in two years.
February 2, 2012 at 12:05 pm
Completely off topic, but…>Gail, I miss your mid-week recipe?!?!?!
February 2, 2012 at 1:23 pm
I just cancelled my overdraft fee. I’ve had it for years, but now that I am debt free, there is no need for it. The bank cancelled, but emailed me “As a reminder, if there are insufficient funds to cover an item in the future, a $42.50 fee will be collected. ” That will NEVER happen! I’m going to look into getting a lower car/house insurance rate. I keep getting flyers in the mail from a company associated with my old University – I wonder if they would give me something better. Can’t hurt to try!
February 2, 2012 at 1:31 pm
I don’t mean to be pedantic (and I love the overall point of this post!) but usually economists use the term ’sunk cost’ differently. They use it to mean costs that have been incurred in the past and cannot be reversed. For example, you pay for an expensive meal and get full quickly, but feel like you should finish your plate because of how much it cost. Not finishing doesn’t get your money back (the sunk cost) and just makes you uncomfortably full. Purely rational people should make decisions based on the prospective costs alone (the costs going forward) and not the sunk costs.
February 2, 2012 at 1:34 pm
I finally switched my cell phone provider on Monday – I thought I had a great plan until I looked over my actual minutes used. Turns out I don’t use a lot. I cut my bill in half by switching from Bell to Wind – so there $15 a month!
I wish we could save on car insurance, but out here in BC we have no competition. Just ICBC!
February 2, 2012 at 1:46 pm
I just recently switched to ING’s Thrive Chequing account. So I am saving $23-$24 per month. I am cancelling my cable because we never watch it, just Netflix, and our home phone because I got a cheap cell phone with the number we had for home phone.
February 2, 2012 at 2:15 pm
I think I have done all that I can over the past year to reduce those kinds of costs – we reduced our car insurance by alsmo $40/month, bundled cell phone/landline/internet together for $110/mo (savings of ~$100/mo), called and had my satellite costs reduced, replaced an aging rented hot water heater with a newer one that my husband got for free from a client, cancelled cleaning lady and magazine and newspaper subscriptions that we can read on line for free. None of it took that much work, just a quick phone call.
February 2, 2012 at 2:25 pm
Was with Canada Trust even before they were TD. 18 years of loyalty got me rate increase after rate increase. By switching my chequing, business and main credit card, I’m saving $220 per year.
I switched over to Bell’s Fibe PVR from Rogers during Bell’s holiday promotion and now I’m saving about $25 a month on my TV / Internet package. It pays to shop around.
February 2, 2012 at 2:25 pm
Off topic, has anyone else ready “The Wealthy Barber Returns”?
Am I the only person that seems to think that book is seriously lacking. There was nothing concrete in that book. It was three things: 1) bad dry humor, 2) very generic and very very broad advise, and 3) ranting about the way people handle their finances.
I am so glad I didn’t waste my money on this book and I borrowed it from the library.
February 2, 2012 at 2:33 pm
Since I became disabled in June I went thru everything on my budget to see were I could cut back and save money. Started with car & house insurance I’m now paying $80 a month for both instead of $125. Cell phone my son put me on his family plan so I don’t pay anything, that saved me over $60 a month. My cable and internet bill was over $100 a month, I cut out somethings and now have it down to $78 a month. When ur on a fixed income every little bit you save is a big help.
February 2, 2012 at 3:47 pm
Just wanted to comment to express agreement with Lewis who commented previously. Bills such as insurance are not sunk costs. A correct example of a sunk cost might be cinvert tickets. You purchased them months ago, and on the day of the show you’re dead tired after work and your spouse has a terrible cold. The tickets are a sunk cost; they are totally paid for. The decision of whether to go to the show or not should be made without consideration of the sunk cost. All that matters is wether you’ll get more enjoyment (in economic-speak “utility”) from going to the concert or crawling into bed early!
February 2, 2012 at 3:51 pm
I received a great tip from an accountant a few weeks back. I was complaining how much I pay for mortgage insurance each month and the premiums never change even though your mortage principal goes down. He asked if I have life insurance, which my wife and I do. He then suggested that I cancel our mortgage insurance and increase our life insurance to cover the mortgage if needed. I contacted our broker and we were able to sign a new 20-year term life policy with more coverage than our old life and home policies combined. And the real kicker was that our coverage increased significantly with the price fixed for 20 years, yet we are saving $32 every month. And term life insurance policies have less strings attached than mortgage insurance (hopefully we never need to find out).
February 2, 2012 at 3:54 pm
I am in the middle of switching from Scotiabank to Envision Credit Union and it hasn’t been too difficult. An experience that made me glad I made the switch is:
I talked to my bank rep at Scotiabank about getting free chequing, as I see there are so many options out there for it now, and she told me because I don’t have a mortgage or major investments with them, I don’t qualify for their special promotions. She did give me three months of free chequing – which was something.
This was in November so I thought I would get November, December and January free. Except in January they charged me the account fee, putting me into my overdraft as I hadn’t been expecting the charge. I contacted my rep and she said “Oh, that was a 90 day cycle and where your bank fee fell it only worked for November and December”. Not what her email had said. I was not impressed.
She won’t give me back the account charge either, since I’m in the process of transferring out my RRSP and chequing accounts. Just hoping now they won’t charge me the overdraft fee on top of it!! And banks wonder why people are leaving…
I ended up choosing Envision because I get a deal through my alumni association for a free chequing account, free cheques and credits to cover the cost of moving my RRSP accounts there. So it is worth checking for deals everywhere!
February 2, 2012 at 4:00 pm
We switched from a regular phone to a VOIP phone cutting our phone & long distance bills to peanuts. We still only pay for basic cable (I can download or watch cable shows online). Every year when my insurance is coming up for renewal, I start getting quotes to see if we’re getting the best deal possible (we have switched twice in the last decade but our current insurer is still cheapest for the 4th year in a row!). We’ve negotiated better rates on our cable & internet packages and pay for only what we actually need. We switched grocery stores a year and a half ago and while we are spending the same amount of money overall, we are now able to eat better and more because of the savings.
The one thing I have a hard time giving up that I know I could give up is my 407 bill. I pay an annual lease on the transponder which saves me a few bucks, vs paying monthly, but really, I could probably stop using the 407 completely. There are times however where it is necessary for us to use it (traffic on the other highways is not moving and we have to get home to pick the kids up from daycare or risk late fines there! That may only happen once a month but it still makes the annual lease worthwhile.)
February 2, 2012 at 4:05 pm
Another thing I am trying very hard to do is keep a minimum balance in my chequing account. Presently I’m paying 10.95/month + 4 overdraft (whether in use or not). If you keep a minimum balance of $2500 you don’t pay any fees and I wouldn’t need the overdraft coverage. I’ve discovered it takes a lot of discipline to keep that amount in a minimum balance. But if you have a large chunk saved in an Emergency fund that is collecting dust (or next to nothing in interest), one idea is to keep a minimum balance and forgo the fees. Just make sure you NEVER touch that minimum amount (unless a real Emergency).
Think about the fees over the course of a year: $10.95 + $4 = 14.95 * 12 months = $179.40/year. If I keep $2500 in my account and I save $179.40 in fees, it’s the same as getting a return of 7.2% on my money ($179.40 / 2500 = 7.2%). 7.2% is far better than any high interest savings account that I know of. You just need an extra large heaping of discipline.
February 2, 2012 at 4:29 pm
I enjoy avoiding the sunk cost of a gym membership. If I was really, really good, I’d exercise for free. But once in awhile I pay for a day pass to change up my exercise routine. I enjoy the experience knowing I’m not committed to a monthly cost. And I enjoy the day pass with a free towel that much more.
February 2, 2012 at 4:35 pm
Like Tyler, I have been with TD-Canada Trust since they were just Canada Trust and I don’t really see why I am still banking with them. I am slowly starting to change over to other banks. Finally opened up an ING Direct savings account!
I recently re-did my cell phone plan and cancelled my iPad 3G coverage. Ended up with a promo plan that covers the same amount of minutes, but increases my data more than my phone+iPad data previously and allows unlimited texting + 10 unlimited LD #’s (which comes in handy since I am living in Ottawa, but from Toronto). In getting more, I reduced my bill by $15. If my house wasn’t a death trap for cell phone signals, we would be canceling our phone for sure! But alas, can’t make a decent call in my house. When hubby’s plan expired we did a few phone calls in between Bell and Telus to compare plans. Ended up staying with Telus who presented a better deal.
I reduced our cable as well. I would love to cancel it as I can watch everything I need to watch on the internet (and hook up my iPad to the big screen if needed). But hubby enjoys his cable
February 2, 2012 at 4:37 pm
Amber: I’m not sure if this will work in your case to lower your bank fees, but here’s what I did:
- We have a bank account and a Visa with the Royal Bank.
- A couple of years ago, I decided to set up a TFSA with them as well (just a simple one where the $ is invested in a “high” interest savings account).
I started by simply transferring $100 into that TFSA.
I hadn’t expected this, but by having this very small amount invested with them, it meant that I now qualified to have my monthly bank fees reversed since I now had 3 services with the Royal Bank. This works out to $4 per month – so $48 per year. Not a huge amount, but I HATE bank fees so it please me
.
I ended up setting up a seperate TFSA with direct investing to obtain a better return, but I left my $100 with them because it allowed me to continue having free banking. As the advisor said, this is a terrific “return” on my $100 invested…
Just a thought for some of you to consider if you already have a visa & chequing account with the Royal.
February 2, 2012 at 4:53 pm
I think the key here is not necessarily cutting everything you can (although, if you find yourself in a bad way, you may need to do that). I think the key is to think long and hard about the purchases you make, ensure that you’re getting bang for that buck, and not being afraid to revisit and earlier decision if circumstances change. We all have things we value more or less (I am not at all ashamed to admit the various things I would give up before I gave up my iPhone), but as long as there’s a balance there and we’re ACTUALLY giving up other stuff (not just spending it anyway), I think it’s ok to have the things you care about… and the things you don’t!
February 2, 2012 at 5:36 pm
Great article Gail. To all the Gail followers.. I work for the loyalty department at a large telecommunications department and Gail’s estimation of skimming $50 off your bill/month is not far fetched at all. In one call I saw a customer save $120 off their tv bill alone. It is absolutely amazing how many customer’s accounts are set up incorrectly and could be updated to save customers substantial money. However, employees can’t just go into accounts and call you proactively so please call your service provider, talk nicely, and just let them know you are reviewing your bills and you feel that your bill is getting too expensive and ask what they can do. If they are not willing/able to help you then either ask to speak to a supervisor or threaten to cancel in order to get in touch with a higher department (ie retention) that actually has the capability to make changes. If you have been with a company for 1 year+, really emphasize your loyalty because we won’t advertise it but most large companies have pretty substantial monthly loyalty discounts that we can easily apply, but you need to call and ask. Hope this helps people
February 2, 2012 at 10:42 pm
@June, @ Amber, I tried to get the discount for those 3 services from RBC and they said they didn’t qualify. I’m in Alberta…. I finally did all of my homework and made an appointment with a person at the bank. I explained how much better ING was for all of my money with no fees and had it all written down etc. I finally got her to take off all monthly fees. It was worth the 1/2 hour appt and now I save almost $170 a year(my fees were $13.95 per month for unlimited everything…)Maybe the rules are different in each province?
February 2, 2012 at 10:48 pm
Tyler – if you don`t mind me asking, which bank did you switch with for the lower fees
February 2, 2012 at 11:57 pm
Today’s message hits home big time! I have been putting off calling the cable co. To see what we can do to lower our cost. We already bundle cable, phone and Internet. There has to be a better price. I feel like the kid in the commercial who doesn’t get the ice cream cone. I have also decided to pay my auto insurance in full instead of monthly as that will save me about $40. Looking at increasing my deductible to $500 which will save me about $140. I already have the highest discount for a good driving record and an emergency fund if need be for a deductible. Feels like a win win.
Thanks for the encouragement Ashley B. I will be making the call.
February 3, 2012 at 12:01 pm
@Ashley B, we did that with our cable bill recently. I noticed the cost had gone up about $10/month. DH called (the bill is in his name), and now we are paying even less than we were before the $10 increase for pretty much the same service.
@Jessie, I completely agree with what you said. I have an iPhone too, and there are plenty of things I would give up before I had to give up the phone. I know there are others who could care less about cell phones, and hey, that’s cool. Just make sure you are getting the most value for your money.
February 3, 2012 at 1:34 pm
@Amy-actually, there is competition for ICBC! You still have to get your basic insurance through them but there is a company (Familiy Insurance?) that I have with Barton Insurance for my Rav4 and I save! Not sure where you are from and who would carry that insurance company where you are but if you have a newer vehicle, it is worth it!!
I am impatiently waiting for my Rogers cell contract to be up in order to take advantage of the deal we can get with Telus and my work.
I have finally talked to Telus about our home phone and we stopped subscribing to long distance (rarely used and only $0.04/min if we do use it), got a new deal with the internet and saved $30/month.
We tried to leave Bell for Telus satellite, getting a new PVR and a very small reduction in costs but the installer wouldn’t put the dish on a pole, told us to “cut down some of our trees” and left. It would have saved over $500 on a new PVR. We are going to have to figure something out for that. I also am thinking that I could make some computer changes downstairs, get netflix and pay for access to the US stuff and I wouldn’t need satellite anymore anyhow! That would save us about $100/month.
I am a bit greedy and have an audible (audio book) account and an ipad account but I use the heck out of both so am counting those as entertainment.
February 3, 2012 at 5:12 pm
@financiallyfreeinb
if you are serious about potentially cutting off tv altogether for bell satellite you might as well just downgrade your package down to the basic for $43.00+tax (not including rental fees) which is a far cry from the $100+ that you’re currently paying, then you don’t have to switch providers but you also don’t have to cut off TV altogether
February 3, 2012 at 10:09 pm
The little stuff does count! How many of you noticed the $3.99 (sometimes more) rental for the internet modem that Rogers or Bell charge. Well, this is something you can buy for $40 on sale or $60 retail which is less than a year to payoff especially considering these companies entice you to committ for at least a year. Rogers made me buy it from them and at the time I wasn’t confident the one in the store would work so I just did that..you have to ask them, they won’t volunteer it! You can do this even if your in the middle of your contract!
While i’m at it, I am in the midst of changing to VOIP, the same option applies to this!
February 4, 2012 at 1:26 pm
I agree with Lewin as well on the meaning of “sunk cost”. Not that this post wasn’t good, but it totally missed the definition. I see it all the time when I browse websites like kijiji where people sell used things that people don’t understand the concept of sunk cost. They buy an expensive item and then expect to sell it used for almost the same price they paid for it!! Another good example is when you have an old car that is near to the end of its useful lifespan and you keep having to fix it repeatedly. You just did the brakes and it cost $500, but then the transmission goes, and that will cost $1000 to fix. You may feel like you have to fix the transmission because you just did the brakes, but the two costs have nothing to do with each other. Another example is if you start a small business, and its cost $5000 to start. After a year of losing money and no hope of ever making money, you may feel like you have to keep going because you already spend all that money on the business. No, because that money is already spent. You have to make a decision based on the present and what the future may hold.
February 6, 2012 at 9:30 pm
Agree with all those that say that this post isn’t really about “sunk costs” at all; it should probably be re-titled “fixed costs”.
But the advice is solid, regardless. So many people focus only on their variable spending when looking to cut costs. They don’t realise that even their so-called “fixed” costs are actually changeable. Paying too much in rent or mortgage? Move/downsize. Can’t keep up with the bills? Cancel unneeded services and reduce usage on others.
For the person looking to save money on energy, since there’s a monopoly and you do have to heat and operate the lights, you might think there’s not much you can do. Well, not true. I cut my electric bills by one-third by only heating the rooms I am in at the time I’m in them (I have electric baseboard heating, which is really inefficient but I rent so I don’t have a choice) and by being really careful about lights and appliance usage.
As for cable/internet/phone? All the big companies (Bell, Rogers, Videotron, whoever) are price-gougers. Always call and politely ask to cancel so you get transferred to the retentions department, and then negotiate like hell. You’d be amazed at how much money you can save. It takes a little time, sure, and it’s annoying to have to call them back every year to re-negotiate the discounts… but it sure beats paying needless fees.
Finally, minimum balances vs. chequing fees: Do the math before you assume that the minimum balance is the best solution. Sure, interest rates are low right now, but remember that the banks are waiving the fees for a reason, and that reason is that they’re coming out ahead. If you took that $2,500 and invested it at 5%, you could make $125 in the first year and compounded interest on that from there. By letting it sit in an interest-free chequing account, make sure your bank fee savings exceed your sacrificed earnings. (Or better yet, switch to a totally fee-free account without minimums, like ING Thrive).
February 7, 2012 at 8:21 am
Gail, would you be able to enable a blog where people could literally compare their cell phone packages? It would be like talking to 100 friends about their plan. We could then go to our companies and ask for the same plans. I recently spoke with the customer loyalty department at my co (Rogers) and got 200 minutes for $2.50 ( it was $17.50 and they gave me a $15 discount). But cell phone companies’ strength is that they keep people in the dark about their deals.
February 8, 2012 at 9:24 pm
I am debating on paying out my Telus cell phone contract because I want to switch to Koodo. I make a lot of long distance calls and the Telus contract just isn’t working for me. It’s ridiculously expensive for what I need. I’m half way through the contract and it will cost me $300+ to cancel the contract. decisions… decisions…I may even just reduce it to the minimum monthly amount and give the phone to DH. I just hate to have to change my number.
February 8, 2012 at 9:26 pm
When it comes to bank fees, the biggest recommendation I can make is to regularly review your accounts. Have your banking habits changed? So many clients are in accounts that no longer suit their needs. It’s a good thing to regularly review. If you don’t have the opportunity to visit your local branch, call the 1-800# and as to review your accounts. These changes can generally be done by phone saving you time & money!
February 9, 2012 at 11:54 pm
Re: Insurance – I had arranged my car & home insurance through the same broker for over 20 years. Every renewal time, they would send me the paperwork, which was usually for a different Insurer. I NEVER actually paid attention and I would assume my Broker had shopped around to get me the best rates, and so would sign the renewal and off I went on my merry way. When I decided to buy a new car last year and told my Insurance Broker, he quoted me $3200 a year for the car (even with my perfect driving record)and $816 for my home policy for a whopping total of over $4000. I was trying to cut costs at the time (a la’ Gail) and so decided to call CAA. They quoted me (and delivered) $2544 a year, which IINCLUDED insurance on my house, with better coverage on both.
I called my original broker and said “aren’t you looking after my best interest and finding me the best rates?” and he explained that the insurance companies were losing money on investments because the interest rates are so low, and they have to make it somewhere. He said that if he “shopped around” for the best rate for me, the insurance companies wouldnt make any money and they wouldnt like that very much, so he has to keep on their good side. He told me that if I cancelled my policy early, I would have to pay a penalty and it could amount to alot. I realized that if I no longer owned the car, they couldn’t hold me to the policy or make me pay any penalty, plus I was so angry I didnt care what they did.
Looking back over my paperwork (that I should have been reading all along) I realised that in 2007 my insurance was $1600 and since then had increased by $400 a year. If I had not called CAA to get a quote, my insurance would have Doubled. oh, and the Penalty? It ended up they owed my about $87!
It was all smoke, mirrors, scare tactics and lots of Stupidity on my part for not catching on Years Ago. (can’t even bear to think how much I would have in my retirement fund with all that compounding, If I had only Wised Up years ago)