Calculating your insurance premium is a bit like completing a big jigsaw puzzle. You see, insurance companies use a number of factors to develop your automobile premium. This section explains how each of these factors affects your final insurance rate.
Your driving record
Your driving record is based on the number of years you've been licensed to drive, your previous insurance experience, and your number of convictions or at-fault accidents (usually up to the last 6 years but sometimes even longer.) If you drive safely and defensively to avoid convictions and at-fault accidents, your premium will be lower than if you've had a conviction or accident. In a nutshell, a good driving record will increase your chances of recieving cheap car insurance.
How do insurance companies establish premiums for your automobile? They have two main methods. Some insurance companies use the relative claims experience of the makes and models of automobiles to establish your insurance premium. This means they'll check into repair costs, the rate of injury, and the likelihood the car may be stolen. Another factor is the value of your vehicle, so auto insurance companies may use the Manufacturer's Suggested Retail Price of the automobile.
Check out the claims and safety record of your car at the Insurance Bureau of Canada.
How you use your automobile
The more you use your automobile, the higher your chances of being involved in an automobile accident -- and the higher your insurance premium. In metropolitan areas, driving to work includes driving to a subway, bus or train station. Do you live close to work and don't use your automobile to get there? Then you'll probably have a lower premium than someone who lives far from work or needs to use their car for business.
If you have young or inexperienced drivers in your family or a number of drivers using an automobile, this may also affect your automobile insurance premium costs.
Where you live
Car insurance rates are generally higher in metropolitan areas. That's because there are a higher number of accidents, and theft or vandalism claims.
When you purchase automobile insurance, you can select some of the coverage limits and deductibles.
If you select a higher coverage limit, you'll pay a higher premium. If you select a lower deductible, you'll also pay a higher premium. Why? Because in both examples, you're asking the insurance company to assume more financial risk if you're involved in an accident or claim. If you select a lower limit of coverage or a higher deductible, you can reduce your premium costs.
For example, in most provinces you are required to purchase a minimum coverage limit of $200,000 for Third Party Liability Coverage (also known as Civil Liability in Quebec). If you select a higher coverage limit, for example, $2,000,000, you can expect to pay a higher premium for this coverage.
Maybe you decide not to purchase an optional coverage. This is one way to save on your insurance premium costs. For example, if you have an older automobile, you might want to consider not purchasing collision or comprehensive coverage. After all, the automobile is probably not worth the additional premium cost.
Auto insurance quickguides
- Introduction to auto insurance in Canada
- Common insurance coverages and endorsements
- Accident Benefits in Ontario
- What is no-fault insurance?
- How premiums are calculated
- How to reduce your auto insurance costs
- Insurance discounts
- Special situations