Understanding how auto insurance premiums are calculated can give you a better grasp of why you are paying a certain amount for your car insurance. There are a number of factors that go into how your insurance premium is calculated and that can mean the difference between an expensive premium and a cheaper premium.
5 factors that influence your car insurance premium
Factor #1: Your automobile
Before an insurance company even begins to look into you as a driver, the type of automobile you choose to insure is an important factor in determining your insurance premium. The make, model and year of your automobile can tell an insurer a lot about the risk involved. Insurance companies track information and collect claims data like: theft, collisions, other claims and the cost of repair and replacement parts. Cars with higher instances of theft, collisions and more expensive replacement parts will cost more to insure. You can see how your car make and model measures up to other automobiles on the Insurance Bureau of Canada’s website.
Factor #2: Where you live
Insurance companies also track claims data by geography. As you may have guessed, busy urban areas have more risks than less populated rural areas, but every city is different. Cities that historically have higher incidents of theft, collisions and fraud can drive up premium costs for all insured drivers within that region. Using Ontario as an example research from KANETIX.ca shows that a large city like Toronto has the car insurance premiums that are 22% above the provincial average while rural Coburg has one of the lowest. Even within the same city, rates can differ by neighbourhood. So where you live also has a substantial impact on how much your monthly insurance premiums can cost.
Factor #3: How much you drive
The more time you spend on the road, the more likely you are to have an accident. That’s why insurance companies ask how long your daily commute will be and approximately how many kilometers a year you drive. Your insurance company will also ask whether you are driving for personal reasons or for work.
Factor #4:Your driving history
The biggest factor that influences your car insurance premiums is also the one you have the most control over! If you have a history of driving safely and responsibly, you will enjoy lower insurance premiums than other drivers. Safe driving means making sure you have minimal claims history with your insurer and a clean driving record. If you have a history of insurance claims, accidents or traffic tickets, it will impact your monthly insurance premiums. Higher risk drivers have to pay higher rates for insurance coverage and in some extreme cases might not qualify for insurance at all.
In addition to your driving history your insurance company will also ask about your age, how long you’ve had a license and whether or not you are retired. The longer you have been driving, especially with a clean record, the more likely you’ll get lower rates.
Factor #5: Your coverages and deductible
Not all car insurance policies are the same. Basic auto insurance includes liability insurance, since it is mandatory in Canada. But many drivers also want added protection in case they are involved in an accident or their car is damaged in other ways. They choose to add collision insurance and comprehensive insurance coverages. The types of coverage and the amount of coverage you choose, will also affect your premiums. The deductible amount for your car insurance coverage is also something you can adjust. Your deductible is the amount of the claim that you agree to pay out-of-pocket before your insurer pays their part. If you have no deductible or the lowest deductible amount available, you will have higher insurance premiums.
Auto insurance can be complicated with rates, coverages and providers varying by province. Understanding the different factors that determine your auto insurance premium can help you choose the right insurance for you. In our next blog article we will look at ways you can reduce your auto insurance premiums.
This blog is provided for information only and is not a substitute for professional advice. We make no representations or warranties regarding the accuracy or completeness of the information and will not be responsible for any loss arising out of reliance on the information.