What is a car insurance premium? – Forbes Canada Advisor

Auto insurance companies use several pricing factors when determining auto insurance premiums. Here are the most common considerations:

Your driving record

Your driving record is one of the most important factors in determining your car insurance premium. A driving record includes your history of at-fault car accidents, traffic violations such as speeding tickets, license suspensions and even parking tickets.

Drivers with recent at-fault accidents and major traffic violations will pay more for coverage than good drivers. When determining car insurance rates, your insurer may review the last three to five years of your driving record, depending on your state and insurer. According to the Insurance Bureau of Canada, it can take up to six years for your record to be deemed clean by insurers again.

Your car insurance rates will go up after a speeding ticket. You can also expect your car insurance premiums to increase after an accident if you are at fault.

Your choice of car insurance coverage

The coverage you choose is also a major factor in determining car insurance rates. There are both mandatory and optional types of insurance in Canada. Compulsory insurance includes third-party liability and accident benefits, and each province sets the minimum amount of coverage for each. For example, in Ontario the minimum for third party liability is $200,000, while Nova Scotia sets the minimum at $500,000. However, you can choose higher coverage, which in turn will increase your monthly premium.

Don’t skimp on getting the coverage you need just to save money. This mistake could cost you more in the long run.

For example, the minimum liability car insurance requirement in your province may not be enough. If you cause a multiple-injury car accident, you can quickly exhaust your policy limit, meaning you’ll be left paying out-of-pocket for other people’s medical expenses and other bills. Generally, you want to buy enough liability insurance to cover what you could lose in a lawsuit, such as your life savings.

There is also optional loss and damage cover including total, collision or upset, all perils and specific perils. Talk to your insurance company about whether this coverage is right for you.

Deductible on your auto insurance

Your car insurance deductible is the amount of money you are responsible for when you file a claim. It’s usually deducted from an insurance check, or you may have to pay the mechanic directly when you pick up your car after it’s been repaired. For example, if the repair estimate on your vehicle is $2,000 and you have a $500 deductible, you will receive an insurance check for $1,500.

Generally, the higher your deductible, the less you pay in auto insurance premiums. This is because your insurer will pay less if you file a claim.

Not all coverage includes a deductible. For example, there is no auto insurance deductible for liability and accident benefits.

The type of vehicle you drive

The make and model of your vehicle is another factor in the cost of car insurance. Your insurer looks at past claims from similar models to estimate repair costs, comprehensive claim payments made and theft rates.

Your age and driving experience

Young and inexperienced drivers will pay more for car insurance because they are more likely to get into a car accident. Car insurance rates for young drivers start to drop around age 25. You tend to enjoy the best rates in your 40s and 50s, but your rates start to rise again around age 70 and older.

Where you live

Your zip code is another important price factor. Drivers who live in cities tend to pay more than drivers in the suburbs due to higher rates of car accidents, theft and vandalism. Your insurer also considers weather-related claims in your area, such as hail or flooding.

Other location-related factors include:

  • The costs of medical care.
  • Car repair costs.
  • The incidence of car accident cases and fraud.

Your driving habits

The amount you drive each day and your annual kilometers will also affect your driving premium. For example, all things being equal, a driver who commutes 50 kilometers one way to work each day will pay more than someone who works from home.

Your credit

Auto insurance companies may look at your credit-based insurance score to help determine your rates in states where this is allowed. Alberta, Ontario, and Newfoundland and Labrador prohibit the use of credit when pricing auto insurance.

Other Car Insurance Pricing Factors

Auto insurance companies also often consider non-driving factors when setting rates, such as:

  • Occupation (retirees may qualify for a discount)
  • Marital status
  • gender

Using non-driving factors to price car insurance is controversial. Some consumer groups have raised concerns that this practice is inherently discriminatory.

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