Over 3 million insurance quotes
Compare Quotes from 30+ Car Insurance Providers and Save
Compare Quotes from 30+ Car Insurance Providers and Save

How Insurance Premiums are Calculated: The Factors That Matter Most

July 17, 2012

To many drivers, the determination of car insurance premiums by insurance companies can seem a little mysterious. Most people know that their driving record is a major factor in their insurance rates, but there are a number of other factors that go into calculating what each driver will pay for insurance. Why do you pay more than your neighbour when you both have a clean driving record? How can your cousin pay less when she has a ticket and you don’t? Take a look at the factors that go into determining rates.

Your Driving Record Does Matter

Of course, driving record is a major factor in determining rates – perhaps the most important factor. If you have a ticket or an at-fault accident on your record, you will pay a higher rate than you would without it. Conversely, drivers who maintain a good, clean driving record over long periods of time will find their rates are lower. The more tickets and accidents that appear on your record, the more likely it will be that you car insurance rates will be higher.

It’s not just what’s on your driving record, but the length of the record that matters. New drivers are a higher risk due to having less experience. This means that their rates are higher. The longer you have been driving, the better your rates will be due to your increased experience on the road. Although it is usually seen as young drivers who have higher rates, remember that new drivers of all ages will be considered a higher risk.

The Car You Drive

It’s not only you as the driver, but also the car you choose to drive that contributes to your insurance rates. Different cars are rated by insurance companies according to a combination of factors. High-value luxury cars will cost more to insure because they cost more to repair or replace. Sports cars are statistically more likely to be involved in a serious accident, so again they see higher rates.

Safe, economical cars usually see the lowest rates. Cars that are less likely to be stolen are also a better bet for low rates.
Where You Live and Where You Work

Your postal code is another factor that goes into calculating your insurance rate. Where you live determines where your car spends a good deal of its time. Areas with higher accident or theft rates will carry higher rates. Specifics about your home count as well; if you park in a garage rather than on the street, you may see a lower rate on your auto insurance.

How far you drive from home to work is part of the calculation as well. Long commutes mean higher rates. If you don’t work or work from home, your car is on the road less frequently and thus is at a lower risk of an accident. This means rates might be lower.

The Calculation of Risk

Every insurance company does a calculation that includes these and other possible factors to decide what your rate will be based on the level of risk you as a driver represent to the company. Simply put, the more likely you will have a claim, and the more likely that claim will cost the insurance company a lot of money, the higher they will charge you.

All insurance rates are basically a calculation of risk, and each driver comes with a unique combination of factors that can raise and lower rates. This means that every driver will have a different rate because their risk level is unique to them. You may drive the same car as another person, but have a different driving record. You may have the same number of years of experience and even live in the same area, but drive different cars. Each premium is calculated for that particular driver and car.

The important thing to remember is that each insurance company calculates risk in their own way and places a different amount of importance on each factor. That means that from one company to another a driver can find a great deal of difference in the insurance rate quotes. Shopping around for car insurance quotes is the quickest way to discover just how different those rates can be – and just how much less you could be paying just because you took the time to get a few quotes. Shopping around can match you with the right insurance company for your particular risk factors.

  • Ralph SIMONS

    Simple question.
    Why should I subsidize other drivers who’ been involved in accidents, drive like idiots and live in citiesand high crime areas, when in 46 years I’ve never incurred more than a parking ticket, which was withdrawn in court asnd have never been involvede in anyt accident leave alone an “at fault”?

  • John Porter

    I have an accident and ticket free record for the last 40+ years, the last 20 years of which I worked overseas. When I came back to Canada, with written proof from my insurace company overseas of no claims, and advised my new insurer of the name of my last insurer in Canada 20 years ago before I left, they still treated me and hence rated me as a “new driver ” !!
    The criteria they used was that I had only held an Ontario livence for less than a year. Apparently had I continued through the 20 years away to renew that licence, albeit that I was overseas and didn’t use it, then I was not a “new driver”!!
    What a farce. The moral is if you are going overseas just keep renewing your license.
    Care to comment?


  • Wayne

    Car insurance is a racket…all factor’s are subjective…the government should investigate these crooks…..people of Ontario are sick and tired of these insurance companies being Judge- Jury – Executioner.

  • Choudhry

    Insurance companies are crooks in GTA. They over charge in every aspect. If you live in postal codes starting with M1′s you pay even more. I wonder how the bigger cities around the world are paying in insurance since one criteria that these crooks use is how densly populated the city is.
    Back in early 2000′s I was paying over $500/month becuase I was a new driver. My younger brother moved to Montreal and ofcourse he was a new driver too was paying less then $100/Month. Same brother is now in Saskatoon and pays less then $100/month with couple of accidents and claims and I am Claimless and have no accidents/Tickets ….. I pay $3000/year. Go figureeeeee……………………

  • sernan tolentino

    i had my license back in 2002 but i have been driving my sister’s car for a few years now i’m pretty sure that i have a good driving record but when ever i tried to get a quote for insurance i always end up getting a higher pay the car that i’m driving right now is 1999 toyota corolla

  • Fabian

    Toronto is incredibly expensive for insurance because the crime rate and population are both huge.

    I live in Ottawa, in a nice suburb in the east end, commute 25 km’s, have two brand new vehicles, about $40,000 each…I’m 43, married, no accidents in the last 10 yrs, and I pay $158/mth for full coverage for 3 vehicles, one of which is dedicated for the daily drive to work. This includes my THIRD vehicle (my winter vehicle). I have 3 vehicles, all with full coverage. My rates are fantastic and I have no complaints so far.

    People in the GTA are getting screwed royally. I use Insurance Hotline all the time, every month I’m checking rates and I’ve been sticking with the same insurance company for the past 3 yrs. Smartcoverage Insurance seems to have the best rates so far!

    Stay away from those old staples like State Farm and Co Operators…they’re huge rip off companies. Who needs more than 1,000,000? I mean really, think about your insurance needs, if you want cheap insurance, make the right choices, but don’t complain about your rates if you’re over-insuring yourself.

    For example, my spouse, who has the same amount of vehicles as me, pays more than double what I pay, and when I checked his policy, he had full coverage on all vehicles, 2,000,000 coverage for each one, only has one listed for the drive to work (same distance as me), has never had an accident or even a ticket…and his rates are almost $400/mth…can you say CRAZY? That’s with Co Operators.

    I’m going to have him switch (after 2 yrs together, this was the first time I had seen his policy). Yep, time to switch…and he’s going to use Insurance Hotline to get the best rate!

    It pays to shop around…and it pays to know what you’re insuring yourself for…no need to go overboard, unless you’re a crappy driver!

  • Nick – InsuranceHotline.com

    Shopping around is definitely the best way to get a lower rate.

  • Tom

    Of course , as long as Libs are in power , gas price and car insurance will be sky rocket , so they can pay for their mistakes.

  • Tom

    Our money go to Liberals and they know very well that in GTA 75% of population is from immigrants , so as an immigrant we do not go to demonstration or complain, and Libs keep banging us for good. In my native country we have a saying: IF A BABY DOESN’T CRY , HIS/HER MOM DOES NOT FEED HIM/HER: so no one is crying , or complaining , (gas price or car insurance), everybody vote for the same guys that screw us , and in election they say SORRY and they keep doing the same thing over and over again.

  • Tom

    wake up , the crooks that you are saying are Liberals , they control gas prices and car insurance.