To many drivers, how car insurance premiums are calculated by insurance companies are mysterious and confusing.
Premiums are based partly on an insurance company’s estimate of the amount of claims it will have to pay in a year to cover the costs of vehicle repairs and medical rehabilitation for injured people. All drivers are essentially paying into a shared risk pool to cover the cost of those claims.
Let’s take a look at the things insurers consider when determining rates:
Your driving record
Of course, your driving record is a significant factor in determining rates, and it is the one element of your premium you can influence directly. For example, 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.
Your years of experience as a driver also count. New drivers are a higher risk due to having less experience. That 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 young drivers tend to have higher rates, remember that new drivers of all ages will be considered a higher risk.
The vehicle you drive
It’s not only you as the driver, but also the car you choose to drive that contributes to your insurance rate. 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 they too may see higher rates.
Vehicle theft is another issue, and in some parts of the country, it’s on the increase. Annually, auto theft costs Canadians $1 billion. In other words, if your vehicle is more likely to be stolen, it will cost more to insure.
Where you live and commute
Your postal code is another factor that goes into calculating your insurance rate. Some cities have a lot more vehicles per capita than others. Areas with higher incidents of accidents or theft will carry higher rates. Specifics about your home also counts. For instance, if you park in a garage rather than on the street, you may see a lower rate as there’s less of a chance your vehicle will be damaged or stolen.
How far you drive from home to work is part of the calculation as well. Long commutes mean higher rates since you’re spending more time on the road. If you don’t work or work from home, and your car is on the road less frequently, it is at a lower risk of an accident. That may translate into a lower premium.