Factors Affecting Auto Insurance Premiums
When purchasing a new vehicle, a lot of people focus on the car loan. Of course the loan payment is an important consideration, but it’s only part of the overall cost of owning a vehicle. If you are looking for a car loan when you have no credit or bad credit, you’re probably just starting to understand the importance of knowing the total cost of vehicle ownership. Factors like your insurance rate and fuel consumption will weigh heavily when trying to determine exactly how much it will cost to operate your car each month. In fact, next to your car loan payment, the next biggest monthly expense may be your auto insurance. To get the best insurance rate possible, it helps to understand the factors that affect auto insurance premiums.
Separate Fact from Fiction
Nobody knows where that false rumour about red cars being more expensive to insure came from, but it’s a common one. The truth is that many insurance companies don’t even ask what colour the car is when you’re applying for coverage. There is also that story about two-door cars being more expensive to insure than four-door vehicles (not true), or the one about parking tickets affecting your insurance rates (also not true). With so many myths floating around about what you can do to get cheap car insurance, it’s important to pay attention to things that really do affect your insurance payment.
What Insurance Companies Consider When Calculating Rates
Now that we know some of the things that DON’T affect your insurance premiums, let’s take a look at some of the things that DO:
Age and Experience: Statistically speaking, mature drivers who have lots of driving experience have fewer accidents than younger, less experienced drivers. That’s why drivers over the age of 25 with clean driving records will typically enjoy rates that are much lower than those of younger drivers. Luckily this is a case that will improve over time as you get more driving experience, just be sure to keep your driving record clean!
Driving History: Your driving history is arguably the best indicator of future performance. This doesn’t mean that you are doomed to a lifetime of higher insurance rates because of a minor moving violation. However, it does mean that if you have a major conviction (driving while impaired, careless driving, racing, etc.), you can expect to pay significantly higher premiums than someone with a clean driving history.
Much like your credit score improves over time, so does your driving record. If you do have a major conviction and your license has been suspended, it is in your best interest to complete whatever remedial education program is prescribed by the province or the police to get your license back. Three years after your last conviction is a good time to think about renegotiating your insurance premium.
Vehicle type: The colour or number of doors might not matter much, but the type of vehicle certainly does matter when an insurance company is determining your rate. The type of vehicle affects the theft rate, the cost to make repairs in the event of an accident, and the types of injuries occupants of that vehicle tend to experience in a collision. If you are narrowing down your vehicle choices, check the Insurance Bureau of Canada’s report to see what types of claims are common for the vehicles on your short list.
Location and Driving distance: Insurance rates are all about probability. If you’re going to be driving 50 kilometers in rush hour traffic to and from work each day, you’re going to be on the road a lot. When you’re on the road a lot, you’re at greater risk of getting into an accident than someone who takes the subway every day and only uses the car to go grocery shopping on the weekends. Having said that, people in those urban areas that are well-served by public transit can expect to pay higher insurance rates because of the greater risk of theft and damage due to minor collisions.
Factors You Can Change
You have probably noticed that a lot of the items on the list so far are things you can’t do much about when you’re shopping for insurance. Of course you will do what you can to keep a clean driving record, and young, inexperienced drivers will eventually become older, experienced drivers, but that doesn’t do you much good if you are hoping to insure a car at a reasonable rate right now. Here are some things you can do to get a lower insurance premium:
Increase your deductible: The deductible is the amount you will pay out of pocket for repairs in the event of an accident. It does mean that you’ll have to come up with the money, but if you increase your deductible from $500 to $1,000, you can save that much in the difference in insurance payments in just a few months. If you can manage a $1,500 deductible, the savings each month are even greater.
Coverage limits: In Ontario, drivers must carry a minimum of $200,000 in third party liability coverage, but it is common to carry at least $1,000,000 and sometimes even more. Discussing your coverage options with a licenced insurance broker can help you customize your insurance policy to find a company with premiums you can afford.
Insurance company: People tend to think of insurance companies as interchangeable, but they all have their own rating systems and practices. There is no harm in getting auto insurance quotes from many different companies when you are shopping for a policy. You can save a lot of money by choosing a policy with similar coverage from a different insurance company. However, if you get a quote from a broker that simply seems too good to be true, trust your instincts. Be sure to check out the insurance company on the consumer’s page for the Financial Services Commission of Ontario.
When compared to getting the best rate for your insurance, getting auto financing is easy! If you know somebody who could use some help with financing a car or getting the best price for their insurance, please share this post.
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