How Car Insurance Premiums are Calculated

To better understand how much car insurance costs, it really helps to understands how car insurance premiums are calculated. There are a number of factors that insurance companies take into consideration. It pays to understand how it works, so you can find the right coverage for your needs - at the right price. Here are eight different things that are taken into account to calculate car insurance:

1. Your car

The make, model and year of your vehicle all affect your car insurance premium.
Your premium might be lower if the car model has been statistically proven less likely to be involved in an accident or be stolen. It also might be lower if the vehicle has better safety and handling characteristics, or is less costly to repair.
Insurers also consider how much it would cost to replace your car if it was stolen or damaged beyond repair.
Read through Common Car Insurance Myths to find out if things like the colour of your car impact your premiums.

2. How often you drive

Depending on how often you drive, you may be at an increased risk of being involved in an accident. And accidents can impact your insurance premium. Insurers determine this by examining the number of kilometers you drive per year.

3. If you are driving for commercial purposes (not just commuting to your workplace)

If you use your vehicle for work, you may need to get commercial car insurance coverage. That’s because your personal car insurance policy will not cover any accidents, damage or theft that occur on a work vehicle. Your business may also require a higher liability limit than is typically available through personal car insurance policies.

4. Your driving record

Your record can affect how your car insurance is calculated. Canadian car insurance companies use your driving record to determine how much of a risk you pose on the road. Generally, the better your record, the lower your insurance premiums will be.

When looking at your driving record, insurers mainly look at:

  • The number of drivers
  • The number of years you’ve been licensed for
  • Any convictions due to driving infractions
  • The number of accidents you’ve had
  • Speeding tickets

Don’t forget: Insurers also take into account the number of drivers who use your vehicle and their driving records as well when they’re calculating car insurance.

5. Where you live

In Canada, where you live can affect your car insurance rates. Car insurance premiums are generally higher in and around large urban areas due to a higher number of accidents and theft or vandalism claims.
In some provinces, insurers establish categories to classify people with similar profiles. Belonging to a group that is statistically more likely to be at fault in an accident or drive more recklessly could affect your insurance premium.

6. The coverage you choose

While your provincial or territorial government dictates the minimum amount of insurance you must carry, you also have a number of coverage options to choose from. The amount of coverage you carry is an important choice, which affects the level of protection afforded by your insurance policy and how also how much your car insurance will cost. Generally, the more protection you carry, the more it will cost to insure your vehicle.
Tip: If you want to lower your car insurance premium, an easy way to do it is to increase your deductible.
A deductible is the amount of money you have to pay towards a repair before your insurance covers the rest. For example, if you are in an accident that causes $5,000 worth of damage to your car, and your deductible is $1,000 - you have to pay $1,000 towards the repair, and your insurer covers the remaining $4,000.

7. Special savings

To get the best value for your car insurance, make sure to check out if you are eligible for any discounts or preferred rates. We can help you save if you:

  • Belong to a professional association*
  • Are a graduate of a Canadian university or college*
  • Bundle your auto and home insurance
  • Drive a hybrid or electric vehicle

Interested in even more savings? Check out more simple tips to save on car insurance.

8. Factors beyond your control

Some factors that affect your car insurance premiums are not related to you or your vehicle. For example, if the government introduces a new regulation, or if the rate of inflation changes, your premium may be affected.

*Exclusive to professional or alumni groups that have an agreement with us.