How Car Insurance Premiums are Calculated

Here’s what you need to know about how car insurance premiums are calculated in Canada.

If you drive a car in Canada, there’s a good chance that you’ve had to purchase car insurance. And if you’ve ever bought car insurance, you’ve probably wondered how your car insurance premium is calculated. So, what exactly do insurers consider when calculating car insurance premiums? Read on to find out.

What is a car insurance premium?

A car insurance premium is the amount of money that you pay in exchange for the coverage of the car insurance policy that you choose. When you buy car insurance, you pay into a fund that'll help protect you financially if you get into an accident, or your vehicle is damaged or stolen. Your car insurance may help to cover the costs associated with medical expenses (except Quebec) for injuries to the driver or passenger following an accident, repairing or replacing damaged vehicles, and liability for bodily injury to others and damage to other people's property.

Insurers consider a number of factors – including your driving record, your vehicle, and even where you live – to estimate the likelihood that you'll make a claim and how much that claim will cost. Ultimately, those considerations are used to calculate your car insurance premium.

How is an auto insurance premium calculated?

Car insurance is mandatory for drivers in Canada, but not everyone understands how their car insurance premium is calculated. To help you learn more, we've shared some details below about some of the factors that can influence the cost of your car insurance premiums, including:

1. Your car

The make, model, and year of your vehicle can all affect your car insurance premium. For example, your premium may be lower if your car has been statistically proven less likely to be involved in an accident or stolen. In addition, driving a vehicle with a solid reputation for its safety and handling characteristics, or a vehicle that's less expensive to repair or replace, could help reduce your car insurance costs. Insurers also consider how much it would cost to replace your car if it was stolen or damaged beyond repair.

Read Common Car Insurance Myths to find out if things like the colour of your car can impact your premium.

2. Where you live

In Canada, where you live can affect your car insurance premiums. Car insurance costs are generally higher in and around large urban areas due to a larger volume of accidents and theft or vandalism claims.

3. How You Use Your Vehicle

If you need to drive your vehicle for business purposes (beyond just commuting to work), you may need commercial car insurance coverage. That's because personal car insurance policies won't generally cover accidents, damage, or theft that occurs on a commercial vehicle. Plus, your business vehicle may require a higher liability limit than what's typically available through personal car insurance policies.

4. Your Driving Record

Canadian car insurance companies look at your driving record when calculating your car insurance premium. Generally, the better your record, the lower your insurance premiums will be.

When reviewing your driving record, insurers will consider:

  • The number of years you’ve had your driver's license
  • If you've had any convictions due to driving infractions, such as speeding tickets.
  • The number of times you've been involved in an at-fault or partially at-fault accident

Don’t forget: Insurers also take into account the number of drivers who use your vehicle – and their driving records too – when calculating the cost of your car insurance.

5. How Much You Drive

When calculating your premium, insurers look at the number of kilometers you drive per year. 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.

6. The coverage you choose

Your provincial or territorial government dictates the minimum amount of insurance you need to legally drive your vehicle. However, there are also optional coverage add-ons, or enhanced liability limits you can choose to purchase depending on your needs. The amount of car insurance coverage you have is an important choice, as it directly affects the level of protection afforded by your insurance policy and how much your car insurance will cost. Generally, the more coverage you have, the more it'll cost to insure your vehicle.

7. Your deductible.

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 covered repair before your insurance covers the rest. For example, if you're in an at-fault accident that causes $5,000 worth of damage to your car, and your Collision deductible is $1,000 – you'll pay $1,000 towards the repair, and your insurer covers the remaining $4,000.

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.

In addition, the increasing number of vehicle thefts across Canada may also impact the cost of your car insurance. Coupled with the rising costs associated with injuries and fixing today's more technically advanced vehicles, insurers are facing higher and more frequent payouts, which can affect insurance premiums.

Are there ways to save on car insurance?

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

  • Are a university or college alumni, or a member of a professional organization (like engineers and accountants) or employer groups with preferred rates.
  • Choose to bundle your car and home insurance.
  • Drive a hybrid or electric vehicle.
  • Have been claims free for over a year.

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

Get a car insurance quote.

Now that you have a better understanding of how car insurance premiums are calculated, we hope you can get behind the wheel feeling confident in what you pay for your coverage. Get a car insurance quote, customize your coverage, and buy online.

If you're an existing customer and have questions about your policy, please visit My Insurance or Contact Us .

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The content on this page is for general information purposes only and does not constitute legal advice. Coverages described herein may be subject to additional eligibility criteria, limitations and exclusions. In the event you make a claim, potential indemnification is also subject to the receivability of the claim and the type of coverage you bought.

In the case of conflict between the content on this page and your policy wordings, your policy wordings shall take precedence. Please speak to an Advisor or consult your policy wordings for further details.