Car Insurance Rates

Your guide to understanding what goes into your car insurance premiums.

7 factors that go into determining your auto insurance rate

The way car insurance rates are set by insurance companies is quite complex and is determined based on risk, calculated by actuaries. These professionals calculate risk for a pool of consumers and individuals who share a similar risk profile. Actuaries calculate the probability of claims for the group and the cost of these claims to determine the insurance rate for the pool. There are numerous factors that are taken into account to arrive at your insurance rate/premium:

1. Your location

If you live in a large urban city there are likely more cars on the road, increasing the chance of an accident. Also, cars in large urban centres are more likely to be stolen. Both the higher probability of getting into a car accident and getting your vehicle stolen are factors that lead to often higher auto insurance premiums in urban areas.

2. Your vehicle

The auto make, model and year are factors used in determining your insurance premiums. Data on the claims history (accidents, theft, vandalism, etc.) is used to determine the probability of a claim for the type of vehicle your drive. This data is combined with the cost of the claim for the vehicle to determine your premium. For example, a luxury car can have a higher premium due to higher cost of repairing/replacing it.

3. Your vehicle usage

The more often you plan on using your vehicle the higher is the likelihood of being involved in an auto accident, and thus the higher the premium.

4. Your driving record

Your auto insurance rates are directly influenced by the length of your driving history as well as your past driving habits. Accidents that are considered at fault and tickets (excluding parking tickets) are counted against your driving record. Some insurance companies will not count your first minor traffic ticket against you and some may even offer 'accident forgiveness' on your first accident. The good news is that accidents and tickets don't stay on your record forever.

5. Your driver profile

  1. Age - Drivers who are 25 years of age and older generally pay much less for auto insurance. This is based on statistical data that shows those over 25 years of age, on average, tend to drive more carefully and have a lower probability of filing a claim. Some insurance companies also have additional discounts for retirees.
  2. Gender - Statistics show that females tend to get less tickets and are less likely to be involved in an auto accident compared to males. As a result, females could pay less for auto insurance.
  3. Marital Status - Some insurance companies give discounts to married drivers, given that statistics show that single drivers have a higher probability of being involved in a car accident and/or receive a ticket.

6. Your coverage

The types of coverages you choose and your coverage limits will impact your premium. The greater the coverage, the higher the premium. In addition, selecting lower deductibles will increase your monthly premium. With a lower deductible, you would be responsible for paying a smaller portion of the claims, if they arise.

7. Your insurance company

Insurance companies set their own rates within the boundaries assigned by regulators. Insurance companies evaluate risk differently and therefore vary in the rates they provide for their risk pools. Insurance companies also differ in the market segments that they focus on - i.e. high risk drivers, drivers in urban areas, etc.

With so many factors used by insurance companies to set rates, shopping around for the best rate becomes that much more important. Try the free car insurance comparison service to get quotes from multiple insurance companies/brokers simultaneously. Knowing the different factors outlined above not only justifies the importance of shopping around but also helps you understand what you need to do in order to keep your premiums down for the future.

Not ready to shop for insurance today?

Let us know your renewal date and we’ll let you know the best time to shop the market for the cheapest car insurance rates.

Latest Articles

Danger: Toronto Housing Is Revving Its Engines Again

Bring your mind back to Toronto’s housing market heydays of 2016. It was a time when double-digit price increases seemed ... Read more

Vehicle Safety Technologies: Helpful or Hindering?

The goal of driver-assist technologies is to make our roads safer, so why aren’t auto insurance rates decreasing? Read more

The Best Way for High-Risk Drivers to Get Car Insurance

Motorists with spotty driving records may have a tough time finding affordable auto insurance. Here’s what you can do about ... Read more

Nicer Wedding or Bigger Down Payment…Which Would You Choose?

Some people spend years dreaming of their wedding day. They plan big, lavish marital events that they hope they’ll never ... Read more