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5 mistakes buyers make when first purchasing car insurance

March 9, 2023
4 mins
young man buckles seat belt with friend in car smiling

This article has been updated from a previous version.

Purchasing your first car goes hand in hand with buying your first car insurance policy. And although owning a vehicle is something to be celebrated, it’s important to secure the appropriate auto insurance coverage right away, while keeping your premium as low as possible.

As a new policyholder, here are five mistakes to avoid that will help you steer clear of unnecessary expenses and inadequate coverage.

1. Assuming you can only pay monthly for your policy

When purchasing a car insurance policy, most providers will allow you to pay your premium annually instead of monthly.

Paying in a lump sum holds a few benefits, including a potential discount on the total cost of your premium. Since there are no monthly installments, you also get to skip the administrative fee that’s applied to a monthly payment policy.

And if you’re prone to missing payment dates, opting for annual payment will avoid any late fees you could have otherwise acquired. So, if paying all at once happens to be within your budget, it will help you save some money.

2. Not doing research on what it costs to insure your car's make and model

The make and model of your vehicle plays a part in determining your car insurance premium. According to the Canadian Loss Experience Automobile Rating (CLEAR) system, some vehicles have a track record of being at a higher risk of collisions than others. Insurance claims data is collected and assessed under this system, and is used to predict the likelihood of a claim for different makes and models. Higher-risk vehicles tend to have higher premiums associated with them.

Even within different body style categories, there is room to save. So, if you’re looking to keep insurance costs down, make sure you choose a vehicle model that won’t get in the way. For example, if you’re looking for a small car, the Volkswagen Golf Comfortline four-door hatchback would be a great choice to guarantee a lower insurance premium. Or if you’re set on a midsize SUV, the Subaru Outback 2.5i Wagon would be your best bet.

3. Not informing your insurance provider if you work for a ride-share or food delivery service

If you plan to use your vehicle for business, you will need a policy that’s built for it. While most rideshare companies partner with Canadian insurance providers to offer coverage, it’s possible your insurance provider is not one of them.

Particularly if you deliver food, you could require a commercial add-on or a complete separate commercial auto insurance policy depending on how often you deliver. It’s always best to check with your current provider to see what coverage you require for commercial driving within your province.

4. Cancelling your policy early without securing new coverage

If you obtain an auto policy and then decide to cancel it before your term is up, be aware that there may be a penalty. You may be fortunate enough to be refunded the full remainder of your premium (pro-rated cancellation) or you may lose some of your remaining premium as a penalty for the early cancellation (short-rated cancellation).

In either case, make sure you secure a new policy that suits your needs and will become effective on the day your old policy ends. That way, you’re not running the risk of driving illegally without insurance or having a gap in your coverage.

5. Letting your car insurance policy auto-renew

Letting your policy automatically renew without comparing current auto rates in Canada may be convenient but it leaves you with little opportunity to save money.

“It could cost you more [to just renew],” says Tanisha Kishan, RATESDOTCA expert and chartered insurance professional. “Different companies offer different rates, and factors that go into determining your car insurance premium can change from year to year.”

Car insurance rates are not fixed, and are continuously affected by where you live, collision stats on your vehicle model, and other factors. If you’re able to find a cheaper rate elsewhere, just provide your current company with a written statement that notifies them you will not be renewing your policy — and start saving.

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Michelle Bates

Editor and Writer

Michelle Bates is an editor and writer in the personal finance space. She has seven years of content writing experience.

She has a Bachelor of Arts (Honours) degree from Queen's University in English Literature and Sociology along with a Publishing - Book, Magazine and Electronic graduate certificate from Centennial College. Michelle specializes in personal finance content, including mortgages, home, auto, and travel insurance, and credit cards. Her work has been covered by notable Canadian news sources like the Financial Post, the Globe and Mail, CTV News, and Narcity.

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