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How much does car insurance really cost? A mini case study:
It can be hard to find how much car insurance actually costs in Canada because of the lack of information available online. Of course, you can always compare quotes online to get a general idea, but we decided to do most of the leg work for you.
We’ve invented a couple of car insurance seeking alter-egos to get a sense of insurance prices in Ontario and Alberta.
Robin is a newly financially independent young adult earning roughly $40,000 per year and living in the M5S postal code of Toronto. Let’s say Robin obtained a full (G) license at age 18 and has been covered by her parent’s insurance until now. At twenty-five years old, she is now ready to purchase her own car: a new Kia Forte at $19,000 which she will drive approximately 20,000 kilometres a year.
Here are the estimates from two leading Ontario car Insurance suppliers:
- Allstate: $264 per month — $3,168 per year
- Aviva: $245 per month — $2,939 per year
Let’s say Robin suddenly relocates to Banff, Alberta with a T1L postal code. Here are the new quotes from two of Alberta’s leading insurers:
- Alberta Motor Association: $112 per month — $1,344 per year
- Intact Insurance: $144 per month — $1,731 per year
Tom is 55 years old and has an income of about $70,000 a year. He has his heart set on a new Mazda6 retailing for about \$30,000 and a clean driving record, also aiming to drive around 20,00 kilometres a year.
- Allstate: $151 per month — $1,812 per year
- Aviva: $180 per month — $2,159 per year
- Alberta Motor Association: $92 per month — $1,102 per year
- Intact Insurance: $117 per month — $1,400 per year
Since both of these vehicles are pretty standard passenger vehicles, let’s throw in another example. Let’s say Tom decides to spring for a pickup truck. He chooses a Ford F-150 retailing for about $37,000. Let’s see how much he’d pay:
- Allstate: $114 per month — $1,368 per year
- Aviva: $141 per month — $1,692 per year
- Alberta Motor Association: $108 per month — $1,292 per year
- Intact Insurance: $121 per month — $1,450 per year
And while we’re at it, let’s add one last scenario for those drivers who might want to shop around for a whole new kind of vehicle.
Electric vehicles are not the most budget-friendly option on the surface. More affordable models like the Hyundai IONIQ retail between $35,000 and $40,000 with a range of roughly 150-200 km. Elon Musk’s luxury rides can cost upwards of $150,000 with about a 500 km range. On top of the EVs themselves, charging stations for your home cost roughly $2,000 to install. Until recharging stations are readily available in more cities, many buyers may stick to a more conventional fuel-powered or hybrid vehicle. But let’s see what Tom might pay for an EV if he chooses a Tesla Model 3 for $50,000.
- Allstate: $176 per month — $2,112 per year
- Aviva: $212 per month — $2,541 per year
- Alberta Motor Association: $93 per month — $1,112 per year
- Intact Insurance: $172 per month — $2,064 per year
Notes on these estimates:
The drivers we invented both had perfect driving records to illustrate how age can affect car insurance rates. However, most clients will realistically have a couple of small infractions (speeding tickets) or have previously filed insurance claims which will increase your insurance rate somewhat. So, it’s recommended you shop around using your own personal information to get a real sense of how any given insurance company will assess your situation and tailor their rates accordingly.
Also, we used the insurance provider’s website to estimate these rates. Each services uses a different set of questions and various levels of detail to produce a quote. You may notice that the Alberta Motor Association’s (AMA) rates are substantially lower than their Albertan competitor. The AMA website stresses that this rate really only covers the provincial minimum insurance liability. So, although the rates look exceptionally low, most drivers wouldn’t want to risk getting into an accident with such low coverage.
How is the cost of car insurance determined?
Car insurance in Canada is expensive and the past trends indicate costs will likely continue to rise. British Columbia and Ontario currently rank as the top two most expensive provinces to purchase insurance on cars. However, the exact cost of car insurance really depends on who is buying.
The cost of your car insurance is calculated by estimating the likelihood of your involvement in an accident. Insurance providers are on a constant mission to avoid paying out money in repairs and car insurance claims. As such, car insurance companies rely on statistical analysis to determine which kind of drivers and which kinds of vehicles are most likely to be involved in a collision. This means insurers categorize you as more or less risky based on how you rank in a large and impersonal pool of statistics. This can make it frustrating to insure a car because there is only so much an individual driver can do to differentiate themselves from the potential risks associated with their demographic. When clients want to buy insurance for a car, car insurance providers consider a range of variables to calculate their insurance premiums. The following section aims to give you an idea of what you might be up against.
This insurance category assumes a correlation between your age and your driving experience. The age variable refers more accurately to your driving age, or how long you have had a valid driver’s license. Most auto insurance will not cover drivers without a full “G” license. Insurance companies anticipate that the more inexperienced the driver, the more likely they are to be involved in an accident.
Car insurance rates steadily decrease as drivers get older and only starts to creep up again if your age begins to impede your driving ability. While insurers cannot increase their rate for any medical conditions that do not directly affect your driving, if age brings with it difficulty seeing or hearing, your might be considered a higher risk driver.
When purchasing insurance on a car, this is one insurance category in which women tend to be at an advantage (albeit a small one).
Male drivers are statistically more reckless on the road. This results in a tendency to accumulate more driving infractions such a speeding or driving without a seatbelt. This correlates to a higher rate of serious incidents involving accidents and consequent repairs and/or personal injury costs. As such, male drivers and young men in particular tend to pay higher car insurance rates.
This one is pretty self-explanatory. Insurers consider your driving record as the most important factor in their calculations.
Auto insurance rates across the board will reward those without driving infractions. Smaller infractions, such as speeding tickets, won’t usually affect your car insurance rates too much (although they might still increase). Once you pay the ticket and acknowledge you have broken a law, the infraction will go on your driving record and remain visible for two to three years at which point it can affect your car insurance.
(Keep in mind that not all speeding tickets are created equal: the faster you go, the bigger the penalty). So, if you have a ticket to pay but are also hoping to purchase or renew a car insurance plan, it might be good to wait until after you purchase the plan to pay your ticket. Major breaches such as DUIs will taint your record for up to a decade and cost you much more in car insurance coverage.
This insurance variable is very much tied to your driving record.
If you are renewing an auto insurance policy or switching to a new one, your insurance company will consult your insurance history. Insurers reward people who have consistently maintained their coverage over the years. This variable overlaps with your age. The longer and more stable your auto insurance history, the less you are likely to be charged for coverage. While this does penalize younger drivers, the faster you can purchase your own car insurance as a young driver, the more it will benefit you in the long run as it will help positively establish your car insurance history for future purchases.
In this sense, car insurance is sort of like a credit score: a great thing to start building early and responsibly.
Type of vehicle
Enter: the Canadian Loss Experience Automobile Rating (CLEAR) — a system with a confusing name but a pleasing acronym (it feels like the acronym came first). This system was devised by the Canadian Insurance Bureau and it predicts the likelihood of any given vehicle being involved in a car insurance claim. CLEAR uses auto insurance claims data to categorize all vehicles sold on the Canadian and American markets according to the risk they pose insurers. Essentially, they identify which vehicles are most likely to break down, be stolen, require frequent repairs or be involved in accidents so that insurers know which ones will cost them more.
Every year, each category of vehicle is updated to account for aging and any other new factors. This means that a vehicle with fewer safety features (eg. Reinforced doors, anti-lock brakes) or an older vehicle that requires more maintenance may cost you less to buy, but will carry a higher CLEAR rating which allows insurers to charge you higher auto insurance premiums. The CLEAR system is used by insurers across Canada.
Another aspect of your vehicle insurers will consider is its value. If you are involved in an accident that totals your car, your auto insurance will reimburse its estimated value. The operative word here is “estimated.” While the market value of your vehicle might be one thing, you insurer’s assessment is quite another: the goal of the estimate is not to evaluate the car’s original worth, but evaluate what a reasonable cash offer would have been for the vehicle before the accident took place. This means that an auto insurance provider’s estimate value will typically be much lower than the price you actually paid. As frustrating as this is, the amount you get in a claim might still be enough to cover any remaining car loan payments you have or help you out with regards to buying a new vehicle.
Where you live
As mentioned above, the cost of car insurance varies largely from one province to another. Specific examples for Alberta and Ontario appear earlier in this article, but it is worth noting that different provincial systems can affect insurance rates. Provinces that use the public auto insurance system (B.C., Manitoba, and Saskatchewan) usually have more standardized insurance rates and a lower range of options and product innovation. In all other provinces, private insurance companies typically offer a wider range of insurance plans at varying costs as well as many more add-ons that might affect your own insurance rate as well as the provincial average.
Despite these variable prices, there is one dollar amount that we can refer back to: minimum third party liability insurance. This refers to the amount of money that protects you if you or another person driving your car (with your permission) causes damages to another driver. In Canada, the minimum amount of auto insurance ranges between $50,000 (in Quebec) and $200,000 (all other provinces). So, any insurance premium will cover you for these minimum amounts. However, it is not recommended to spring for the cheapest insurance premium. If you are involved in an accident and only have the minimum insurance rate, you will likely face substantial debt. So, it’s always good to spring for extra coverage with your insurance company — such as collision coverage and liability coverage — as well as any personally favoured add-ons.
The cost of your insurance rates is divided between a deductible and a premium. The premium is the amount you pay every month to your insurance company. If you get into an accident, the deductible is a one time cost that comes out of your pocket before the insurer steps up to cover the rest of your repairs. For example, if your vehicle incurred damages worth $8,000 and you selected a $400 deductible, you would receive a claims check for $7,600.
You choose what your deductible is and the insurer will adjust the car insurance premiums according to what you are willing to pay. The lower your deductible, the more you will pay for your monthly (or yearly) car insurance premiums.
Your insurance plan
Also linked to your deductible, the amount you pay will depend largely on the kind of insurance coverage you purchase. While all insurance plans must meet the minimum provincial requirements in liability coverage, the add ons are up to you. Some add-ons will cost you a little extra but might be well worth it in the long run.
For example, one popular additional service is Accident Forgiveness. Usually, if you are involved in a collision that is deemed (even partially) to be your fault, your car insurance rates will increase substantially. Accident Forgiveness protects you from this price increase and guarantees that your first at-fault accident will not affect the amount you pay your insurer. Accident forgiveness usually costs between \$50 and \$100 a year for new costumers and might be gifted to longer standing drivers with a clean driving record as an appreciative gesture on behalf of the insurer.
Another popular add-on is Roadside Assistance. This coverage includes towing (usually within a 50-100 kilometre radius), winching, fitting spare tires, fuel delivery, and door unlocking. This add-on is less expensive with rates ranging from $40-$50 a year. Keep in mind, with both accident forgiveness and roadside assistance, if your car is damaged or causes damages to any other person’s property, you will still have to pay your deductible.