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Auto Insurance

Insurance is as much of a necessity of owning a car as gas. You simply cannot do without it. As a matter of fact, it's the law.

You cannot register a car without insurance. And if coming up with the funds to pay insurance premiums seems like one more hand reaching into your pocket, remember this: Insurance isn't about what you can afford. It's about what you can't afford.

What is Insurance?

Insurance is almost a reverse gambling concept. You keep putting money in a pot to avoid hitting the big jackpot: an expensive accident settlement.

An insurance company adds up all the accident claims it expects to pay, and divides that amount among all the people that pay into the pool. The basic principle of insurance, then, is that the losses of the few are shared among the premiums of the many. Of course, each insurance customer isn't charged equally. Your rates are determined by how likely you are to have a claim. And that conclusion is reached through an examination of basic demographic and driving statistics. These are called statistical risk factors.

Auto insurance is a much more complex concept to wrap your mind around than home insurance is. While little variation is permitted within each province and territory, there can be huge differences between jurisdictions. Complicating matters further is the level of competition in this field. While home insurers compete on coverage, service and price, automobile insurers compete mainly on service and price.

Where do rates come from?

Within reasonable limits, some of which are prescribed by law, a policyholder's premium reflects the risk associated with that policy. Beyond that, your rates are determined based on three principle things: who you are, your driving history and how extensively you want to be covered. More specifically, the following factors have a great influence on your rates:

  • Gender: Men have more accidents on the road than women. It may be that men are more aggressive drivers. Or maybe they drive more than women. Insurance companies don't care why. They just look at the claims data. If your gender gets in fewer accidents, you pay less.
  • Age: Drivers under 25 (and, for some insurers, under 30) are considered at higher risk of having an accident. At least there's some good news about getting older: your insurance rates may go down.
  • Marital Status: Married drivers tend to have fewer accidents than single drivers. Maybe that's because they have another person to think of. Maybe it's because there's a spouse in the picture who complains about poor driving habits. Again, it doesn't really matter. If you're single, you'll pay.
  • Personal Driving Record: Years of driving experience, accidents, speeding tickets and other driving offenses are all factors in determining how much of a risk you pose as a motorist. Some think that if you've had an accident, you pay more to cover the cost of your claim. However it's actually because, statistically speaking, people who have been in one accident are more likely to get in another. If other people will be driving your car, their records may also be considered when your premium is calculated.
  • Vehicle Use: Commuters are at greater risk than those who only drive for errands or recreation. As such, those who use their car for business pay higher rates.
  • Type of Vehicle: Larger, heavier vehicles are considered at lower risk than smaller, lighter ones. More expensive cars are costlier to repair than economy models. Sports cars are more at risk than other cars. The Canadian Loss Experience Automobile Rating (CLEAR) system rewards car owners with lower premiums for buying vehicles that experience fewer and smaller losses. The CLEAR system was developed by the Insurance Bureau of Canada's Vehicle Information Services, which also distributes "How Cars Measure Up," (available at www.ibc.ca/vehinfo_pub_howcarsmeasureup.asp), a pamphlet that uses Canadian insurance-claim data to educate consumers on how theft, collision and other claims affect the cost of their car insurance.

Other Rating Factors

Factors such as geography, climate and traffic congestion also play a role in calculating a person's premium costs.

  • Size of Your Deductible Bigger is better. The higher your deductible, the lower the chance that the insurance company will need to pay out a claim -- and the lower your rate will be. But, if you have an accident or claim, your portion of the cost of the repair will be higher.
  • Type and Level of Coverage There are many different types of coverage and coverage limits. The fewer claim scenarios that are covered by your insurance, the lower the rate.

Buying Insurance

  • Private and Government Insurance: In some provinces (Alberta, Yukon, Northwest Territories, Nunavut, Ontario, Newfoundland and Labrador, New Brunswick, Nova Scotia and PEI), car insurance is provided by private non-government insurance companies. In others (BC, Saskatchewan and Manitoba), the government provides the basic compulsory coverages, and then joins up with the private sector to compete for consumers' optional and additional auto-insurance purchases. (In Quebec, insurance sales are a joint responsibility of the public and private domains.)
  • Insurance Brokers: Insurance brokers sell insurance on behalf of a number of different insurance companies. Some insurance companies are represented by agents; others deal directly with consumers through their own sales staff.

Types of Insurance

There are so many variables with insurance that the best way to find out which is right for you is to ask your agent. But if you understand the basic coverage parameters, you will be in a better position to discuss the subject.

  • Fault/No-Fault Insurance : No-fault insurance is a system in which drivers receive compensation and benefits from their own insurance company when they are injured in accidents, regardless of fault. According to the Insurance Bureau of Canada, this system is designed to reduce the delays of an adversarial legal system and provide treatment and benefits to injured victims as quickly as possible. But no-fault insurance does not mean that drivers are never at fault in accidents. There are still fault-based rules of the road, and if you're determined to be at-fault in an accident, your insurance premiums will go up.

    All Canadian provinces have some form of no-fault insurance. The spectrum ranges along a continuum between tort (the right to sue for damages or injury) and no-fault (access to accident benefits). Drivers in Alberta, for example, are subject to a maximum tort, minimum no-fault system. In Quebec, a province that embraces a pure no-fault system that eliminates the right to sue, drivers operate at the other end of the scale. Ontario's system falls somewhere in the middle. While some argue that a tort system provides a deterrent against poor driving behaviour, there is no evidence that no-fault insurance leads to increased accidents or fatalities/injuries.
  • Compulsory Insurance: Compulsory insurance coverage plans are likely not enough for most people. The minimum coverage required by law is $50,000 in Quebec, $200,000 elsewhere. For example, if you were to be sued for a collision causing serious injuries or significant property losses to others, you'd have to come up with any amount above your minimum coverage that might by awarded by a court.
  • Uninsured Motorists: Coverage for physical damage caused to your vehicle by an uninsured motorist is almost universal in Canada.
  • Coverage Optional: This optional "first-party" coverage compensates you for damage caused to your own vehicle by collision, fire, theft, etc.
  • Accident Benefits: Insurance coverage for accident benefits provides compensation, regardless of fault, if you, your passengers or pedestrians suffer injury or death in an automobile collision involving your vehicle. Accident-benefits coverage is compulsory in all provinces except Newfoundland and Labrador. In Quebec, it's provided by government.
  • Third-Party Liability: Third-party liability (civil liability in Quebec) insurance covers you if you are held liable for injuries or property damage caused by your vehicle. And if the claim is for more than your level of coverage, you can be held personally responsible for the balance. If you live outside Quebec or Ontario and are responsible for the collision, your insurance company likely will pay for the damage to the other driver's vehicle. Quebec and Ontario residents usually claim from their own insurers for damage to their vehicles.

Other Coverages

There are many other types of coverage you may or may not want including towing, labor, temporary-replacement vehicles, etc. Talk these over with your insurance agent to see which are right for you.

Ways to Save on Insurance

  • Comparison: Shop Price can vary by hundreds of dollars from company to company. Ask your friends about their insurance agents. Research rates on the Internet. Get at least three different quotes before you choose an insurance company.

    But insurance is about more than price. You also want excellent service. Ask agents what they can do to lower your costs. If they lower it a lot, they're probably very customer-service oriented.
  • Raise Your Deductible: Your deductible is the amount you pay out of your pocket before insurance kicks in. So if you had a $500 deductible and someone slashed your tire, you probably wouldn't claim that since the cost of replacement is less than your deductible. Higher deductibles on collision and comprehensive insurance will reduce your rate considerably. But be careful not to set your deductible so high that you can't afford to pay it in the event of a claim.
  • Buy a car that's not in demand: If thieves have a special interest in the type of car you buy, the rates will be much higher for that car. Pick a car that gets stolen less often and you'll get a much lower rate.
  • Take Advantage of Low-Mileage Discounts: This one's simple. Drive less, pay less. Take the bus. Get a job near your home.
  • Move Out of the City: The city has more congestion (chance of accident) and crime (chance of theft). Reduce the risk and reduce your rate by moving to the suburbs or a rural area.
  • Equipment Discounts: Some equipment in a car can reduce the risk of accidents and lower the amount of claims. So if you purchase a car with automatic seatbelts, airbags or anti-lock brakes, you'll save money on insurance.
  • Multiple Insurance Discounts: If you have other insurances, such as home or life insurance, with the same insurance company -- or multiple drivers on the same insurance policy -- you could qualify for a discount.
  • Inquire About Other Discounts Talk to your agent to find out what special discounts may apply to you.

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