Understand how your auto insurance rate is calculated and what role you can play to lower your rate.
Like all businesses, an insurance company must cover its costs to stay viable. The difference with an insurance company is they do not know how much the product costs.
An insurance company collects premiums to pay for insurance claims, administration, and taxes.
Claims are the largest expense for an insurance company. They pay for bodily injury and vehicle repair or replacement. They are also the most unknown expense at the time of purchase, making them difficult to predict and pose a big risk to the insurance company.
To cover the high risk and expense of claims, an insurance company:
Insurance companies use a formula based on several identified risks to determine the price of your auto insurance policy. These risks include where you live, your age, vehicle type, how much you drive, and any past insurance claims.
The base rate covers an insurance company’s expected claim, operating expenses, and a reasonable profit to ensure the company’s viability.
Insurance companies have access to significant amounts of data, such as personal characteristics like age, years licensed, and marital status, to predict the risk of you making a claim.
Generally, they also focus on the following four types of rating factors:
If you live or drive in a city, your rate will likely be higher due to the higher risk of vehicle theft or accidents.
Also, insurance companies determine risk by examining the number of kilometres driven. The more you drive, the higher your risk is of being in an accident, which raises your insurance rate.
Insurance companies use your driving record to determine how much of a risk you pose on the road. Generally, the better your driving record, the lower your insurance rate.
For example, a driver with at-fault accidents poses a higher risk to an insurance company. Your rate may also increase if you have more than one traffic conviction in the last three years, such as speeding or careless driving.
When looking at your driving record, insurance companies consider:
Your vehicle’s make, model, and year affect your insurance rate. Insurance companies consider the cost of replacing your vehicle if it was stolen or damaged.
Your insurance rate might be lower if the vehicle model has been statistically proven less likely to be stolen or involved in an accident. It also might be lower if the vehicle has better safety and handling features or is less costly to repair.
Generally, insurance rates are higher for new vehicles and sports cars, but a vehicle’s safety features may help lower the price.
The Insurance Bureau of Canada has a thorough list rating how expensive a vehicle is to insure.
The more coverage you have, the higher your insurance rate.
You can customize your insurance to meet your needs by adding or removing specific types of coverage such as collision or comprehensive.
If you drive an older vehicle, you may remove collision coverage, or if you are leasing or financing your vehicle, you may be required to carry collision.
To learn more about different types of auto insurance coverage and ways of purchasing it in Alberta, visit the Purchasing Insurance page.
An insurance company may apply a surcharge based on any accidents or convictions you may have.
You may also be eligible for several discounts or preferred rates such as:
Ask your insurance agent, broker, or direct writer about surcharges or discounts when seeking a quote.
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