by Grant Yoxon

(note: While government regulations for auto insurance vary from province to province, the information contained in this article will be useful no matter where you live. This article is based on insurance requirements in Ontario.)

Whether you look for insurance on the Internet or call an agent or broker, here are a few things you should know that could reduce your auto insurance premium.

Reducing your insurance costs begins with a basic understanding of your insurance policy. Essentially, it is made up of three components: liability, collision and comprehensive, and accident and medical benefits.

The first and last components are required by law. The Government of Ontario, which regulates auto insurance, sets minimum required limits for liability and accident and medical benefits.

Liability insurance protects you from having to pay for damages if you injure someone or damage another vehicle with your car. The minimum level for liability in Ontario is $200,000, an amount which may be too low if you are ever sued. Your insurance company will only pay up to the amount specified in your policy, so a good rule of thumb is to have at least $1,000,000 in liability.

Accident and medical benefits will help pay for any medical expenses you incur over and above what OHIP will pay, and provide you with a small disability pension if you are unable to work due to injury. In Ontario, the basic, mandatory coverage includes:

  • medical and rehabilitation – $100,000

  • caregiver expenses – $250/week
  • funeral expenses – $6,000
  • death benefit – $25,000, and
  • income replacement – 80% of net income to a maximum of $400/week.

Depending on other disability insurance you might have, through your employer for example, you might wish to increase this amount.

Collision insurance covers the cost of repairs to your own vehicle in a collision, while comprehensive covers just about everything else that can happen, including fire and theft. The most coverage you can expect to get with basic collision and comprehensive is the market value of your vehicle, even if it is written off. Replacement coverage for new vehicles or appraised value insurance for collector cars are optional extras which some companies provide.

There are a variety of other options available, depending on the company, which will add to your insurance costs. For example, if you have been accident free for more than six years, you may qualify for an endorsement to preserve your top insurance rating if you are ever involved in an accident which you cause. Ask your broker or the company you’re dealing with if they offer these extras.

So far we’ve been adding to the cost of insurance. Let’s look now at how you can save money.

Your collision and comprehensive coverage includes a deductible, often set automatically at $300, which you have to pay if you make a claim. Raising this deductible to $1000 could save you anywhere from $25 to $300 a year depending on the company and the number of vehicles you insure. What you are doing is taking more of the risk. If you don’t have any accidents for a number of years, the savings could add up. While it might hurt to have to shell out a $1000, remember insurance is meant to protect you from disaster, not minor dents and scrapes.

For that matter, if you drive an old or worn out car, why bother with collision and comprehensive at all? Your insurance will only pay out the market value of your car at most, so if your car’s value is low – and you can check this with used car value books available at any bookstore – it might not be worth carrying collision and comprehensive. Compare the savings you get from dropping this coverage against the value of your car. Again, you’re taking a greater risk but the savings could be substantial.

Another way to keep your insurance costs down is to skip the optional extras, such as coverage for a car rental while your car is being repaired. Unless you depend on your car to earn your living or would be terribly inconvenienced, you don’t really need this extra expense.

Discounts are another way to save money. Some companies offer discounts for low-mileage car use, graduation from approved driver training courses, or when insuring two or more vehicles. Anti theft devices can qualify for discounts as well. Retirees with no employment income should qualify for a discount, while some companies provide discounts to mature drivers over age 55. Some companies provide an extra discount for renewal of policies for long-time policyholders who are claims-free. And if you insure your house with the same company, a discount on your auto insurance usually applies. These discounts can add up to substantial savings on your premium costs.

The kind of car you drive, your annual mileage, whether you use your vehicle for business or pleasure, the number and ages of the drivers who drive it, even the area in which you live can affect your insurance rates. What you drive does make a difference. Expensive or theft prone cars are bound to cost more to ensure, while economy cars with features like air bags, ABS and anti-theft devices will almost certainly cost less.

Instead of relying heavily on the retail price of a new car, more companies are moving to the CLEAR (Canadian Loss Experience Automobile Rating) system to determine the risk a particular make or model car presents. The new system rates cars for insurance purposes based on road performance and claims experience rather than on initial cost.

While you might not be able to reduce your annual mileage or keep your teenage children on the bus, you can do something about the way you drive. Your driving record (and the record of any others who drive the car) is the single most important factor in the cost of car insurance. An accident and conviction free record will get you the best rates.

Your driving record is based on the number of traffic violations in the last three years and the number of accidents you cause in the last six years. Your auto insurance costs could increase
by 15-20% when you cause an accident, even if you have been accident free for more than six years. Three speeding tickets or other “moving violations” in three years can increase your insurance costs by 25%.

Too many of these and insurers may not want to insure you any more. What happens then? Facility. The Facility Association was created by the insurance industry to provide insurance to drivers who otherwise would not be able to get insurance. Needless to say, rates are much higher. You can be insured by the Facility only if an insurance company has refused, in writing, to insure you, and has told you why.

Even if this happens, always check with several agents or brokers before taking Facility Insurance as insurance companies have different standards for accepting new business.

Grant Yoxon is an automotive writer and editor of Autos. This article first appeared in the Ottawa Citizen, November 20, 1998.

Connect with