If you’re like most people, you find car insurance to be pretty complicated. There are a lot of terms thrown around that aren’t always easy to understand and the legalese makes it hard to figure out what you’re buying and what you are protected against. To help make insurance less… insurancey, here are ten facts about car insurance you may not have known.
1. Insurance began with sheep
Yup, sheep. Thousands of years ago, sheepherders faced a dilemma; If one of their sheep caught a disease, it would spread throughout their herd and kill the entire flock, greatly damaging their financial situation. The herders came together and created a solution; each owner would donate one sheep that would be set aside and raised separately, in case one of their herds was damaged by disease. If that happened, the herder would receive the sheep set aside for that purpose, saving them from financial ruin. This concept of paying a little into a pool that would be used to reimburse people if they experienced a loss, evolved to become what we now think of as insurance.
2. What’s the purpose of car insurance?
Similar to the sheep situation described above, car insurance is a system where many people pay a relatively small amount of money into a pool managed by an insurance company. That way, if a customer of that pool, or insurance company, experiences a car accident or other loss covered by insurance, they will be reimbursed from the pool. The insurance term for that is restitution, which means to put you back to the financial situation you were in before the accident.
3. What are the 5 components of car insurance?
The five components of an Ontario car insurance policy are:
- 3rd party liability – this coverage steps in if you were to injure someone or damage someone else’s property
- Accident benefits – this is a suite of coverages that pay for injuries to the driver and their passengers, including things such as medical expenses above what OHIP covers such as rehab, loss of income protection if you are unable to work following an accident, caregiver expenses, home maintenance costs and the cost of a funeral.
- Direct compensation – property damage – this coverage pays to repair your vehicle or personal property if you are in an accident caused by someone else
- Uninsured automobile coverage – this responds by paying if you or your family are injured or killed by a hit and run driver or someone who doesn’t have adequate insurance. It will also pay property damage in an accident by an identified uninsured driver (not a hit and run).
- Optional coverages – There are many optional coverages you can add to your policy, these include : collision, which pays for damage to your car if you are responsible for the accident; comprehensive, which pays for damage to your car when it is not being driven, such as vandalism and theft; loss of use, which pays for a rental car if an accident means you can’t drive your regular vehicle; and depreciation protection, which ensures that in the event of a total loss to a newer vehicle, you will be paid the vehicle’s price without depreciation.
4. How long are car insurance terms?
In Ontario, a standard car insurance policy remains in force for 12-months. You can cancel the policy at any time, but if it is within the coverage period, you may experience a penalty for early cancellation.
5. What are the common terms of car insurance?
While 12-months is the most common insurance term, there are a small number of insurers who offer shorter six-month terms. These shorter policies are quite rare and subject to very specific rules.
6. What is a deductible?
Deductibles represent the portion of any insurance claim you are responsible for paying. So, if you have a $1,000 deductible and you experience an accident that causes $10,000 in damage to your vehicle, the insurance company will pay $9,000 and you will pay $1,000. If you are in a car accident caused by someone else, you will not be charged a deductible.
7. Can higher deductibles reduce my premium?
Choosing a higher deductible will reduce your insurance premium, as you are accepting more financial risk and higher deductibles reduce the number of claims that may cost insurance companies more to settle.
8. What affects my insurance premium?
There are five main factors that will affect your insurance premium:
- Your vehicle – It probably should not surprise anyone that expensive cars cost more to repair or replace than less expensive cars, resulting in higher insurance rates for these vehicles. This is also true for less expensive vehicles that due to a shortage of parts or qualified auto body repairers may make them more expensive to get back on the road. Newer cars that feature advanced safety features tend to be involved in fewer accidents, but can be expensive to repair, due to the pricey sensors and calibration processes required after even a relatively small fender bender. That said, insurers tend to offer lower rates for vehicles with high safety ratings because safer roads and fewer accidents are good for everyone.
- Your driving record – Years of data analysis show that drivers with multiple speeding or other traffic tickets are more likely to be involved in a car accident. Your car insurance reflects that increased risk and drivers with several tickets will pay more than a driver who has a clean record. Similarly, the data shows that someone who has been involved in two at fault accidents is much more likely to be involved in a third with the next few years, compared to drivers who have no accidents on their record.
- Where you live – Your principal home location can have a sizable impact on your insurance premium. Actuaries study accident trends dating back decades and have determined that car insurance claims are more prevalent in some areas of the province than others. For example, those living in an urban area are more likely to experience an accident than those in rural areas. Certain areas are also more prone to experience snow squalls than others. Car thieves may similarly be more active in some urban areas than in smaller towns. All of this data is taken into consideration when determining your premium.
- Age and gender of the driver – Every parent of teenaged boys is acutely aware that their first few years of being insured under the family car insurance can be expensive. That’s because inexperience and teenage exuberance results in accidents at a rate many times higher than older drivers. Parents might be interested to learn that the CDC reports that this accident rate increases for each teenage passenger in the vehicle and that the Ontario government places passenger restrictions for drivers under 20. Young women are less likely to experience an accident, but gender becomes less of a factor for insurance rates when experienced, safe drivers reach their mid to late twenties.
- How you use your vehicle – Someone who uses their vehicle to commute to work every day is much more likely to be involved in an accident than someone who uses it only a few days a week to run errands. Your insurer will always ask how you use your vehicle and the distance you usually drive each year when calculating your car insurance premium.
9. How do I know if my car insurance is good?
There is no simple answer to this question because everyone has different insurance needs and driving histories. You can look at Ontario cities with the cheapest car Insurance and which Ontario cities have the highest auto insurance rates to better understand how your location plays a role in how much you pay for coverage.
Every Ontario auto insurance policy is customized to meet the unique needs of you and your family. Coverage limits for things such as medical expenses and loss of income – both included under your accident benefits coverage – may need to be increased to ensure your family is protected should you suffer a serious accident.
Optional coverages such as collision and comprehensive may be extremely important to some people while others, after considering the risks, may decide they are not worth the additional expense. Other optional coverage, such as loss of use, might be critical for someone who relies on a vehicle to get them to work each day, but may not be important on a second vehicle. Similarly, owners of a new car may decide that depreciation protection is important to protect their financial investment.
We believe it is critical to consult licensed insurance professionals to discuss your needs and vehicle usage to ensure that your policy reflects these requirements and adequately protects your family.
10. How do I buy insurance?
Buying insurance in Ontario is relatively straightforward. There are two main options:
- Direct insurance – When a bank or large insurance company sells their insurance policies directly to a consumer, we call them a direct writer. These insurance companies usually only sell their own products and rely on extensive television, radio and billboard advertising to drive business to their organization. The downside of dealing with a direct writer is that they only sell their own products that feature their own rates. You may receive a lower rate, but it may be for a policy that isn’t right for your unique circumstance.
- Insurance brokers – Independent insurance brokers in Ontario represent many insurance companies. When you contact an insurance broker, they will examine your specific needs and match you with the insurance company that best responds to these needs. In addition to being able to provide you with insurance quotes from multiple insurers, they also have access to more difficult-to-find insurance such as watercraft or RV coverage, which the direct writers may not be able to provide.
Car insurance is not always easy to understand. The best way to ensure that your auto insurance policy protects you and your family is to speak to one of our insurance professionals.