How Car Insurance Rates are Calculated in Canada in 2024

Wondering how your car insurance premium is calculated? Let's unravel the mystery. In Canada, car insurance is a must, but understanding how insurers calculate your premium can be confusing.

Stick with us as we break down the factors that influence your car insurance costs in simple terms.

What is a car insurance premium?

A car insurance premium is the amount you pay to your insurance company in exchange for coverage for your car. It's essentially the annual fee you pay to maintain your insurance policy.

Many factors can affect your car insurance premiums. For instance, the type of insurance: mandatory or optional coverage. 

Canada's car insurance system varies by province, but all require at least some level of mandatory coverage, like third-party liability and accident benefits. Each province sets minimum coverage amounts for these. You can choose to purchase additional optional coverage types, which will increase your premium.

If you are looking for car insurance and want to calculate the cost before buying any policy, you can use our comparator. Get car insurance quotes within minutes! It's free and completely online!

How to calculate car insurance premiums?

We don’t have a standard formula for that. Insurance companies use complex algorithms that factor in a variety of information specific to you and your situation.

That said, we can break down the process into a general framework to understand how they arrive at your premium:

Base rate

This is the starting point for your premium and considers factors like:

• Province: Each province has its own regulations and minimum coverage requirements, impacting the base rate.
• Postal code: Your postal code reflects your location's risk profile, including accident rates and theft statistics. This significantly affects the base rate.

Risk factors (applied to base rate)

• Driving Record: This is a major factor. A clean record with no accidents or violations for a certain period (varies by insurer) leads to discounts applied to the base rate. Conversely, accidents, speeding tickets or other violations will increase the base rate.
• Age and gender (variations by province): While some provinces are moving away from it, age and gender can still affect the base rate.
  • Younger drivers with less experience typically see a higher base rate compared to older drivers with a good record.
  • Gender may also play a role in some provinces, with young males sometimes facing slightly higher premiums.
• Credit score (except in some provinces): In most provinces, your credit score is considered when calculating the base rate.
  • A good credit score can qualify you for a discount, while a poor credit score might lead to a higher base rate.
  • However, Alberta, Ontario, Newfoundland and Labrador have banned the use of credit score in auto insurance rates.
• Vehicle: The make, model and year of your car affect the base rate. More expensive cars with higher repair costs or cars with higher theft rates will see a higher base rate applied. Your annual mileage can also be a factor, with higher mileage potentially leading to a slightly increased base rate.

Coverage selection (adjusts base rate)

The type and amount of coverage you choose significantly impact the premium. Opting for the mandatory minimum coverage will result in a lower premium compared to a comprehensive policy with additional benefits like collision and comprehensive coverage.

Deductible (adjusts base rate)

The deductible is the amount you pay out of pocket before your insurance coverage kicks in. Choosing a higher deductible lowers the base rate, but it means you'll have to pay more upfront in case of a claim.

Additional factors (may apply)

• Telematics insurance: Some insurers offer discounts for telematics programs that monitor your driving habits. Safe driving behaviour can lead to lower premiums.
• Group discounts: Belonging to certain professional organizations or alumni groups might qualify you for group discounts applied to the final premium.

How much does car insurance cost in Canada?

You might already know that it’s hard to pinpoint the exact cost of car insurance in Canada since it varies depending on several factors.

Here are some quotes to give you an idea:

• Average range: On average, Canadian drivers pay between $1,300 and $1,800 annually for car insurance coverage.
• Provincial variations: This average can differ significantly by province. For example, some provinces with generally lower premiums include Saskatchewan, and Newfoundland and Labrador, while British Columbia and Ontario tend to have higher average premiums.

Most Canadian insurance companies offer online quote tools. These tools consider your details (postal code, car details, driving record, etc.) and provide personalized estimates without requiring a commitment.

You can use these tools to calculate car insurance costs, or you can do it right here, using our comparator.  Get tailor-made car insurance quotes using our free tool below.

What can't be used to calculate a car insurance premium?

In Canada, there are a few things that typically cannot be used to calculate your car insurance premium:

• Your income: Although some might assume higher income translates to a riskier driver, this isn't a direct factor in Canada.
• Your occupation (with some exceptions): Your occupation can't be used generally, but there might be exceptions for very specific high-risk professions (e.g., professional race car driver).
• Your marital status: Being married or single doesn't affect your premium in Canada.
• Your education level: Your educational background isn't considered relevant to your driving risk.
• Your home ownership: Whether you own or rent a home isn't a factor in your car insurance premium.

Optional things:

• Credit score (not in all provinces): Most provinces consider credit score. But as we mentioned earlier, Alberta, Ontario, and Newfoundland and Labrador have banned its use in auto insurance rates.
• Gender (variations by province): While some provinces are moving away from it, gender may still be a factor in some areas. However, the impact is generally less significant than other factors.

Are there ways to save on car insurance?

Absolutely! There are several ways to save on car insurance in Ontario, Canada. Here is what you should consider:

• Be a safe driver: Maintaining a clean driving record with no accidents or violations for a set period (varies by insurer) is the most significant factor for earning discounts.
• Choose the right coverage: Assess your needs carefully. Opting for the mandatory minimum coverage will be cheaper than a comprehensive policy with all the bells and whistles. Consider if additional coverage is truly necessary for your car's value and your risk tolerance.
• Raise your deductible: Increasing your deductible lowers your premium. However, remember this means you'll have to pay more out of pocket in case of a claim. Choose a deductible you're comfortable affording if needed.
• Shop around and compare quotes: Settling for the first quote you get isn't the best idea. Get quotes from multiple insurance companies in Canada. Each company weighs factors differently, and you might find a better deal with a provider specializing in your profile.

And then there are discounts! Many insurance companies offer several discounts, such as:

• Loyalty discounts: Staying with the same company for a certain period can qualify you for loyalty discounts.
• Mature driver discounts: Older drivers with a clean record can often get discounts.
• Good student discounts: If you're a student who gets good grades, you might be eligible for discounts.
• Defensive driving course discounts: Completing a defensive driving course can lead to lower premiums.
• Winter tire discounts: Equipping your car with winter tires during winter months can sometimes qualify for a discount.
• Bundling discounts: Bundling your car insurance with your home insurance or other policies can lead to bundled discounts.
• Low mileage discounts: If you drive fewer kilometres annually, you might qualify for lower premiums.

Also, be proactive with your insurance company. Ask about any other discounts you might be eligible for that aren't advertised.

What are some good options for car insurance?

Don’t make finding cheap car insurance your priority. Explore multiple options and see if the cost is justified for the coverage it offers.

Many companies might offer car insurance at lower prices, but it will compromise your coverage — and you don’t want that. To help you with your search, here are some well-reputed car insurance companies to get you started:

1. YouSet
2. Economical Insurance
3. Onlia Car Insurance
4. Intact Insurance
5. Aviva Canada
6. CAA Insurance
7. TD Insurance

You can compare all these options with each other (and many more in Canada) using our comparator. It’s an easy way to calculate car insurance online. 

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Sunny Yadav Copywriter

Sunny has over six years of experience curating engaging content spanning across industries. Specifically in finance, his expertise is insurance reviews and lending and investment topics.