When it comes to car insurance, myths and misunderstandings are as common as traffic lights on city streets. It’s easy to get lost in a maze of hearsay and half-truths, especially when it comes to understanding what affects your premiums and what doesn’t. Today, we’re setting the record straight.
Separating car insurance facts from fiction
From the old idea that red cars cost more to insure to the belief that your credit score is irrelevant, car insurance sure has many myths about it. Not only do these myths mislead consumers, but they also often result in people making less informed decisions about their policies. That’s why we feel it’s crucial to dispel these myths and highlight the factors impacting your car insurance rates and coverage. So, without further ado, let’s dive into some of the most common car insurance myths:
Myth: Car insurance works the same across all provinces in Canada
No, car insurance does not work the same across all provinces in Canada.
Significant differences exist in how car insurance is regulated and provided in each province, resulting in variations in coverage, pricing, and how claims are handled. Here are some key differences:
Public vs. private insurance systems
Some provinces, like British Columbia, Saskatchewan, Manitoba, and parts of Quebec, have government-run insurance programs. In these provinces, the government provides basic auto insurance policies. Other provinces, like Nova Scotia, Ontario, and Alberta, have private insurance systems where insurance is purchased from private insurance companies.
Mandatory coverage
While all provinces require drivers to have basic liability auto insurance, the specifics of what is included in this mandatory coverage can vary. For example, the types and amounts of coverage required like third-party liability, accident benefits, direct compensation-property damage, and uninsured motorist coverage can differ.
No-fault vs. tort insurance
Some provinces operate on a no-fault system, where your own insurance company pays for your injuries or damage regardless of who is at fault in an accident. Other provinces use a tort system where you can sue the at-fault driver for damages.
Because of these differences, it’s important for drivers to understand the specific regulations and options available in their province. This understanding ensures they have the appropriate coverage and comply with local laws.
Myth: Insurance companies change coverage rules and rates whenever they please
This is false. Auto insurance companies cannot change coverage rules and rates whenever they please, as they are subject to regulations and oversight by provincial and territorial governments. Insurance companies must receive approval from provincial or territorial regulatory bodies before changing their coverage rules or rates. These regulatory bodies ensure that rates are fair and reasonable for consumers.
Furthermore, when an insurance company wants to change its rates, it must justify the change to the regulatory authority. This usually involves providing data that supports the need for the rate change, like changes in the number of claims or the cost of claims. These regulations are in place to protect consumers from arbitrary changes in their insurance policies. They ensure that changes in rates and coverage are justified and not just implemented at the whim of the insurance company.
Insurance companies are required to notify their customers in advance of any changes to their policy, including changes in coverage or rates.
Myth: The colour of your car affects your insurance premium
No. The colour of your car does not affect your insurance premium. This is a common myth in the world of auto insurance. Insurance premiums are calculated based on factors that are statistically shown to correlate with risk and cost of claims. These factors usually include:
- Year, make, model and trim of the vehicle
- Driver’s age, experience and driving record
- Where the driver lives and commutes
- How the driver uses the vehicle
- The driver’s insurance and claims history
The colour of a car does not influence these factors and, therefore, is not considered by insurance companies when determining premiums. The myth about red cars, for example, being more expensive to insure is just that—a myth. What can affect your auto insurance premium, however, is if the car has a custom paint job or other customizations, as these can be more expensive to repair or replace.
Myth: New cars are always more expensive to insure
Not always. The belief that new cars are always more expensive to insure is inaccurate. While it’s true in many cases, there are several factors to consider.
New cars are often more valuable than older ones, leading to higher comprehensive and collision coverage costs. If the car is damaged or totalled, it costs more for the insurance company to repair or replace it. On the flip side, parts may be more readily available for newer vehicles, making them easier and cheaper to maintain than those for older vehicles. However, while new car owners might opt for more comprehensive coverage, including collision and comprehensive insurance, this is a choice rather than a requirement due to the car’s age.
On the other hand, new cars often come equipped with advanced safety features and technology, which can lead to discounts on insurance premiums. Features like automatic braking systems, lane departure warnings, and anti-theft systems can reduce the risk of accidents or theft, potentially lowering insurance costs.
Insurance costs also depend on the type of new car. For instance, a new family sedan might be less expensive to insure than a new sports car, which is typically seen as a higher risk due to potential risky driving behaviour associated with it. Insurance companies use a lot of statistical data to set premiums. If a new model has a history or expectation of fewer claims, it might be cheaper to insure.
Myth: Driving an older car means cheaper insurance
Similar to the last myth, this is not always true. While driving an older car can often mean cheaper insurance, this is not a universal rule. Several factors come into play when determining insurance rates for older cars.
For example, older cars typically have a lower market value than newer ones. Since insurance payouts in the event of a total loss are based on the car’s value, lower value often leads to lower comprehensive and collision coverage costs. Some drivers may even choose to drop comprehensive coverage altogether if their car is older. However, insurance might be more expensive if an older car is statistically more likely to be involved in an accident or incur higher claims.
Additionally, older cars might be cheaper to repair as their parts may be more widely available and less expensive. However, this can vary widely depending on the make and model of the car. Some older or classic cars might have rare or out-of-production parts, making them more expensive to repair.
Older vehicles may lack modern safety features, which are found in newer cars. This lack can sometimes increase the risk of injury in an accident, potentially leading to higher liability insurance costs. Furthermore, some older car models might be more prone to theft, which can also increase insurance premiums.
So, while older cars can have cheaper insurance due to their lower value and potentially lower repair costs, other factors, such as the lack of modern safety features, the specific make and model, and the owner’s choices about coverage levels, can significantly impact the insurance rates.
Fact: Where you live affects insurance premiums
Yes, this is absolutely true. Where you live can significantly affect your car insurance premiums. In fact, your location plays a crucial role in how insurance companies assess risk and determine rates.
For example, living in urban areas may result in higher insurance rates due to higher risks of accidents, theft, and vandalism compared to rural areas. Also, in areas with high traffic congestion, like a downtown neighbourhood or a metropolitan city like Toronto, the likelihood of being involved in an accident increases, which can raise insurance premiums. Moreover, if you live in an area with a high rate of car theft or vandalism, your insurance rates might be higher as there’s a greater risk of claims related to theft and damage.
Even the climate can affect your insurance rates. Areas prone to extreme weather conditions, like hail, floods, or hurricanes, may see higher insurance rates due to the increased risk of vehicle damage.
Insurance companies use detailed data on these and other factors to calculate the risk of insuring drivers in specific locations. As a result, two people with similar cars and driving records could pay different rates based on their respective locations.
Myth: Car insurance is cheaper at age 25
This is one of the biggest myths. There is no magical number where your car insurance rates suddenly decrease. Nevertheless, there is some basis behind this myth.
As long as drivers maintain a clean driving record, insurance premiums should continue to drop yearly. As such, by age 25, insurance rates have generally dropped significantly since they first began driving. By 25, drivers typically have several years of driving experience, especially if they began driving at 16, reducing their likelihood of being involved in accidents compared to younger, less experienced drivers. Less risk means lower premiums.
Statistically, younger drivers are considered a higher risk due to higher rates of accidents and claims. However, this has significantly more to do with driving experience than age. Most new drivers learn to drive at a young age, as people can begin learning to drive at 16 in most Canadian provinces. New drivers have very little driving experience, which leads to higher claims and accidents due to a lack of road experience—not age. As most new drivers fall into the under-25 category, this has a significant impact on accidents and claim statistics for that age range.
Nevertheless, if someone begins driving at age 25 or even 35, they would still be a new driver with zero driving experience, and their higher insurance premiums would absolutely reflect that.
Fact: Bundling insurance policies saves you money
This is true! Bundling insurance policies together, commonly referred to as a multi-policy discount, can actually save you money in many cases.
Most insurance companies offer discounts to customers who bundle different types of insurance policies, such as auto, homeowners, or renters insurance. The exact amount of the discount varies by company and location, but it can be significant in some cases.
Bundling multiple policies not only potentially saves money but also simplifies managing your insurance. Having multiple policies with the same insurer, like car, home, or even boat insurance, can make it easier to handle payments, renewals, and claims. You can even bundle multiple car insurance policies together for a multi-vehicle discount. Bundled policies even sometimes allow for more customization or flexibility in coverage options, as insurers are more willing to tailor packages to the needs of loyal customers.
However, it’s important to note that bundling isn’t always the most cost-effective option for everyone. Sometimes, the total cost of individual policies from different providers might be lower than the bundled rate from one company. Always compare to ensure you’re getting the best deal.
Myth: Full coverage covers everything
Nope. The term full car insurance coverage can be a bit misleading, as it implies that everything related to your car and any incident it might be involved in is fully covered. In reality, full coverage typically refers to a combination of different types of auto insurance policies, each with its own limitations and exclusions. Full coverage usually includes:
Nevertheless, despite the name, full coverage doesn’t cover every possible situation. This is where other types of optional coverage and add-ons or extensions can protect you.
Some common situations that full coverage does not cover and the additional coverage that does cover these situations include:
- Personal belongings, including laptops, phones, wallets, car seats, etc.
- Mechanical breakdowns unrelated to collisions mechanical breakdown insurance
- Driving for business purposes commercial auto insurance
- Fees and expenses that exceed policy limits
- General wear and tear
- Intentional damage
- Unreported vehicle modifications
Myth: The best auto insurance coverage is the most expensive option
Not necessarily! Car insurance is not a one-size-fits-all kind of deal. The perfect policy for you depends on various personal factors, like what kind of car you drive, how often you’re behind the wheel, and your budget. While the more expensive policies come with all the bells and whistles, you need to ask yourself: Do I really need all these extras?
Consider your risk factors. If you’re only driving short distances in a low-crime area, going all-in on the most comprehensive read: costly coverage might be overkill. Plus, if you drive an older vehicle, the cost of extensive coverage might outweigh the potential benefit. In such cases, less expensive coverage with higher deductibles could be more cost-effective.
This is why it’s important to compare quotes and coverage options from multiple insurers. You’d be surprised how often you can find a policy that gives you all the coverage you need without the hefty price tag. Remember, it’s all about what works for you, your car, and your lifestyle.
Myth: A short lapse in car insurance coverage doesn’t matter
This is false. It’s a common misconception that a short lapse in car insurance coverage doesn’t matter. In reality, even a brief lapse in coverage can have several significant consequences.
In most regions, driving without insurance is illegal. If you’re caught driving during a lapse in coverage, you could face fines, licence suspension, or even legal action. The length of the lapse can also be a factor; longer lapses typically result in more severe consequences. However, even a short lapse of a few days can trigger these issues. Ensuring continuous car insurance coverage is crucial to avoid these potential problems.
Insurers view drivers with a lapse in coverage as higher risk. When you go to renew your expired car insurance or obtain new insurance, you may find that your premiums have increased, sometimes significantly. Furthermore, once you are labelled as high-risk, you may discover you have fewer options for car insurance as not all insurance companies offer coverage for high-risk drivers. This means shopping for car insurance quotes to find the best price may prove more difficult.
If you find yourself in this situation, you may want to consider working with an insurance broker. They can shop around for you to find the best quotes on your behalf and offer professional assistance and guidance in applying for your new insurance.
Myth: You can’t cancel your auto insurance policy before renewal
False! You are generally free to cancel your car insurance policy at any time.
However, there are a few important things to consider when doing so. For example, cancellation fees. Some insurance companies may charge a cancellation fee if you terminate your policy before it expires. It’s important to check the terms and conditions of your policy for any such fees.
You may also need to notify your insurer in writing or through a specified process to cancel your policy. Do not just stop paying the premiums without proper notification, as this could lead to a lapse in coverage and other potential complications.
Finally, make sure you have new coverage in place or that you immediately secure a new policy after cancelling your old one. If you don’t, you’ll have a gap in your car insurance coverage, and, as we mentioned previously, this gap can lead to higher premiums in the future, as insurers often view uninsured periods as risky.
Myth: Your credit score has no impact on your premium
Actually, the impact of your credit score on your car insurance premium varies by province. In some provinces, the use of credit scores by car insurance companies is either restricted or not used at all, while in others, it may be a factor in determining your premium. Here’s a breakdown:
Provinces where credit scores are not used
Ontario, Newfoundland and Labrador have regulations that prohibit car insurance companies from using credit scores to determine insurance premiums.
Provinces where credit scores may be used
In Alberta, New Brunswick, P.E.I., Quebec, and Nova Scotia, insurers may use credit scores as one of the factors in determining premiums. Still, this practice is subject to certain regulations and guidelines. Insurance companies need to obtain your consent to access your credit information and disclose how they intend to use it.
Other provinces
In British Columbia, Manitoba, and Saskatchewan, drivers generally don’t need to worry about their credit scores in regard to car insurance. While there is no specific prohibition preventing insurance companies in these provinces from inquiring about a driver’s credit history, the government insurance providers in these regions do not explicitly state credit history as a criterion for setting insurance premiums.
In provinces where credit scores can influence car insurance rates, a higher credit score might lead to lower premiums, while a lower credit score could result in higher premiums. The rationale is that insurers sometimes correlate higher credit scores with more responsible behaviour and a lower risk of filing claims.
All in all, regardless of the province, keep in mind that credit scores are never the sole factor in determining insurance premiums. Other factors like driving history, type of vehicle, and where you live play significant roles.
Myth: Parking tickets affect insurance premiums
Nope! Insurance premiums are influenced by factors that indicate risk or a history of unsafe driving behaviour. Parking tickets, however, are considered non-moving violations. They don’t demonstrate risky driving behaviour, which is what insurance companies are most concerned about. Insurers are more interested in moving violations, like speeding or running a red light, which directly correlates to the likelihood of an accident.
Nevertheless, it’s important to pay your parking tickets. Unpaid tickets can lead to additional fines, vehicle impoundment, or even a suspension of your driver’s licence in some cases. While the tickets themselves don’t affect insurance rates, the consequences of not paying them might. For example, if your licence is suspended due to unpaid parking tickets, this could affect your insurance premiums once your licence is reinstated.
Final thoughts
In wrapping up our journey through the winding roads of car insurance myths, it’s clear that navigating the ins and outs of car insurance policies can be as tricky as a Toronto rush-hour traffic jam. We’ve debunked some of the most common misconceptions—from the colour of your car influencing your premium to the impact of parking tickets and the notion that more expensive insurance always means better coverage.
Remember, knowledge is the key to unlocking the best insurance policy for your needs. Doing your homework, asking questions, and never hesitating to challenge a myth is crucial. Armed with the truths we’ve uncovered, you’re now better equipped to make informed decisions, ensuring your car insurance journey is both smooth and cost-effective.
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