Ever wonder how auto insurance works? Basically everyone pays into a big pool, and claims are paid out of that pool. The payment you make is called a premium. You pay a premium to your insurance company so that you’ll be covered if something bad happens. But because not everyone gets into an accident, or has their car stolen, there are more people paying into the pool than there are making claims, so there is always enough money on hand to pay a claim.
That amount that you pay, the premium, varies based on so many factors. First you get popped into a statistical group, which is based on age, gender, number of accidents you’ve been in, number of years driving, and make and model of your vehicle, plus where you live and how far you drive to get to work each day. All of these different factors are taken into consideration to basically come up with betting odds on how likely you are to make a claim and draw money out of the pool. The less likely you are to draw from the pool, the less you pay.
The good news is, there are steps you can take to improve your odds and thus lower the costs of your insurance premiums. For example is you install “an approved theft deterrent system”, your vehicle is less likely to be stolen, which means you’re now less likely to make a claim for a stolen car, which means you pay less to your insurance company. Get it?
Based on my personal experiences you can sometimes help lower your premiums depending on the make and model of your car. We used to drive around one very well-used beat up car until one year my husband’s grandfather surprised us with an extravagant Christmas gift, a new vehicle. Knowing that sports cars tend to carry higher insurance premiums I told my husband I didn’t care what he picked out, just so long as it had four doors and wasn’t a sports car. There was a dollar amount he had to stick under, and the other condition was that he had to drive it home that day, his grandfather wanted him to have the car immediately, not order it in. So hubby picked out a smurf blue four door Dodge SX, which was basically a rebranding of the Neon. If you’ve ever looked at a Neon you know, this is not a sports car, it’s a sedan. However, because he had to go with what was on the lot hubby ended up with the demo model, which had a spoiler on the back. And according to our insurance company a spoiler on the back equals sports car. Which pegged my husband as a 27 year old male driving a sports car, and made the “betting odds” of him getting into an accident go WAY up. Our insurance rates jumped right through the roof. At first I thought this was solely because it was a new car, but as the car got older our premiums really didn’t really go down much. It took me a few years to figure out it was the stupid spoiler on the back of our trunk that was causing our rates to be so high. Knowing what I do now, I would highly recommend researching insurance rates when shopping for a vehicle.
There are a few other things you can take into consideration when trying to save money on car insurance. First most insurance companies offer package deals, so you can save money by insuring both your home and your car through the same company. Another way to save, depending on the age of your car, is to drop the optional “collision coverage” on an older vehicle.
Get in the Know. Visit the IBC website to learn more about how home and auto insurance work.
Disclosure: Although this post has been generously sponsored by IBC, the opinions and language are all my own, and in no way do they reflect The Insurance Bureau of Canada.