1. Consider the cost of your investment including annual vehicle operating costs
Once upon a time the average car loan lasted 4 years or 48 months. When it came time to trade in the vehicle, there was usually a trade-in value or some equity left over to apply to the cost of something new.
In 2015 however, achieving equity after 4 years of payments is no longer the reality for a large percentage of vehicle purchasers. As 84 and 96 month car loans quickly become the norm, it appears as if a life-long car payment and a negative equity situation have become the new guarantees in life along with death and taxes.
To obtain an estimate of what it costs to own and operate a vehicle in Canada these days, CAA provides an online Driving Cost Calculator that determines annual vehicle expenses for each segment in the categories of fuel, insurance, license, depreciation and maintenance.
The annual operating costs in the chart below do not include loan or lease payments, interest or taxes. The insurance portion is already included in the annual cost and the amounts shown are based on averages within the compact car segment.
Annual operating costs of a compact car in Canada
||Annual Operating Cost
If we add an average monthly loan payment of $300 (or $ 3600 annually) to the annual operating cost of any Province and then divide the sum by 12 months, the average cost to own, operate, insure and maintain a compact car in Canada hovers around $1,000 per month, give or take.
Whether you include depreciation in the annual cost estimate as CAA did or wait until trade-in time to absorb the loss in one lump sum, the large expense of owning a depreciating asset is an inevitable part of vehicle ownership.
Car insurance is also an inevitable part of vehicle ownership. If you’ve ever had to make a claim or had the unfortunate experience of being involved in an auto accident, you already know how important it is to have the right kind of car insurance. Whether you’re driving, riding as a passenger, cycling or walking, life can be dramatically changed as a result of a motor vehicle accident.
Your auto insurance policy will determine how well you and your family are provided for in case of a vehicle-related accident, and a good policy will mitigate the risk of losing your personal assets should an unfortunate MVA (motor vehicle accident) occur. Changes in coverage, terms, exclusions and premiums can happen on a frequent basis within the auto insurance industry, so it might make sense to speak with an insurance professional to help determine which type and how much coverage is right for you.
2. Speak to an experienced and qualified car insurance professional
Due to the vast selection of optional coverage, the importance of disclosing past claims, previous convictions and naming any additional licensed drivers living in the home, a conversation with a qualified professional can add peace of mind and calm the confusion about which coverage is best and/or necessary for your particular situation.
In addition to using trusted insurance quote websites like Insurancehotline.com and Kanetix.ca that are convenient for an initial car insurance estimate, it’s beneficial to consult a car insurance professional. An Insurance Company has an obligation to explain the features of your auto insurance policy to you and it’s part of the service they provide in return for the yearly premium you pay.
Furthermore, in addition to being at risk for having inadequate car insurance from a budget provider, when you plug personal details into any online form you run the risk of granting third party websites and organizations access to sensitive and personal information.
A 2013 entry from Canadian Underwriter’s online forum communicated this concern in the article Quebec insurance Brokers concerned over consumer protection :
“The insurance market is changing. The problem is that new channels of distribution such as the Internet do not ensure that customers understand products in the same way as when dealing with a broker,” Jean Bilodeau, president of the RCCAQ [fr]…. “Nor do they guarantee consumer protection through mechanisms established by the Autorité des marchés financiers (AMF)”
The Insurance Bureau of Canada can help you get informed through their website: How insurance premiums are calculated, types of coverage, information about insurance crime and fraud scenarios, and a contact form where you can send general inquiries.
For Ontario residents, The Financial Services Commission of Ontario provides an online brochure which explains widespread changes made to auto insurance in Ontario as of 2010.
The more you learn about car insurance and how it affects you, the more confident you’ll be when asking questions while comparing quotes with insurance professionals. As an example, when they offer an optional coverage, ask them what would happen if you didn’t take it. If the worst case scenario is something you can live with, perhaps you can put the savings towards an increase in personal liability instead. (see below)
3. Understand your Province’s mandatory car insurance requirements and limitations
The vehicles we drive require a mandatory standard (minimum) of auto insurance within the categories of liability, accident benefits and uninsured/unidentified insurance. Depending on which Province you are licensed in, bundles may be purchased through a private insurance company or you may be required to purchase at least the basic coverage through a government owned and operated system.
In addition to the variance in auto insurance premiums across Canada, there is a difference in the mandatory requirements from Province to Province as well.
The minimum liability required for car insurance in Ontario is $200,000, but consider the following scenario:
If a two car accident occurred where 4 people became injured, it wouldn’t be unreasonable to assume several million dollars in losses and claims could be generated against the at-fault driver. The Provincial mandatory amount wouldn’t be sufficient to cover the claims, so the driver would be at risk of making up the difference through the liquidation of their personal assets.
Here are some other things for Ontario motorists to consider:
The mandatory coverage for property damage (collision) in Ontario will only cover the cost of damages to the extent you were not at fault. “For example, if you were 75 per cent at fault for the accident — and therefore 25 per cent not at fault — your company will pay 25 per cent of your loss, less any deductible”, says After an Auto Accident: Understanding the Claims Process.
“If you have a minor injury due to an auto accident, your medical and rehabilitation accident benefits are limited to $3,500 regardless of the coverage level you have selected“, says What you need to know about changes to auto insurance in Ontario.
The Insurance Corporation of British Columbia (ICBC) is a provincial Crown corporation that provides universal auto insurance to B.C. motorists. Drivers are required to purchase the basic Autoplan insurance through ICBC but may choose to purchase optional coverage through an independent insurance agent. The minimum third party liability coverage in B.C. is also $200,000.
By comparison, Nova Scotia’s Ministry of Employment and Labour in their Consumer’s Auto Insurance Guide states a mandatory minimum of $500,000 for third party liability.
Many insurance professionals from Coast to Coast guide their clients towards the purchase of increased liability to the average of $1 million, while high risk markets provide for even higher limits in excess of $2 million.
As a general rule, the more insurance coverage you have the more you’ll pay in premiums. However, if you bundle your auto insurance premium with a house or personal insurance policy you may be eligible for a discount. Other discounts pertaining to claims free history, away at school discounts or a new driver’s education certification may contribute to a reduction in car insurance premiums as well.
4. Learn about optional auto insurance benefits and their limitations
Beyond the Provincial requirements of standard liability, uninsured auto coverage and a basic level of statutory accident benefits, Canadian drivers may have the option to purchase additional coverage in the following areas:
- Increased personal liability: Includes any legal fees required to defend you if you are sued due to an accident
- Increased accident benefits: Increased income replacement, attendant care, medical rehabilitation, caregiver, death and funeral, dependent care
- Increased death and funeral: The standard level of death benefits paid to the surviving spouse and dependant of a person who is killed can be doubled and the funeral expense benefit is increased
- Comprehensive: Coverage in the event of theft, fire, vandalism, earthquake, falling objects, hitting an animal, etc
- Emergency roadside service: Covers your car and whoever drives it within Canada or the continental United States in addition to hotel and car rental discounts
- Family protection coverage: Although optional, most insurance professionals will advise you to add it to your policy as it provides additional benefits when there is a claim against another motorist for injuries or death, if the other motorist has insufficient insurance to pay the claim. This endorsement is available in Alberta, Ontario, New Brunswick and Nova Scotia
- Waiver of Depreciation: No depreciation will be applied if your new car is damaged in an accident. Check the limitations as some policies state the vehicle has to be less than 2 years old or as old as 5 years to be eligible.
- Accident Waiver: If you qualify, you can protect your rating if you are involved in an at-fault accident. (without it, and if an at-fault accident occurs, your rating would change, resulting in an increase in premiums). Not all insurance companies offer this.
- Loss of Use: In the event of an insurable loss to your vehicle, it will cover alternate transportation, at the discretion of the claims adjuster
5. Compare car insurance rates and search the reviews/ratings for insurance providers
An independent study by The Fraser Institute detailed the discrepancies of auto insurance rates across Canada and cited some of the reasons behind the vast difference in annual car insurance premiums:
“Although Ontario recorded the highest average premium, that comes as a result of higher claims costs per vehicle stemming from high levels of insurance fraud, and relatively severe regulations in rate-setting as well as mandatory minimum liability and accident benefits laws.”
“Drivers in BC, Saskatchewan, and Manitoba should be asking why their governments have eliminated consumer choice and are forcing them to purchase auto insurance at rates higher than necessary.”
Consumer Reports , the U.S. based consumer watchdog provides an online Car Insurance Buying Guide that may be helpful to Canadian car insurance shoppers by providing information about how to set the deductible to save money and how to control and be aware of hidden and unnecessary costs.
Referrals and word of mouth are also a good approach when looking for a reputable car insurance provider. Talk to your friends and family, read reviews and consider their business ratings to help determine which company will provide you with a fair quote, good service and plenty of information.
6. Determine what types of optional insurance you already have
Insurance is one of those things we purchase because
a) we have to
b) just in case something happens
c) because it provides us with some peace of mind in case of a major life crisis
d) all of the above
My Father used to say “you know you have too much insurance if you’re worth more dead.”
The Financial Consumer Agency of Canada lists some of the insurances available to Canadians, and we have added a few more to illustrate how much insurance is out there:
- Life insurance
- Health insurance
- Accident insurance
- Employment insurance
- Depreciation insurance
- Property insurance
- Vehicle insurance
- Business insurance
- Consumer product insurance
- Credit card or loan-debt insurance
- Mortgage insurance
At any rate, despite the abundance of insurance you may or may not have in other areas, car insurance is probably not the place you want to be cutting corners to save a few dollars. The valuable cargo that rides within the frame of that financial investment on wheels, is no doubt worth more than can be measured in dollars and cents.
Good luck and happy quoting.