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By Matt Hands, Ratehub.ca
Special to the Financial Independence Hub
Insurers look at historical data, as well as real and perceived risks when calculating your insurance premium. If we dig a little deeper, we can identify specific factors that affect the price you pay for home and car insurance. Even better, we can determine which of those particular factors can help you save money and get you closer to financial independence.
Car Insurance Rates
Factors beyond your control
Age: There are certain factors that you can’t change: like your age. A younger driver will pay more for car insurance because, with less experience on the road, there’s a higher chance of an accident. Historical statistics have proven time, and again that younger drivers take more risks than more mature drivers.
Location: Where you live affects your insurance premium, so unless you’re willing to move, there’s not much you can do. Specific location factors that impact pricing are: number of accidents, levels of fraud, the value of claims, theft & vandalism, as well as climate considerations. For instance, if you compare Ontario car insurance quotes vs. Alberta car insurance quotes you might find, all things being otherwise equal, that Albertans pay less for car insurance. The reasons for the cheaper pricing could be any number of reasons from lower claims volumes to population density.
Factors you can use to save money
Your Car: It should come as no surprise that the more expensive the vehicle, the more it will cost to insure. We don’t have to compare Maseratis to Civics to find better pricing though. The Insurance Bureau of Canada (IBC) uses the Canadian Loss Experience Automobile Rating, or CLEAR table, to determine how cars may be rated differently when calculating their insurance premiums. Use IBC’s How Cars Measure Up Guide and browse for vehicles with lower collision or comprehensive claims that will result in lower insurance premiums.
Your driving activity: This point is three-fold. If your general driving activity is safe, if there are no accidents, no speeding tickets or other major offences on your record, you’ll save money on car insurance. Your driving history, or the longer your driving activity is free and clear of any blemishes on your record, the more your insurer will reduce your monthly payments. Finally, how much you drive will affect your premium. The more you’re driving on the road, the higher the risk of an accident, and the more you’ll pay for car insurance. If you can walk, take public transit, or shorten your overall commute, the more you’ll save on car insurance.
Level of Coverage: To pay the least amount of car insurance, you can opt for the minimum coverage if you own your car outright, but keep in mind, this exposes you to significant costs should you be in an accident.
For instance, you can opt out of collision insurance which protects your car against damages sustained in a crash. You can decide against comprehensive which protects your vehicle against damages from events not related to driving, like a tree falling on your car after a storm. You can also choose to only take the minimum third party liability allowed in your province. This puts most of the risk on you though, and if anything does happen, you’ll probably be paying much more than your monthly premium.
Higher Deductible: A quick and easy way to pay less without touching your coverage is to increase your deductible. The deductible is the amount you pay after being approved for a claim, but before the insurance company will pay their portion up to the limit specified in your policy. If you increase your deductible from $500 to $1000, this is a signal to the insurer that you’re taking on more risk, and they’ll reduce your premium accordingly.
Discounts: Each insurance company will offer car insurance discounts based on their own affiliates and desired clientele. For instance, you may get a discount at insurance company “A” for being an alumnus from a particular school, but not with insurance company “B” which gives an alumni discount for a different school. The same applies for certain unions who encourage their members to use a particular insurer to get a union discount. Also, the longer you stay with an insurance provider, the more significant your loyalty discount may be. Understand what discounts could apply to you from each provider when comparison shopping: a high upfront price can be significantly reduced depending on the discounts available to you.
Home Insurance Rates
Factors beyond your control
Location: If you’re settled, you may not want to move, but again, with more risks come higher costs. If you live in an area known for crime, you’ll pay more to insure against this risk. Proximity to a fire station or hydrantis another factor affecting your rate because the faster the opportunity to extinguish a fire, the more salvageable your home and its contents which translate to a lower claim, therefore a lower premium.
Pool and Accessory Dwellings: If you have a pool, there is a greater liability risk of someone drowning, which means you will need to pay more home insurance premium. If you have a coach house in your backyard operating as a dwelling unit with utilities and amenities, this will cost more to insure than a plywood shed with garden tools because the cost to replace or rebuild is drastically different.
Replacement Cost: The replacement cost of your home is not its market value. The price you paid for your home is not necessarily the cost to rebuild it. Let’s say you’re in Toronto and you paid $800,000 for a house. The cost to rebuild it may be closer to $400,000: this is the value of the actual materials required to reconstruct your home. Review your home insurance quotes carefully to ensure you input the proper replacement cost, otherwise, you run the risk of paying more for insurance than you need to.
Value of Contents: This factor is specific to condo & tenant insurance. For example, if you own a condo, you’ll need condo insurance which typically covers your unit’s contents and liability against someone injuring themselves within your specific unit. The more value you put on your contents, the more your insurance premiums will cost.
Factors you can use to save money
Renovations: By upgrading your electrical to copper from knob and tube, swapping clay and lead pipes for copper or PEX tubing, or installing a home alarm system with centralized monitoring, you can save money because you’re reducing the risks of fire, flooding, and theft. If you upgrade your kitchen with stainless steel appliances, a farmhouse sink, and wall-to-wall cabinets: expect your home insurance premiums to rise because it would cost more to replace.
Level of Coverage: An endorsement is an add-on to your home insurance policy extending your coverage beyond the limits set under your comprehensive policy. Without any endorsements, it will obviously cost you less. But, it’s important to understand your coverage, so you’re not left paying out of pocket. For instance, let’s say a pipe bursts in your basement causing water damage, most comprehensive policies will pay for the loss. If your basement floods from heavy rain, melting snow, or a sewer back up, you won’t be covered unless you have an endorsement covering you for such occurrences.
Discounts: There are several discounts available from your home insurance provider, like if you are mortgage free. If you’re a member of a union, alumni group, or professional organization it might also get you discounts. If you have a sewer backup preventer installed, tell your insurance company about it, because it could result in a water damage prevention discount. If you have both car and home insurance, you can actually save up to 25% by bundling your policies together under one insurer. The added convenience of having all your property and casualty insurance with a single insurer will also make life easier. Plus, if you like the pricing, you can receive a loyalty discount for remaining with them for a few years.
Remember to shop smarter
If you’re working your way to financial independence, it’s worth maximizing your money with smart savings and investments. While insurance is a product you pay for but never want to use, there are ways to be smart and save money when deciding on what insurance policies you want or need when it comes to protecting your home and vehicle.
Matt Hands is the senior business unit manager for insurance at Ratehub.ca, a website that compares insurance rates in Canada, as well as mortgage rates, high-interest savings accounts, chequing accounts, and credit cards with the goal to empower Canadians to search smarter and save money.
