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Auto Insurance Fact or Fiction

Does the colour of my car affect my rates? And 5 other common myths.

Insurance is a pretty complex industry, with enough rules and regulations to make your head spin. That’s why to sell insurance in Ontario you need a professional designation and education – there is too much going on to be able sell insurance without it.

So it’s understandable that there is a lot of confusion regarding things that are, or are not, true in the field of insurance. This article addresses a few of the more common rumors regarding auto insurance, but it only scratches the surface of a large industry. Without doubt, the best way to guarantee you don’t get in over your head is to get a policy with a knowledgeable insurance broker.

1: The colour of my car affects my insurance premium.

FICTION.

Red cars just look like they should cost more right? Flashy, easy to see, probably involved in more thefts & claims. But red cars pay the same insurance as everyone else, because NO, the colour of your car does not affect your premium.

The way insurance companies rate your policy is by examining the make, model, and year of your vehicle, the territory you drive it in, and what your driving record is like. The colour of the vehicle is never factored in, and would be very hard to keep track of. That being said, custom paint jobs or special graphics added to your vehicle will increase the cost of your insurance, because it costs more to replace these specialist customizations. But the fact remains that the colour of your car, be it red, black, silver or even hot pink, will not affect your price.

2: Young men and women pay ridiculous insurance prices.

FACT. SORT-OF.

There is no doubt about it, young drivers, particularly young men, pay very high premiums. Whether or not it’s ridiculous is up to the consumer, but it costs a lot to be a young driver. Insurance companies don’t really have a choice in the matter, because young people get into many more accidents, and the accidents they get into tend to be more expensive.

Young people have the highest rates of traffic deaths, injuries per capita and deaths per kilometer driven among all drivers under age 75 years of age. These accidents are heartbreaking to hear about, and cost insurance companies a lot of money in legal liability and other claims. And it’s the legal liability claims that really drive the prices up for young drivers. Young people are involved in more litigious claims because of the injuries and deaths, so they must pay for that through insurance. Even if a young person removes all physical coverage from their vehicle, their insurance premiums will still be high, due to the policy’s liability component. Because liability coverage is a legal requirement in Canada, there’s no way for a young driver to avoid paying. So if you plan on driving at a young age, prepare on paying. (If you want to learn more about minimizing costs as a young driver, check our facebook and website for our upcoming blogs: 5 things I Wish I Knew About Insurance When I Started Driving and Going to University – 5 Insurance Considerations for Your Kids)

3: My friend can’t drive my car if he isn’t a listed driver on my policy.

FICTION.

So long as your friend is legally licensed, and operating a vehicle within the law, he absolutely can drive your vehicle, and is covered under your insurance policy. So if your friend NEEDS your car to take that road trip to Toronto, you can rest easy knowing he will be protected by your coverage.

You will rest less easily, however, if you remember that what occurs under your policy will follow your record. That means that if you friend rear-ends someone in Toronto, you get to pay for it in the form of higher insurance premiums for the next 7 years. This extension of coverage also applies only if your friend is not a regular user of your vehicle. If the trips to Toronto become a weekly occurrence, the friend needs to be added to your auto policy.

4: Accidents and Tickets are removed on their anniversary.

FICTION.

It’s a great feeling to have a conviction come off your record. FINALLY, that blemish on your life is gone, and your insurance premiums are going to fall. All is well with the world.

Except, that doesn’t actually happen.

The problem is that the conviction coming off your record, and insurance companies recognizing this change, are two separate things. Changes to your driver record are only recognized by insurance companies upon renewal, so you will have to wait for a while to see your rates change. If your accident is unfortunately timed (like the day after your renewal is issued), then you will have to wait almost a year before you actually recognize savings.

It’s not all bad news, however, because this mechanism works both ways, for positive and negative changes to your driving record. This means if you are involved in an accident or get a speeding ticket, events that make your driving record worse, your insurance premiums won’t change to reflect that until the policy renews, at a later date. This gives you a bit of a break, where you are paying less than your driving record indicates you should. At the end of the day, the two effects (delay on tickets being added odd, and delay on taking them off), should cancel each other out.

5: New purchases are covered by your old car’s insurance company automatically.

FACT. SORT-OF.

It’s true that most insurance policies do extend coverage from your current vehicle to a new vehicle automatically, for a period of about two weeks. However, the coverage that extends is only up to limits for the vehicle listed on the policy, not the new vehicle purchased. That means if you trade in a 1995 Impala and buy a 2013 Lamborghini Aventador, your limits will not be sufficient. Legal liability coverage transfers a little bit better, but it’s still important to contact your broker or insurance provider to advise them of the change immediately.

A main benefit of this “grace period” is it makes a new purchase legal to drive off the dealership lot right away, because you automatically get the liability coverage from your old policy, which is required by law to drive. You probably didn’t realize this as a benefit however, because you think…

6: …It’s ok to drive without insurance, if it’s for a short while, or in an emergency.

FICTION! FICTION! FICTION!

NO! It is not ok to drive without insurance; it’s a very bad gamble no matter how you look at it. The first and obvious argument against driving without insurance is the cost of fines. Police have the power to fine you up to $25,000 for your first offence, and $50,000, along with license suspensions, for subsequent violations. Compared to an annual premium in a range between $1000-$2000, the fine amounts are massive.

If the fine money is not enough, consider the impact of a potential claim. Not the costs of replacing a vehicle, because although it can be expensive, the cost of a car is not your biggest fear. Instead, it is the potential costs of being found liable in court for hurting someone. Judgments from the court can reach millions of dollars, and can quickly change your quality of life forever. Think it’s hard dealing with debt now? Imagine if the court decides to award $1,000,000 in damages against you. It’s a very scary thought.

You wouldn’t challenge a bear to a wrestling match, you wouldn’t go bungee-jumping into a volcano, and you shouldn’t drive without insurance. Just like the prior two situations, when you drive without insurance, the odds are not remotely in your favor. There should never be a situation that requires exposing yourself to so much risk. Call a cab, get a friend, or in the event of an emergency, contact the police. There are always options, and driving without insurance simply isn’t one.

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