Understanding your automobile insurance application

If you want to drive, by law, you need insurance. If you want affordable car insurance, it pays to know how an automobile insurance application works. 

In February of 2020, CBC reported that Ontario car insurance rates increased by as much as 11% in one year. If you don’t compare insurance quotes, you could be missing out on hundreds of dollars every year. It takes as little as 5 minutes with Ratehub to compare online, so there's really no excuse.

We understand not all the questions may be easy for the average driver and lead to some confusion. So, we’re trying our best to make it easier for you to shop around for insurance to better your finances. 

Below, you’ll learn more about the process of getting car insurance in Canada. We break down how a standard car insurance application works, what a policy typically includes, basic coverages and their limits, all with an easy-to-read example. 

How to read an auto insurance policy

If you get a slip in the mail for renewal, that’s your declaration page. Let’s junk the jargon and ditch the legalese and make it all make sense. 

What is an auto insurance declaration page/certificate of automobile insurance?

A declaration page literally “declares” or tells you what coverages you have on your policy, their limits and premium costs, as well as other named drivers (secondary or occasional drivers). 

You don’t have to wait for the paperwork to arrive in the mail. Most insurance companies allow you to check the declarations page online.  Let’s get into each section. 

Auto insurance declaration page example:

• Name insured: personal information – standard stuff like name and address. 
• Policy period: Standard insurance policies are 1 year. The policy period is the start and end date of your policy by day, month and year. It also lists your renewal date, so you know to compare quotes before the listed day. 
• Particulars of Described Automobiles: The insured vehicle(s) year, manufacturer, model, and Vehicle Identification Number (VIN). 
• Lienholders: If you lease a car, this lists who may also be payable following an accident. If you own the car outright, it may list which financial institution your money is withdrawn for your insurance premium payment. 

Standard auto insurance policy coverages

Liability: Otherwise known as third-party liability (TPL), this is mandatory coverage across Canada that covers you if you injure someone else or damage their property. The minimum liability in most provinces is $200,000, but it’s generally set to $1 million by default. You can up it to $2-$5 million.

Accident Benefits: If you’re in an accident and suffer injuries, accident benefits (also called Statutory accident benefits schedule or SABS), pays for your rehabilitation. If you can’t work it pays for income replacement benefits, attendant care, housekeeping, dependant care, and death and funeral expenses. Indexation benefit means the cost of care increases with inflation. 

Depending on your province, accident benefits by default aren't exactly a cash windfall. For instance, in Ontario, you get $400 per week whereas in BC, you get $740 per week for income replacement. However, know that you can increase your accident benefits coverage to receive up to $1,000 worth of income replacement per week (at least, in Ontario). 

Uninsured Automobile: Gives you coverage if you’re injured or killed by a driver without insurance or by a hit-and-run driver. It also covers any damage to your car from an uninsured motorist. 

DCPD: Direct Compensation Property Damage provides coverage in certain provinces for damage to your car and its contents when the other driver is at fault. It’s called “direct compensation” because you deal directly with your insurance company, not the at-fault driver’s. DCPD claims do not affect your premium.

Optional auto insurance coverages

Loss or Damage: This section will list out the optional coverages you may have asked for on your auto insurance application form. It’s insurance for your car – either directly or indirectly, at-fault or no-fault – which isn’t covered under the mandatory coverage. 

• Specified perils: Covers your car against specific perils or risks such as lightning strikes, fire, attempted theft, flooding, explosions. You have to specify each danger for which you require protection. So, if you get coverage for fire, but not floods and your car fills up with water, you’re paying for the repair yourself. It’s a cheaper option, albeit not that much, than All Perils coverage. 
• Comprehensive: Essentially covers everything from specified perils in one package. So in the worst-case scenario where lightning hits a tree that falls on your car and smashes into a fire hydrant spraying water into your vehicle and then someone steals your car – comprehensive coverage will pay for all the repairs to your car. It’s the best way to protect your vehicle.
• Collision or upset: If you’re in an accident with another object, be it a car or a guardrail, or your car tips over, collision or upset insurance coverage pays to repair or replace your car at its current open market value. 
• All Perils: Gives you collision protection, comprehensive and coverage if someone you know, like a family member or friend, steals your car. It’s the highest level of coverage you can get.

Policy change forms (car insurance endorsements)

There are optional coverages, also known as car insurance endorsements, that help you further customize your policy to suit your coverage needs. Here are a few of the most common endorsements:

• You can get insurance for non-owned automobiles with the endorsement OPCF27 meaning you can port your existing coverage to a friend’s car to reduce their concerns or get a rental car and avoid paying rental car fees. 
• OPCF20 is for what’s called loss of use, so, if you’re in an accident where your vehicle ends up in the shop, your car insurance company will pay for a rental car. 
• OPCF16 puts your car insurance on hold, OPCF17 reinstates it. 
• OPCF43 replaces your car for its replacement cost, not its current actual value on the open market which would be far less than buying it new. 

Car insurance deductibles and premiums

What is a car insurance deductible?

A deductible is the amount of money you have to pay when you file a claim. So, if you file a claim for $5,000 and you chose a $1,000 deductible, your insurance company will pay $4,000 towards the claim, after you pay your portion. A higher deductible leads to cheaper insurance premiums. 

What is a car insurance premium?

Your car insurance premium is the amount of money you pay to your insurance provider whether it’s monthly, semi-annually, or annually. You can save a few percentage points by paying annually (your total policy premium). 

What are premiums for occasional drivers?

An occasional driver is someone who drives less, and their premiums (the money you pay to your insurance provider) reflect that. However, a secondary driver can cost more if the driver has a history of accidents, traffic tickets, or anything else seen as a risk to an insurer.

How to determine your car insurance rating

How do insurance companies determine how much you should pay for your insurance coverage? There are 7 factors that determine your car insurance rating:

• Driver demographics - In the above screenshot, you can see the drivers’ ages and years licensed. Car insurance rates go down at age 40 and the more experienced you are will save you money. If you’re married, statistically, you’ll be in fewer accidents and will get a better rate. Young drivers pay more for car insurance, and males pay more than females. 
• Where you live - According to our last insurance myths survey, almost 1 in 5 Canadians don’t know that where they live affects their insurance rating. 
• Vehicle type - If the car you drive is a known target for thieves, or even if drivers who buy this car tend to get into accidents and make claims, it will affect your rate. 
• Driving history - Any chargeable claims, whether you’re at fault or not, will appear in your rating and if you’re any percentage at fault, it will increase your rate. Depending on the conviction and province, it can stay on your driving record for 3-7 years. The longer and cleaner your driving history is, the cheaper your insurance will be.
• Driving activity - The number of kilometres you drive affects your insurance, but according to our last survey, nearly 1 in 4 Canadians believe it doesn’t. Your driving class is whether you use your car for business or pleasure. Business will incur a few extra dollars per month. 
• Type of insurance coverage - By law, you need the mandatory coverages. And adding collision, comprehensive, or any endorsements will cost extra. 
• Applicable discounts - Bundling with home insurance? Long, clean history of safe driving? Union or alumni membership? These things can help save you money. You will see whatever applicable discounts you have in this section. 

What does driving record 7 mean in this example?

Your driving record number ranges from 0-10, but it depends on your insurance company. Your driving record number could be 3 out of 3, or 6 out of 7. The higher your score, the lower your rate. Ask your insurance company for their scale to determine where you sit. 

What do rate groups mean (AB, DCPD, COLL/AP, COMP/SP)?

Rate groups are based on your vehicle’s performance on IBC’s CLEAR table. The better your car is in each category determines your rate. AB is accident benefits, DCPD is direct compensation-property-damage, COLL/AP is collision and all perils, COMP/SP is comprehensive and specified perils. Depending on your driving record (or how many claims) you have in each category and how many claims are made by your car across the country in each category determine the premium cost for each coverage type. 

How to calculate your car insurance premiums from your car insurance policy

It depends on your provider, but we can give you ranges. Below is a table for each coverage type and how much each affects your insurance premiums. 

 

*Based on what you see in this auto insurance policy example. Percentages will vary based on the car insurance factors we address above and your insurance provider. 

The questions you’ll be asked when applying for car insurance?

Honesty is key in your car insurance application. An insurance broker or agent will verify your information via your Motor Vehicle Record (MVR).  If there is a disparity between what you say and your MVR, you may have trouble getting a policy. 

Personal details

Your name may be the only piece that doesn’t affect your rate. Everything else will, let’s explain. 

• Postal code - if you live in an area prone to theft, vandalism, or water, expect to pay more. 
• Gender - Men tend to take more risks, so they pay more. 
• Date of birth - Young drivers pay more through the association of their peers. 
• Marital status - Married couples, statistics show, take fewer risks 

License details

• Type - Fully licensed (G) drivers pay less, learners (e.g. G1) pay more. 
• How long you’ve been fully licensed is important
• License suspensions will hurt you
• Taking an accredited driving course lowers your risk and your rate

Vehicle details

• Make, model and year - Some car makes are easy targets for thieves. The year indicates the safety systems and age of the car to calculate its actual cash value if it’s a write-off. 
• Primary use - Business or pleasure. Business drivers tend to use their cars much more for business meetings. 
• Kilometres you drive - The more you drive, the higher the risk of an accident, so you’ll pay more. 

Insurance history

• Any accidents, tickets, or claims will increase your rate
• Any gaps or cancellations in your insurance history can lead to an increase
• Years insured indicates your experience. More experience equals cheaper rates. 

Questions to ask your car insurance broker or agent

Who can drive my car?

You don’t have to name everyone as an occasional driver, but ask them what their threshold is so you know if your spouse, child, or roommate borrows it once a week for groceries if you should add them or not. 

Are there any exclusions in the policy? 

It’s hard to answer, so come up with some what-if scenarios. What if my family or friends are injured in a crash - do my accident benefits cover them? Do I get a rental car if my car is in the shop? Do I need to pay for rental car insurance outside of North America? What happens if I hit a pedestrian? 

How will my premium be affected if I’m in an accident? Get a speeding ticket? Make a claim?

Again, hard to answer, but let them do some talking. They may sell you on accident forgiveness (OPCF43) or ticket forgiveness, but it can be a bit pricey. If you make a claim, will your insurance rate go up if you’re not at fault?

Is there specific information you need from me if I’m in an accident?

Hopefully, they have a printable form you can stick in your glove compartment for such an occasion. If they don’t, here is a government-approved worksheet you can print for your glovebox. Put your insurance company's claims number on the sheet. 

Are there any available discounts? 

Seriously, you never know what you might find, or what group you may be a part of that can land you a discount. From students to seniors to alumni to unions - anything is possible, but you have to ask. What about bundling with home insurance? Putting multiple insurance policies under one umbrella can save you money.

The bottom line

Well, the main takeaway here is that we hope you understand your car insurance application process, the factors that go into your car insurance quotes, and a much easier understanding of insurance. Thank you for taking the time to read it. If you have questions, please post them below.