The Hidden Costs of Your Car Insurance Renewal

You know that envelope that comes in your mail from your insurance company detailing your car insurance policy? It’s often lengthy and full of jargon. You put it aside swearing you’ll get to it one day, and, in time, it ends up crumpled at the bottom of the recycle bin. Well, you just got auto-renewed.  

And you’re not alone. 

According to our recent survey, polling 1,300 drivers across Canada, 64% of Canadians let their car insurance policy auto-renew.  

Letting your car insurance policy automatically renew could be costing you hundreds of dollars each year. Over time, that’s thousands you could be spending on debt repayments, reducing the principal on your mortgage, or investing in the market. 

Personally, I too let my insurance auto-renew last year. During COVID, I called to ask for discounts (was this the first time I was actually speaking with my insurer?). I never left my insurance company because of the group discount my partner was getting. I wasn’t going to get cheaper car insurance, or was I? 

The majority of Canadians (84%) have been with their insurance company for two years or more. Specifically, 16% have been with the same provider for 2-3 years, 10% remain loyal for 4-5 years, and those who have been with their insurer for more than 5 years came in at an astonishing rate of 58%. Worse, if you’re over 35 years old, you’re 77% more likely to have been insured by the same company for 4 years or more.

 

 

I couldn’t ignore the facts. So, I took a different path when my car insurance renewal came in the mail. This time, I started to compare car insurance quotes online. Long story short, after speaking with Morgan Roberts, Director of Sales at RH Insurance,  we were able to finalize my new policy. I’m now saving $600 on home and auto insurance this year all because I didn’t let it auto-renew. 

I’ll break down my process for you to help you fast-forward your savings. 

When can you renew car insurance?

Your insurance company sends a letter in the mail about 45-60 days before your auto insurance policy is up for renewal. You can renew 30-45 days before your renewal date. Or, you can spend as little as 5 minutes comparing your auto insurance online (enter your postal code above), or by calling a broker like Morgan. 

Know that when you renew depends on the length of your policy. Typically, car insurance is sold on an annual basis, but you can buy 6-month policies. 

Can you renew your car insurance early?

My home insurance was up for renewal, but my car insurance wasn’t due for another 4 months. You can switch insurance companies mid-policy, especially if you find a better rate. However, know it could cost you at least a month’s premium. For me, I got a refund on both my policies, plus the benefit of the new cheaper rate. I didn’t need advanced math to put these numbers together to determine the cost savings.

Why you shouldn’t automatically renew your car insurance policy

While 69% of Canadians say they review their car insurance policy every year, over a quarter of Canadians (26%) don’t and will let their policy auto renew each year. This mistake that a quarter of Canadians make could be costing them annually, as an auto renewal on your car insurance doesn't account for any changes to your driving habits and personal circumstances. For example, if you no longer drive to work that will cut down on your annual kilometres driven and will remove your daily commute - two factors that can add to the price you pay for car insurance. The more you are on the road the more at risk you are to be involved in an incident. So while it maybe convenient to auto-renew, it isn't the savvy financial decision.

But why do so many Canadian's auto renew?

The most obvious reason is it's a convenient solution to a problem we all have - we hate paying for car insurance, but we're complacent and don't know any better. Some of us are even intimidated by the complexity of car insurance.

I’ve been writing about insurance for years and I’m still learning each day, so don't worry if you don't have all the answers. We can show you how to can save on car insurance or the right questions to ask your car insurance broker. It’s why I wrote another post: Making sense of your auto insurance application. It literally breaks it all down so you understand all the acronyms on your policy, and the costs associated with each coverage type to understand what you’re actually buying.

But, this could be why 51% of Canadians don’t like to shop around and compare. They say it’s time-consuming and that they won’t get a better deal. This is a lazy narrative that can cost you. It takes less than 5 minute to compare car insurance quotes online and there’s no obligation to buy. So if it's so easy, why do only 35% of Canadians compare car insurance rates every year.

We're loyal and lazy to a fault and what the average consumer doesn't realize is that the insurance companies know it and hope it happens. What consumers need to know is that car insurance companies change rates all the time - sometimes even quarterly. They are constantly adjusting their pricing to balance their book of business and offset any incurred claims costs. This is why a lot of Canadians face policy increases upon renewal for reasons that have nothing to do with their driving, but rather it is all to do with their current provider's risk tolerance. Always remember, no two insurance companies will rate you completely the same and their rating calculations are always changing. So, just because one insurance company is best for you today, doesn't mean they will still be your best option a year from now.

Even though 65% of Canadians claim to be happy with their rate, and only 31% are unhappy with what they're currently paying, if you’re auto-renewing, how can you be sure you’re still paying the best rate? A policy review is a complimentary service offered by your insurance company, at the very minimum you should be reviewing your policy annually with your insurer to make sure you have the right coverage in place. CAA has even recently stepped up to push this narrative further with their Review Before You Renew program.

Getting the right insurance at the best price

According to our survey, 76% of Canadians are confident they have the right insurance coverage in place. They are not over, nor are they underinsured. As for the rest of our over 1,300 respondents in the survey, 14% don’t feel confident they have the right coverage and 9% don’t know. 

It’s possible to feel confident that you have the right insurance coverage because you’ve never made a claim. But, for those 76% of Canadians, be sure to understand your coverage gaps. 

• Do you want a rental car if yours ends up in the shop? Make sure to have OPCF20 added to your policy. It’s an add-on, not a default. 
• Do you live in an area with a high-rate of vehicle theft? Without comprehensive coverage (another add-on), your insurance company won’t help you. 
• If you’re in an accident, where you’re at fault, your insurance company only covers you if you have collision insurance on your policy. 

The basic, standard, and mandated car insurance on its own does more to help pay for your liability to other people and their vehicles and provides medical support after an accident. With collision and comprehensive insurance (additional coverage you can optionally purchase) you get the protection for your vehicle itself. 

Seek clarity with your insurance agent or broker. Ask questions like, “What happens if…” and see what you get. What insurance coverage don’t you have? Understand your coverage, if you don’t, it could cost you thousands of dollars. 

Another interesting finding from our survey was that 23% of Canadians stayed with the car insurance company that their parents are with. It’s likely this may have been for convenience versus best coverage and rate. You can and should choose better with your finances. Better rates equals better sleep. 

The bottom line 

When does your insurance renew? Set a reminder on your phone to check auto insurance quotes online every year. If it renews within 60 days, compare quotes now. Remember, 5 minutes could mean big savings, and if not, at least you know you’re getting the best rate. 

Read more:

• How car insurance rates are calculated
• The best car insurance companies in Canada
• How to get a car insurance discount by driving less
• 2021 Insurance Digital Money Trends