How insurance premiums are calculated

If crystal balls worked, no one would need insurance. The insurance industry exists largely because of life’s uncertainties. Setting aside random luck, there are some factors that allow insurers to assess your level of risk.

The case of cars
It would be easy if we could just ask each insurance policyholder to assess their level of risk on a scale of one to ten. But people often claim to be better drivers than they actually are, especially when they know that their premium will be directly affected. So, in the absence of this information, insurers rely on a wide range of variables to estimate the difference in potential risk from one policyholder to another.

Why premiums vary
The value of your vehicle is a key factor that influences your insurance premium. For example, in the event of a total loss or theft, a luxury car is more expensive to replace. Another major factor to consider is the type of vehicle: motorcycles, snowmobiles, recreational vehicles, etc., all have their own risk profile and claim-related costs.

Age and driving experience are also important variables. Someone who has never had an accident will be compared to a policyholder with a similar profile to determine how much he or she should pay.

Finally, there’s the level of coverage. You get what you pay for! Some people want to be protected against all risks, regardless of cost, while others with tighter budgets or greater tolerance for risk prefer more pared down coverage. That’s why it’ so important for an insurer to offer a wide variety of products.

The special case of Quebec
On average, Quebecers pay less for their private car insurance than residents in other Canadian provinces. This is because the Société d'assurance automobile du Québec (SAAQ) compensates for bodily injury in case of an accident. Since this protection is included in the price of a driver’s license and plates, Quebecers don’t have to purchase it from private insurance companies.
This is not true for all provinces. In Ontario, for example, if you are responsible for an accident, any injured party can claim various damages (medical expenses, lost wages, etc.) that can quickly add up to millions of dollars. Consequently, insurance premiums are much higher there than in Quebec, where insurers only cover property damage. It costs less to replace crumpled metal than to heal someone’s wounds!

Home insurance: the more you protect yourself, the less you pay
When it comes to home insurance, the risks are different. The main perils to consider are fire, water damage, theft, wind, and hail, among others.

There are several safety precautions, such as a sophisticated alarm linked to a monitoring centre or, in the event of sewer backup, an automatic water shutoff system, which can earn you discounts on your home insurance premium. As a general rule, the more you invest in protection, the less your insurance premium will cost.

Home maintenance is also a significant factor. It is to your advantage to keep your roof in top shape and conduct all the maintenance work that helps to protect the physical integrity of your dwelling.

Of course, a good way to reduce your premium is to raise your deductible. You will receive less compensation for small claims, but you will enjoy good protection for a better price in the case of a major incident.

Be informed!
Unlike car insurance, home insurance is not a legally mandatory. However, it is typically required by most financial institutions in order to obtain a mortgage. Even if you lose everything, you still have to continue to make your mortgage payments!

Too few people take the time to learn more about the type and extent of the coverage they carry. For example, earthquake protection is rarely included in basic home insurance policies. While Quebec is not as active of an earthquake zone as British Columbia, it’s still the second most active seismic region in Canada.

Some people have a tendency to overlook civil liability, which affords protection against the cost of claims by third parties. If a passer-by injures him or herself in front of your home because you forgot to remove the snow from your entrance, the injured person can sue you for negligence and claim hefty damages. It’s best to be equipped for such eventualities that are so hard to predict.