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Breaking Down How to Calculate Car Insurance Premiums

By Amanda Reaume • Published May 17, 2021 • 5 Min Read

Whether you're renewing or getting a new quote, here are important components that go into calculating your premium that we want to help you understand.

Ever wonder how car insurance rates are calculated? It’s time to open up the hood and find out!

While every car insurance company takes similar factors into account when calculating how much to charge, you will find that premiums can vary. Factors range from things you have control over, like your driving history, to things that are calculated based on demographic and statistical risks, like your age, postal code, and vehicle type.

Claims Costs

A number of factors have led to an increase in auto insurance premiums. The costs of claims have been going up in recent years as the price tag to repair cars equipped with the latest technologies has increased. The increase in severe weather has also played a role in cost increases, with more ice storms, floods, hailstorms, and other natural events damaging cars. Another key factor is the rise in people making fraudulent claims — something which increases the cost of insurance for everyone.

Where you live

Many people don’t realize that how much they pay may be affected by their postal code. Your insurer uses where you live to estimate risk based on things like how frequently cars are stolen in your area, how often people make claims, or how many accidents occur near you.

Vehicle type

Your vehicle’s make, model and year have a significant impact on your car insurance premiums. These factors are important for multiple reasons:

  • If you get coverage that protects your vehicle from theft – which is included in comprehensive coverage, the risk of your car being stolen is calculated based on how often cars of the same make (brand) are stolen.
  • Your insurer will look at the model of your car to see how often accidents happen to cars of the same type.
  • The age of your car is important because it impacts how much it will cost to repair or replace your car should you get into an accident.

Vehicle use

Another factor that can affect your insurance rates is how many kilometers you drive and whether you use your car to commute or for pleasure or business use. If you drive your car only for pleasure and keep your driving beneath a certain kilometer threshold, you may be charged a lower premium. If you drive less, or at less busy times, you’re statistically less likely to get into an accident.

Vehicle drivers

The number of drivers listed on your car insurance matters if they hold different types of licenses, for example a driver with their beginner’s license and someone with their full license. Some insurers may give you a lower rate if everyone who drives your car has had a license for at least 10 years with no accidents or driving convictions. Having a driver on the policy with very little driving experience will usually increase the rates because it adds risk.

Coverage types

There is mandatory coverage required with car insurance, such as third-party liability and accident benefits, which provide coverage if you get into an accident that causes personal or property damage. Other types of coverages are often optional like collision and comprehensive coverage, emergency roadside assistance and family protection. Ultimately the coverage you buy should reflect the condition of your vehicle and your needs, so a vehicle that’s 15 years or older and worth maybe $600 on a good day may only need the mandatory third-party liability coverage, and you might choose to forego getting full coverage for theft and/or collision damage for your vehicle. It’s safe to say that the more coverage you have, the higher your premiums will be.

Deductible amount

A deductible is how much you pay versus how much your insurance company pays if your claim is approved. If you choose a higher deductible option, you are taking on more risk because you have opted to pay a larger amount of money if something happens. Opting for a higher deductible may result in a lower premium. If you get insurance with a $1,000 deductible, you may pay less than if you get insurance with a $250 deductible.

Driving record

Another key factor in determining how much you pay for insurance is your driving record. Insurance rates are calculated based on how likely you are to get into an accident based on your driving history. If you had an accident, or if you have a lot of speeding tickets, your insurance company likely will rate you as a higher accident risk and price that risk into your rate. Having a clean driving record for a number of years after you have an accident may reduce your premiums.

Driver’s training

Driver’s training is designed to help you learn the rules of the road and how to drive safely. Newly licensed drivers who have completed a driver training course through a recognized institution may be eligible for rate savings.


A major factor in your car insurance rate is whether you qualify for any discounts. You may get discounts if you use snow tires, have a green or eco-friendly car, are part of an employee group insurance plan, or use an anti-theft device.

It’s important to understand your car insurance and the coverage it includes as well as the factors that go into calculating the premium you will pay. Knowing what affects your coverage can help you compare quotes and get the best policy for your needs. An RBC Insurance advisor can help you do that. Call 1-877-749-7224 or get a quote for your car online.

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*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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