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Breaking Down How to Calculate Car Insurance Premiums

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.

Discounts

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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In the age of physical distancing, staying connected may be more important than ever before. Especially for youth. For parents, knowing when and how to check in with kids and adolescents about online safety and digital wellness isn’t always easy, but there are several ways families can work together to surf safely, stay connected and protect mental health.

69% of Canadians between ages 13-24 say the pandemic has had a negative or very negative impact on their mental health, according to a 2020 poll conducted by One Youth and UNICEF.1

86% are concerned about maintaining relationships with friends and loved ones.

The internet can offer young people places to learn, play and interact with friends; but for youth, it can also raise issues about body image, self-harm, cyberbullying and poor sleep. It’s important to note that screen time may have mental health drawbacks of its own.

Write some code

Coming up with a code of clear expectations for online activity may be helpful for both parents and kids navigating a new, virtual reality. For younger children, rules could be as simple as “No devices at dinner” or “Parental supervision required.” For older kids and teens on social media, parents may want to put limits in place to protect personal information, passwords and photos.

P.S. Boundaries can be good for everyone. When your 12-year-old begs you to take down that silly video of her first dance recital, it might be time to listen. Looking for ideas for your family’s online safety rules? The Canadian Safety Council has examples to help you.

Know the signs of cyberbullying

Chat features on games and social media can help kids find friends—and sometimes, bullies. One-fifth of bullying now occurs through social media, according to data collected between 2018-2020.2

If your child becomes secretive about their internet activity, deletes accounts or avoids using once-beloved devices altogether, there could be something happening online. Letting your child know they can talk to you—judgment-free—about their social (media) life could be a great way to start.

Develop a digital dialogue

Socializing on a screen isn’t quite the same as hanging out with old friends at school. Familiarizing yourself with the games, services and apps your child is enjoying can clue you in on what media they’re consuming, which privacy controls are in place and how they communicate. Keep tabs on where and with whom your child is spending time online. Ask questions. Show an interest. Learn the lingo. It may even help you bond. A mom might score major points for knowing the difference between a Creeper and a Cave Spider in Minecraft.

Put devices to bed early

Turning out the (blue) light before bed to listen to some relaxing music, read a book, or a guided meditation might be a better way than gaming to wind down. If your kiddo is too cool for ocean sounds and yoga, consider a pair of blue-light-blocking glasses or an app to keep that circadian rhythm on the beat.

Why? Playing just one more round of “Candy Crush” before lights out might be fun for kids (and grownups), but it could impact the duration and quality of sleep.3

Get in some real face time

With school, work and social lives largely relegated to screens, young people (and parents!) may benefit from a little face-to-face interaction. After living the quarantine life, you and your child might feel like you’ve had enough time together, but sitting down for a family meal, grabbing a cup of coffee, engaging in some endorphin-boosting athletics or walking the family dog can be great ways to get intentional about unplugging and checking in with each other.

Make help available

Growing up isn’t always easy. During a pandemic, children and adolescents may face a unique set of challenges. Notice any sudden changes in mood or behavior, appetite or sleep? It may be time to talk with your child about professional support. Arming them with a list of youth-friendly resources, such as these from RBC Future Launch, may remind them that help is out there if they need it.

In Canada, nearly 100 percent of youth aged 15 to 24 use the internet or their smartphone daily, according to a 2019 report from Statistics Canada. With so much of life being lived online, it may be more important now than ever for children and parents to stay connected, talk about digital wellness and prioritize mental health.

Warning signs that you should seek professional psychological help

According to the Mental Health Commission of Canada, “Unlike other health conditions, only one in three people who experience a mental health problem or illness report that they have sought and received services and treatment.”

According to MentalHealth.gov, pay attention if you experience:

  • Sleeping too little or too much
  • Withdrawing from your usual social outlets or relationships
  • Feeling listless, numb, helpless or hopeless
  • An increase in smoking, drinking or taking drugs
  • Mood swings, irritability or uncontrolled anger
  • Anxiety or depression
  • Urges to self-harm
  • Inability to perform daily tasks
Sources:
1. Impacts of the COVID-19 Pandemic on Young People in Canada. U-REPORT CANADA. Unicef Canada and One Youth. May 2020.
2. Cyberbullying facts and statistics for 2020. Comparitech Limited. November 11, 2020.
3. Blue light has a dark side. Harvard Health Publishing, Harvard Medical School. July 7, 2020.

 

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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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Everybody knows about the importance of physical hygiene—wash your hands, brush your teeth, shower often, comb your hair, and so on. But not much discussion is given to mental health hygiene: the knowledge and skills required to maintain mental well-being. According to the Mental Health Commission of Canada, mental health is:

A state of well-being in which the individual realizes his or her own potential, can cope with the normal stresses of life, can work productively and fruitfully, and is able to make a contribution to her or his own community.

Mental self-care is important

If you want to live your best life, you need to tend to your emotional, psychological and social well-being. “In order to meet the demands of life, you need to be able to use your brain to the best of your capacity in the present moment. This will allow you to make good decisions and respond appropriately to stressors, instead of reacting with your fight-or-flight response,” says Marie Claire Bourque, MD, psychiatrist and clinical assistant professor, University of Calgary.

Be proactive about your mental health

According to the Canadian Community Health Survey, one-third of the Canadian population (approximately 9.1 million people) will be affected by a mental illness at some point during their lives. Don’t wait until you have symptoms before taking the first step. Experts recommend four practices to help protect your mental well-being.

1. Practice mindfulness

Studies show that the practice of mindfulness can be effective in reducing anxiety, depression and stress. Mindfulness is a kind of meditation whereby you become completely present—not focused on the past or the future. “Mindfulness is a state of being. You can be mindful when cooking, walking, brushing your teeth. It is, very simply, a state of complete awareness of the present moment without judgment,” says Dr. Bourque.

Mindfulness tips from the professionals:

  • Take a moment to stop and notice with all five senses what is going on around you.
  • Close your eyes and focus on your breath. If thoughts come, simply notice, and then bring your awareness back to the breath.
  • Sit or lie comfortably and mentally scan your body. Focus on what each part is feeling. If one part feels tense, relax the muscle.
  • Walk outside in nature and tune into the sights, sounds and smells.
2. Exercise

If you want to ward off the blues or reduce stress and anxiety, exercise should be at the top of your list. One study in the International Journal of Psychiatry showed that exercise “compares favorably to antidepressant medications as a first-line treatment for mild to moderate depression and has also been shown to improve depressive symptoms when used as an adjunct to medications.”

Why? Anxiety Canada points out that getting your heart pumping releases those feel-good endorphins, boosts your self-confidence, promotes being social, lowers stress, helps you sleep better and improves your physical health.

You don’t have to be a fitness expert to reap the exercise rewards. Try these, say the experts:

  • Exercise doesn’t have to be 30 consecutive minutes. You can take five or 10- minute breaks throughout the day to get your heart rate up.
  • Dance, go for a walk or bike ride, or practice yoga to a video or a Zoom class.
  • Get creative. Walk around while talking on the phone. Take the stairs instead of the elevator. Bike to run errands. Toss a frisbee with your dog.
3. Express gratitude

“When you express gratitude, your brain rewards you by releasing feel -good neurotransmitters dopamine, and serotonin, and a little of the hormone oxytocin,” says Dr. Bourque.

How can you do this?

  • Journal daily about all the things in your life you appreciate.
  • Create a family dinner ritual in which each member expresses one thing they are grateful for.
  • Express thanks to other people. For example, if you see a waitress or postal worker who is running ragged, say, “Thanks for working so hard.”
  • If you meditate, end every session by thinking of what you are grateful for and sit with that for a few minutes.
  • Post the word “gratitude” somewhere in your house or office; whenever you see it, take a moment to think about it.
4. Sleep well

This may be the most critical part of all, says Dr. Bourque. Your brain cannot function properly without adequate sleep. Just as your body needs to rest after physical exertion, your brain needs sleep to recover and process the day’s events. Need more convincing? Recommendations from sleep hygiene experts:

  • Don’t fall for the hype. There is a tendency these days for people to brag about how little they sleep, to prove how hard they work. The thing is, according to the National Sleep Foundation (NSF), getting adequate sleep makes you more productive, not less. It may prevent burnout, help you recover faster from distractions, enable you to make better decisions, and bolster your memory.
  • Avoid caffeine and alcohol in the hours before bedtime. The NSF notes that it takes six hours for your body to process half the caffeine you took in. And contrary to general perception, alcohol may actually disrupt sleep.
  • Turn off your screens close to bedtime. The bright lights interrupt your natural circadian rhythm by signaling to your body that it’s time to be awake.
  • Create a bedtime routine and stick to it.
  • Bedtime is an excellent time to practice your mindfulness techniques.
  • If you have severe sleep issues, see a sleep medicine physician.

Disclaimer: Experts caution not to begin a new exercise regimen without first consulting your doctor or a health professional; this piece represents general advice.

Warning signs that you should seek professional psychological help

According to the Mental Health Commission of Canada, “Unlike other health conditions, only one in three people who experience a mental health problem or illness report that they have sought and received services and treatment.”

According to MentalHealth.gov, pay attention if you experience:

  • Sleeping too little or too much
  • Withdrawing from your usual social outlets or relationships
  • Feeling listless, numb, helpless or hopeless
  • An increase in smoking, drinking or taking drugs
  • Mood swings, irritability or uncontrolled anger
  • Anxiety or depression
  • Urges to self-harm
  • Inability to perform daily tasks

RBC Disability Insurance

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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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In the early days of the pandemic, Leah took part in countless virtual events to make up for her once-busy social life. Whether it was a fitness class, a book club, a dinner party or a games night, she logged on to video calls with friends and family to socialize as much as she could. But after working from home on her laptop all day, she finds her constant screen time less rewarding. Now she feels stressed about committing to virtual events outside of work.

“It makes me anxious to spend more time on my phone or laptop,” she said. “I feel like I’m completely absorbed online. I know so many people are going through such a hard time right now,” she says. “But I know I’ve been minimizing how I feel for a while now.”

Increased screen time and mental health

The blurred lines of work-life balance mean many people are spending more hours a day alone, online, and inside. Increased screen time may have an adverse effect on mental health — particularly during the COVID-19 pandemic. Decreasing screen time or maintaining pre-pandemic levels may help maintain mental health according to a Statistics Canada study from July.

Even those who have managed to pick up new self-care activities during the first wave of the pandemic may find it increasingly difficult to stay mentally healthy. For Leah, a non-stop virtual social schedule meant she was sacrificing many of the things important for maintaining her mental health and well-being.

“I started to realize that it was the simple things that brought me the most joy,” she said.

Acknowledgment is the first step

It may sound like a simple thing, but acknowledging that there might be a problem with your own, or a loved one’s, mental health may be an important first step towards improvement.

When Leah started to realize the toll of a her virtual social life and increased screen time on her mental health, she took her first step by reaching out to a friend by phone as opposed to on a video call.

“Sometimes I just can’t bear to look at the screen — even if it’s to talk with a friend.” She adds they sometimes talk about their moods if either of them is having a hard day, which helps lift some of the stigma surrounding mental health.

“It’s helpful to know that everyone is going through this in one way or another,” she says. “Sometimes just talking about it can make a huge difference. I also found it made a difference to be out in nature and talk to someone.”

Learning more about mental well-being

Mental health struggles and loneliness can affect anyone. It’s normal to have good days and bad days, but prolonged periods of stress, anxiety, or feeling isolated could mean it’s time to focus on your or a loved one’s mental well-being.

Learning about mental health can help build a foundation for better mental well-being. There are also a number of ways to get help for yourself or a loved one, including through digital wellness programs and virtual counselling services.

Warning signs that you should seek professional psychological help

According to the Mental Health Commission of Canada, “Unlike other health conditions, only one in three people who experience a mental health problem or illness report that they have sought and received services and treatment.”

According to MentalHealth.gov, pay attention if you experience:

  • Sleeping too little or too much
  • Withdrawing from your usual social outlets or relationships
  • Feeling listless, numb, helpless or hopeless
  • An increase in smoking, drinking or taking drugs
  • Mood swings, irritability or uncontrolled anger
  • Anxiety or depression
  • Urges to self-harm
  • Inability to perform daily tasks

 

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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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Insurance claims infographic

Insurance is something that you buy and hope that you never have to use. Unfortunately, if the unexpected does happen and you need your insurance, you want to get your claim processed as quick and easy as possible. We’re here to help you understand some essentials around insurance claims. You may be surprised to know that getting your claim paid starts when you buy your insurance.

Ask Questions

The old adage “there’s no such thing as a stupid question” couldn’t be truer for insurance and the claims process – and it starts right at the beginning.

When applying for insurance, an advisor will help explain your coverage but it’s important for you to ask all the questions you need to be confident you understand what your policy will or will not include. This is crucial for future claims – you don’t want to be in a situation where you think you are covered but you’re not. The language in insurance policies can be complex but your advisor can break it down for you. Asking a lot of questions upfront helps avoid confusion later on.

No Rushing Required

During the initial insurance application process, take all the time you need to complete it and remember to be as open as possible. For certain types of insurance like life or disability, there’ll be questions, related to medical history that will need exact details. If you need to confirm them, let the advisor know and they’ll be happy to give you time to do so.

Making sure your information is accurate during the initial application will help make sure your coverage is appropriate – and that can help make your claims experience that much easier. If the information provided is inaccurate, it could affect your claim being paid when you need it most – and that’s something nobody wants.

Get Back to Normal

Making an insurance claim means something bad has happened and it can be a difficult time. You want to know that your insurance company has your back and following the tips above can make the process more manageable and help get you back to normal again.

Insurance Claim Essentials

Ask Questions

When applying for insurance, ask all the questions you need to be confident you understand what your coverage does and does not include.

No Rushing Required

Take your time during the insurance application process. If you need to confirm exact details, do that first before giving your answer.

Applying for Coverage

The application and quote process is the most important part in determining the payment of future claims. If the information provided is inaccurate, it could affect your claim being paid.

Get Back to Normal

These steps during the initial insurance application are important for making future claims a smoother process. The process might still be stressful – we’re here to help make it more manageable, reduce hassle, and get you back to normal again.

We’ll help you get it. RBC Insurance

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We make it easy to find expert advice, money-saving tips, and a range of insurance options for every moment of life.

*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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Some people are surprised to find out that insurance is not ‘one size fits all’. From coverage for your life or your paycheck to your home or car, insurance can be customized so that it makes sense for you and your family.

If you’re thinking about getting insurance, you want to be confident that you’re getting what’s right for you. Here are some ideas how.

Where Do I Start?

Before picking up the phone or turning on your computer you should ask yourself a few things. “What do I want to protect? Do I know which type of insurance would help? Do I understand enough about that insurance to make a decision”, and if not then “how can I get more information?” Speaking to a licensed insurance advisor can be a good first step to help when you’re buying insurance. They can help to answer questions you may have and they are also able to provide helpful recommendations based on what they learn about you and your needs during your discussions.

Insurance Questions To Prepare For

Your advisor has the opportunity to get to know you throughout your discussion. You’ll probably get some expected questions such as:

  • Do you own your home, or rent a condo or apartment?
  • How many cars do you have and do you drive to work?
  • Do you have snow tires for your car?

Then there are other questions that may seem a bit more personal but they really help to uncover exactly what your insurance needs are:

  • Who or what are you looking to protect?
  • Do you work outdoors, in a physical job like construction, or in an office?
  • Do you have insurance coverage from your work?
  • Do you have any health concerns?

These questions and subsequent discussions are all a part of getting to know you better to understand your needs so that you get the right insurance policy for you and your family.

Don’t Forget – You’re In Control

When you receive recommendations from your advisor, remember that they’re exactly that – recommendations. You can say yes or you can say no. Make sure that you are confident that you are purchasing what makes sense for you – no one knows what’s right for you more than you do.

Most importantly, you can always change your insurance down the line. Your life is constantly changing – it has a funny way of doing that – and you may need to re-visit your policies in the future.

You’re unique. Your insurance should be too. We’ll help you get it.

RBC Insurance

We make it easy to find expert advice, money-saving tips, and a range of insurance options for every moment of life.

*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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Most people all have times when they need to adjust their budgets and look for areas where they can trim spending, but which items can be removed or reduced? If you’re reviewing your budget, you might start to consider whether or not your insurance premiums are worth the cost. You may be asking yourself — are those monthly life, disability and renter’s insurance premiums really necessary?

The truth is, your insurance premiums are in a different category than your other recurring monthly bills. That’s because they aren’t buying you a tangible item, like an iPhone, a meal from UberEats, or a service like Netflix or Spotify. Instead, your premiums are paying for insurance coverage that’s helping to protect your money — whether it’s your future income or the cost of replacing your possessions from the impact of unlikely, but financially devastating events. This is why you should think twice before dropping insurance coverage from your budget.

Why Spend Money On Insurance Premiums?

The protection insurance provides can be an important part of your overall financial plan and security. For example, if your family relies on your income to pay bills and save towards future goals, life would change dramatically if your income suddenly disappeared. That might be because you get badly injured or become very ill and can no longer work, or — in the worst-case scenario — if you pass away unexpectedly.

So while it may seem like you aren’t “getting anything” in exchange for paying your monthly insurance premiums, what you are in fact doing is transferring the cost of a potential loss to your insurance company. This way, if an unforeseen event disrupts your life and threatens your finances, the payment from your insurance claim can help offset its effects.

What’s The Chance You’ll Need Your Insurance Coverage?

Incidents requiring insurance protection happen more often than one may think. For example, based on a report from the Council for Disability Awareness, the average 20-year-old has a greater than 25 per cent chance of becoming disabled before they retire. And the Canadian Red Cross says that home fires are one of the most common emergencies faced by Canadians.

At times people may choose to manage the financial loss themselves, but that may not be a possible option. Insurance can help provide coverage in case of a sudden and unexpected loss, damage, illness, injury or death. While people don’t want to think about negative things happening to them, it’s important to ask yourself if you’re prepared to manage a loss financially if something does go wrong.

So Where Does Insurance Fit In Your Budget?

Insurance is an important tool to have because it can help you mitigate a potential financial loss due to an unexpected event. Here are some steps to help you determine how insurance can continue to fit into your budget.

Step one: Highlight each insurance premium separately when reviewing your budget.

Step two: Write down the coverage amounts those premiums are paying for. You should be aware that there might be ways to trim the cost of your insurance, without cutting it out of your budget entirely.

  • For example, with disability insurance, you could increase the waiting period before your policy pays out if you become disabled, which may lower the cost of your monthly insurance payments.
  • For life insurance, you could check to see if you have the right amount of insurance — is there an opportunity to reduce the death benefit amount while still being covered for your family’s needs?
  • With renter’s insurance you control the dollar amount you are covered for and the deductible you choose to pay, should something happen.
  • For car insurance, with the exception of a leased or financed vehicle, you can choose whether you have coverage for loss or damage to your own vehicle or if you’re only covered for the mandatory third-party liability.

Step three: Prioritize which changes you are comfortable making based on what makes sense for your current situation. Remember you can always discuss this with a licensed insurance advisor and have them review your policy with you to see what changes can be made to help with your payment amounts.

All in all, insurance should be a part of the plans you make for your finances, beyond your day-to-day budget. That means you should understand what you’re getting in exchange for your monthly premium payments, and you should feel confident you have the coverage that’s right for you.

An RBC Insurance advisor can help you understand what kinds and amounts of insurance are right for you — and how to fit them into your overall budget.

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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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Car Insurance Disability Insurance Financial Planning Health Insurance Home Insurance Life Insurance Managing Money

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