Ask Adam: Auto insurance myths

Every industry has its usual suspects of associated myths, and the insurance industry is no different—especially when it comes to auto insurance. Our brokers regularly come across the same misconceptions about auto insurance coverage and regulations, mostly regarding how accidents and tickets can affect your insurance premiums in Ontario. In this installment of Ask Adam, Adam addresses some of the most common myths.

Auto insurance myths

1. Auto insurance is cheaper if you sign up when the weather is warm
2. If I’m injured in a collision, all my expenses are paid for by OHIP
3. Tickets and accidents only stay on your record for 3 years
4. The basic $200,000 in liability coverage is all the auto insurance you need
5. If you get a parking ticket, your insurance rates can go up
6. If you’re involved in a car accident, but don’t file a claim, your insurance premiums will stay the same
7. If your friend drives your car and causes an accident, it won’t affect your insurance rates
8. Loyalty discounts will offset any savings you might see by shopping around
9. Auto insurance companies can charge whatever they want

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Reality: There’s a misconception out there that insurance is cheaper in the summer, or insurance companies compete more fiercely for your business in the summer, when people are buying more cars and houses. In reality, there’s no seasonal pricing for insurance. All of Ontario’s auto insurance companies are regulated by Financial Service Commission of Ontario (FSCO). They apply to FSCO to get their rates approved, and the rates they ask for are approved or denied, and often they’re told to decrease rates.

Reality: So that’s another myth. Your medical expenses for the most part are paid for by OHIP; basic medical care, but your insurer pays for a number of things including income replacement, rehabilitation, physiotherapy, and other accident benefits— all of which add up pretty quickly.

Reality: That’s a myth. There are two records: your insurance history that includes a record of accidents, and a separate record of your tickets. Your tickets are kept in your Motor Vehicle Record, for only three years after conviction. Past that, those tickets fall off, and nobody can see any incident of them, and insurance companies can’t rate for them.

Accidents, on the other hand, stay with you for life, so you’ll forever be able to look up if you had an accident 5 years ago 10 years ago and so on and insurance companies rate differently for them. Some insurers have a 0-6 star rating system on how many years you’ve been accidents free, but there are some companies that go up to 10 and 20 years now, and you will progressively get a cheaper rate for every year accident free.

Reality: I don’t know if this is so much a myth as a best practice. Because technically all you legally need is the $200,000 liability coverage. Practically everybody in the industry will agree that $200,000 is not enough coverage for modern-day lawsuits and expenses. It is strongly recommended that you take at least 2 million dollars liability coverage, but the bare minimum you might consider is 1 million. There is usually a small difference in premium between the 1 million dollar coverage vs. the 2 million dollar coverage, often less than $10 a month, for piece of mind.

Reality: Having a parking ticket will not affect your insurance rates. But all moving violations will affect your auto insurance.

Reality: This is like if a tree in the forest falls, does it makes a sound. If your insurance company never finds out about an accident, technically the policy is not likely to go up. However, your insurance company can find out about an accident from somebody else reporting it, such as the police or some other third party. You’re obliged to tell your insurance company or broker about your accidents.

Reality: This one is a sometimes yes, sometimes no. The scenario where a friend borrows your car and it doesn’t affect your insurance is when they have insurance and they report it to their insurance company. An accident can only be rated for and charged once, so two insurance companies can’t charge the same person for the same accident. So if your friend owns up to it and tells their insurance company and they pay the higher rate, your policy will stay as if you didn’t have an accident. If your friend doesn’t own up to it or doesn’t have insurance, then you’ll lend your insurance when you lend your car; they’ll go hand-in-hand and it’ll affect you.

No, just because you have a loyalty discount, it doesn’t necessarily mean you can’t still save by shopping around. Each company has a different rate of applying loyalty discounts. There’s no one-size-fits-all answer here; you want to talk to your broker to find out how competitive your company is, and how much of your life situation has changed from when you initially signed up for that policy.

Reality: This is a pretty fun myth. Insurance companies cannot charge whatever they feel like. They’re governed and regulated by FSCO. Auto insurers need to open their books and all their finances to the government when they’re applying for rates increases and those rates have to be accepted. They’re capped in profit, so they can’t just have giant profit margins that are unregulated. So no, they can’t just charge whatever they want, it’s not a free market.

Note: The information above is for general purposes and does not constitute legal advice. Be sure to talk to your broker if you have more specific questions about insurance, and especially if you need answers that are specific to your circumstances.

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