In Canada, the reality of moving to a new province means cancelling your current insurance policy and purchasing a new one in whatever province you now call home. Each province has their own laws governing car insurance, so it is necessary to get a new policy when you move…and this can come with some unexpected headaches and fees.
With the changes that have come recently to the workplace, and the increasing reality of working remotely, there is plenty of news around these days of Torontonians and other big city dwellers packing up their cars and leaving the city, with many even deciding to head to the coasts on a new life adventure or just to return to their hometowns.
Moving to a new province can be an exciting opportunity, but it’s important to remember all those little details that can easily be overlooked until it’s too late, such as what the implications are for your car insurance policy.
Why do I have to cancel my current policy when moving to a new province?
“I ain’t gonna pay it!”
So a friend of mine recently exclaimed shortly after learning that he would have to pay a cancellation fee on his existing Ontario car insurance policy before purchasing a separate policy from the same company in his new home province of Nova Scotia.
First of all, let’s be clear that any cancellation fee you pay when you move to another province in Canada is charged by your insurance company, not your broker. It applies to any policy that is canceled before the end of the policy’s term.
When you purchase an insurance policy you are essentially buying one year of coverage and then financing it over a full year. So when you cancel halfway through that term it is unlikely that your payments are balanced with the number of days you have actually used. This has to be reconciled. The insurance company also has a right to add on a small cancellation fee to account for administrative costs related to your policy.
This is understandably frustrating when, like my friend, you wish to use the same company in your new province. But there is a very good reason for this:
The Ontario Automobile Policy (or OAP1)
In Ontario, auto insurance is regulated such that all insurance companies sell the same product. That product is called the ‘Ontario Automobile Policy- OAP1’. So the insurance companies that operate in Ontario are licenced to sell only a policy that is specific to Ontario and is not valid or offered to people outside of Ontario.
So even though you would like to keep the same company, you are not able to keep the same policy, for the simple reason that the Ontario Automobile Policy is only licenced to be sold in Ontario to Ontario residents.
It would be like wanting to keep your OHIP in a different province. Both are insurance policies that are specific to Ontario, the only difference being that auto insurance is sold by private companies in most provinces and not the government.
Reminder: B.C., Saskatchewan and Manitoba have a public insurance scheme in which the government is the exclusive seller of car insurance, but the same rules apply.
How much is the cancellation fee? Shouldn’t I be getting a refund?
If you paid your yearly premium upfront and in full, then yes, you will get a refund if you cancel your policy halfway through the term. But you will still be paying some sort of cancellation fee in order to compensate the insurance company for costs they have incurred.
If, on the other hand, you do as most people do and pay that premium through monthly installments, then the calculations get a little more complex depending on how many installments have been paid, how early you canceled your policy, and how many days into a month the cancellation occurs. This can sometimes result in you owing more money.
Pro-rata short-rate cancellations
You will only get what is called a “pro-rata” cancellation, which refunds you the full amount of your unused portion of your premium, if the company itself decides, for whatever reason, to cancel the policy.
But when it is you who is canceling the policy early, a short-rate cancellation table is the standard way in Ontario of calculating the outstanding amount. A short-rate calculation means you are not entitled to a refund proportionate to the coverage period left in that term, as the company will retain a certain amount of the refund as a penalty.
The reason: As you might imagine, the average cost of insurance and administration is higher for policies priced over a shorter amount of time. The main reason for this is that most administration costs are upfront for the insurance company, but they spread that cost over the full year term.
So when you cancel a policy early the company has a right to impose a penalty to make up for the portion of those administration costs that have not yet been paid. As an example of how they calculate this amount, here is a slimmed down version of a short-rate table insurance companies might use:
|Days policy in force
|% of premium retained
As you can see, the earlier you cancel the policy the larger the proportion of the premium the insurance company will retain. Even though 10 days in you have only used about 3% of your policy, they will retain 10% of the yearly premium. This disparity lessens as the policy’s term comes closer to its end date.
Keep in mind, every company uses its own unique short-rate table. Some companies start as high as 25% from day one. While others might add on other charges. Before you move, check with your insurance company as to what these charges and fees will mean to your wallet, as they vary from company to company.
Remember to bridge the gap!
Make sure there is no lag time between policies. You don’t want to be driving in your new home province without coverage. And keep in mind that a gap in your coverage history can affect your overall rating and increase your premiums.
How long can I drive out of province on my current policy?
If you are taking up residence in another province, you have a certain grace period in which to change your insurance and registration. This grace period is determined province to province. In Ontario it is 30 days, but can be as high as 90 days in others. Check with your local registry agent and insurance broker to find out how long you have.
If, on the other hand, you are merely spending the summer months on the coast in order to take advantage of your ability to work remotely, and are not intending to reside their permanently, this should cause no problems for your current Ontario insurance policy. You will still be covered, and there’s no need to change your policy.
Just keep in mind that if that temporary working vacation involves you using your car more on a daily basis because you’ve decided to work even more “remotely” than usual, you should notify your insurance company, as your premiums are partly calculated on how much you use your car and what you use it for.
Does my insurance experience move along with me?
Yes. Wherever you move within Canada and the United States you will not have to pay the rates of a new driver. But there are a couple of things you should do before you move:
- Request a “Letter of Experience” from your current insurance company. This will provide information about your insurance history, such as:
- Total time insured
- Any previous policy cancellations
- All claims filed against the policy
- Obtain a copy of your “Driver’s Abstract” from Service Ontario. This provides information about your driving history, such as:
- Any conditions or restrictions imposed on you
- Driver education courses completed
- All prior convictions and demerit points
- Any replacements, renewals, and class changes
- Due dates for medical exams, especially for commercial drivers
These are both easier to get while you are still living in Ontario. So think ahead, and don’t let your new adventure be ruined by these unexpected details!
Moving to Ontario? Let us help get you settled…
If you’re coming this way to Ontario, let us give you a hand getting settled in our beautiful province by helping you bridge that gap and get the car insurance that’s right for you precisely when you need it…