When it comes to motorcycle insurance, many motorcycle owners have questions about how their policy premium is calculated and if they have to cancel their policy in the fall and start a new one in the spring.
The good news is, your policy premium is only calculated based on the riding season, so you just leave your policy in force all year round and you can focus on riding instead of your insurance. If you’ve sold your motorcycle and aren’t replacing it, then you can cancel your policy, and the the remaining portion of the policy you owe will be based on the riding season.
Below we have some detailed information about how your premium is earned, and why it’s beneficial to maintain continuous motorcycle insurance.
Like any other kind of vehicle insurance, motorcycle insurance policies are for a one-year period, but the bulk of the costs are assigned to the prime period for riding a motorcycle. To help keep your costs under control, the company allows you to pay monthly installments towards the full policy premium, and spread your payments over the entire year. How much of your policy is “earned” or used up is calculated based on a seasonal table and subjected to a minimum retained premium that usually ranges from $25 to $100 depending on your insurance company.
As an example, let’s say that you start a policy on March 1st that costs $200 per month for the entire year. If you were to pay the policy to its completion, you would pay the insurance company $2,400. But many people decide to cancel their policies by the end of September to avoid paying for insurance when they are not riding.
The premium for your motorcycle insurance policy is earned or “used up” by a different percentage each month, based on the riding season. Most policies earn no premium in January, February, November, and December; therefore, the full premium of the policy is earned from March to the end of October.
For example, if you started your policy on March 1st and decide to cancel on September 30th, you would have earned 95% of the total policy premium. Instead of paying $2,400 for 12 months of coverage, you would pay $2,280 for seven months of coverage. Cancelling your policy at that time would only save you $120 for the year over keeping your policy in force, and you would miss out on having continuous insurance discounts next year. Additionally, if your motorcycle were to be damaged from fire, or stolen while in storage, you wouldn’t be covered.
While every insurance company will rate you based on your years licensed and your riding record, some companies will offer you continuous insurance discounts. For example, Echelon will offer you a 5% discount for being continuously insured for 3-4 years, and 10% if you are continuously insured for 5 or more. Cancelling your policy after the riding season means you no longer have continuous insurance, and would not be eligible for a continuous insurance discount.
For each new motorcycle insurance policy, there may be start-up fees that can add up over the years. In some cases, high-value motorcycles or motorcycles that are 10 years old or older may require full appraisals before a policy will be approved. Combining these costs with the potential of lost discounts for continuous insurance can result in you paying more than if you just kept your policy in force.
If you have comprehensive coverage on your motorcycle, keeping your policy inforce will ensure that you’re covered if something happens to your motorcycle while it’s in storage. A common misconception about home insurance is that it will cover everything in your garage. While home insurance does cover most of your personal property it will specifically exclude vehicles. So if something happens such as a fire, or a tree falls on your home, any damage to your motorcycle will not be covered by your home policy. As such, if you don’t have comprehensive coverage, and something happens to damage your motorcycle while in storage, you will have to pay for it out of pocket.
The insurance companies calculate how much they have to charge for your annual policy term based on the entire riding season. Consequently, you pay less for the year than if they calculated your total premium based on the risks associated with the summer months. Keeping your policy inforce after the riding season doesn’t cost you anything extra, vs. only having it inforce during the riding season. A year round policy provides the added benefit of continuous insurance, and, with comprehensive coverage, if anything happens to your motorcycle, you are covered.
Calculating the total policy premium based on the seasonal use isn’t limited to motorcycles; it’s also used for snowmobile policies. With a snowmobile policy, your premium is earned during the winter months, and during the summer months you don’t earn any premium. This allows the insurance companies to price your policy based on the risks associated with a seasonal vehicle, rather than charging you for the risks incurred during the winter all year round.
As your broker, we want to ensure that you not only have great coverage at a great price; we also want to make sure that you understand your policy, and all the options available to you. We can go beyond providing you a great rate with great coverage for motorcycle insurance, looking at your total insurance package. This can provide you with multi-line discounts and access to all the top insurance companies for home and auto as well.
Feel free to give us a call if you have any questions about how your motorcycle insurance policy works, or if you’d like to save money on all your other insurance.
Want to add to this story? Let us know in comments below! Mitchell & Whale is a fast-growing insurance brokerage in Ontario, striving to make insurance _not suck_ one customer at a time. Give us a call today to discuss any of your insurance needs at 1.800.731.2228.