Watson Lake! Holy crow, that's up in Yukon Territory!
No, I would not recommend going up there. In fact, I would not recommend even going as far north as Prince George. There are two reasons for this:
1) Anywhere north of Highway 1 in British Columbia is what we in Canada refer to as a "sparsely settled area". By that I mean there is very little population, and few services. What services there are tend to be expensive (fuel, accomodation, etc.).
By way of example, I once elected to drive from Vancouver to Kamloops via Highway 99, and I was really surprised at how little settlement there was along that route - it was like driving in the middle of nowhere. Note that this route was only about 5% as far north (above the Trans-Canada highway) as the route to Prince George & Watson Lake.
In addition, almost all of the towns & villages on Highway 97 are there because the economy of the community is based on resource extraction (mining, logging, etc.). They are not particularly pretty, nor do they offer much of interest to a visitor. I've driven the Highway 97 to as far north as Prince George, and have no desire to do it again. It's a long boring trek. Seriously - anywhere north of Kamloops on Highway 97 makes rural Montana look heavily populated.
2) This is the really big reason to go no further north than Highway 1 or Highway 16: All of the really beautiful scenery, all the spectacular national parks, etc. will be found along Highway 1 & Highway 16. If you go north to Prince George and/or Watson Lake, you're going to miss all the really good stuff unless you do a lot of backtracking. When I say "A lot", I mean a lot - the one-way distance from Kamloops (where you would leave civilization to go north) to Watson Lake is 1,200 miles - the same distance as Miami to New York City!
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I suggest you route Vancouver to Lake Louise via Highway 1, then head north on Highway 93 (the Icefields Parkway) to Jasper, then pick up Highway 16 (the Yellowhead Route) at Jasper and follow it to Manitoba. That will take you through the best scenery British Columbia has to offer, through two spectacular national parks (Banff & Jasper), up the Icefields Parkway (a must-do if you are in Western Canada), and then across the northern part of the Prairie provinces, which is a bit more interesting than the southern route (the Trans-Canada). It will also keep you out of places like the segment from Prince George to Watson Lake, where it is not uncommon to only see one vehicle per hour travelling in the opposite direction.
Lastly, if you follow the route I proposed in the paragraph above, you will have no difficulty finding hotel or motel accommodation along the way - though be warned, it can be expensive in the National Parks during the period June 15 - August 30. Once you leave Jasper heading east on Highway 16, every small town has a motel, and you will have lots of lodging choices in any community with a population above about 25,000 people.
Michael
PS: When you contact Progressive for the insurance, tell them you will be travelling in Canada. They will then send you a Canadian-specification insurance certificate (a 'pink slip'). You would be covered without it, but having the appropriate Canadian-spec certificate will avoid problems if a cop ever stops you and asks to see your documents. FYI, all insurance companies in Canada issue the exact same certificate, which is why the cops are used to seeing pink slips.
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