The Complete Auto Insurance Guide

For most Canadians, a vehicle is a necessity. But things won’t be perfect once you are sitting behind the wheel. Something is going to go wrong sooner or later. Whether you are just learning to drive, commute daily, or just enjoy an occasional weekend drive in a classic, you won’t be driving with peace of mind if you don’t carry auto insurance. Your life, the lives of your passengers, and the lives of fellow users of the road are in your hands.

Our experts share details on the types of auto insurance available in Canada, the coverage that is mandatory and which is optional.

Most of us don’t relish shopping for insurance or paying for it. But you’ll be glad you performed your due diligence if you’re ever involved in an accident.

Today, our Car Digest Wizards offer a primer on the different types of auto insurance, what the law requires regarding auto insurance, and how to get the right coverage.

The Basics of Car Insurance

No matter where you live in Canada, car insurance is mandated by law. You are prohibited from driving without it. Driving without insurance is a serious offence punished by a hefty fine and/or suspension of your license. Moreover, you can’t obtain a vehicle registration unless you provide proof of insurance.

Auto insurance covers you, fellow occupants of your vehicle, and any pedestrians involved in an accident with the vehicle. The main user of the vehicle is the principal driver, with any other listed drivers regarded as additional or occasional drivers. Coverage may also be provided for damage to the vehicle.

Although basic auto insurance varies from province to province, it always includes two main types of mandatory coverage.

• Accident benefits. Accident benefits provide medical payments, replacement of income, and other benefits to help you recuperate if you’re injured in a car accident. Coverage may also help pay for funeral expenses and provide payments to survivors if you die in an accident. These benefits are sometimes described as no-fault benefits; i.e., your insurance provider pays them to you regardless of who was at fault in the accident. Coverage for accident benefits is mandatory in all provinces but Labrador and Newfoundland. In some parts of Canada, this coverage is known as Section B coverage.
• Third-party liability. Since most drivers lack the money to pay for the losses that they may cause while driving, provincial governments also require you to carry a certain amount of third-party liability coverage for losses you may inflict on others. In most provinces, in certain circumstances the innocent party in an accident has the right to sue the at-fault driver for additional damages and costs that are not covered by accident benefits.

If you are successfully sued for anything beyond the liability limit in your insurance policy, you must pay the balance of the settlement out of your own pocket. Be sure to contact your insurance provider or representative for more information about your policy limits.

Although the minimum coverage required to legally operate a vehicle varies from province to province, most provinces require at least $200,000 in third-party liability coverage. If you are responsible for an accident in which others were injured, the minimum third-party liability coverage may be inadequate. You will be responsible for any damages awarded beyond the minimum amount.

You must pay a monthly or annual insurance premium to protect yourself from financial losses associated with road accidents and auto theft. To set the premium for insuring your vehicle, insurance providers consider factors like the following:

• Where you live. Expect to pay a higher premium if you live in an urban area where collisions and auto theft are more likely.
• What car you drive. The make, model, value, year, and potential repair costs of your vehicle are associated with different levels of risk. For example, some car models cope better than others in an accident, resulting in less damage to the car and fewer injuries. When estimating the risks associated with your car and the severity of potential claims, your insurance provider may seek guidance from the Canadian Loss Experience Automobile Rating (CLEAR) system of rating vehicles.
• What you use the car for. Generally, the more often you drive your car, the higher the risk of collision. Driving your car frequently or for long distances may mean higher premiums. Consider how you use your vehicle to make sure that you obtain the right insurance coverage. If you regularly attend events, often drive across the border, or are the designated driver for school children, be sure to disclose these activities to your insurance representative.
• Your driving record. A driving history with zero collisions or at-fault accidents may entitle you to lower premiums; having many traffic violations on your driving record will probably mean higher premiums. Speeding tickets and other moving violations may also increase your premiums. But premiums won’t be affected by parking tickets.
• Your coverage. The more comprehensive your auto insurance is, the higher the premium is likely to be.
• Your driver profile. Depending on the province you live in, your insurance provider may consider the claims history of the demographic group of drivers you belong to—those of the same age, gender, or marital status, or who have the same driving experience. You may pay higher premiums if you fall into a category, such as the category of teenagers, whose members are more likely to make a claim.

There’s no one-size-fits-all approach to calculating insurance premiums. Not all 40-year-olds who live in urban areas and drive Hondas pay the same premium. But you can lower your premium by making informed decisions, like taking a defensive driving course or installing anti-theft devices. In general, the less expensive your vehicle is to repair and the harder it is to steal, the less you will pay for insurance. We will consider how you may further reduce your premium in the last section of this article.

What Is Auto Insurance?

Auto insurance is a contract between a car owner and the insurance provider. The policyholder agrees to pay the premium and the insurance provider agrees to pay for the losses stipulated in the policy.

You must declare both the principal driver and all drivers in your household on your application for the insurance. Any licensed driver using your car with your approval is covered by your auto insurance policy. Your auto policy goes with your car. If you lend your car, you are also lending your insurance. So don’t lend your car lightly. If the person using it causes an accident, the accident will go on your own driving record, and your premiums may increase.

Your auto insurance policy covers the driver, passengers, and anyone else involved in an accident with your car. Depending on its terms, the policy may also cover the car itself. An auto policy usually does not cover purses, briefcases, smartphones, sporting equipment, or other items in your car that are damaged in a collision or that are stolen from the vehicle. Your insurance representative can provide details about any coverage for the contents of your car.

Insurance pays only for the losses that are stipulated in your contract. It’s important to read the fine print of your policy and discuss what you’re covered for and what is excluded from coverage with your insurance representative. Insurance won’t pay for every problem that you encounter.

Types of Car Insurance Coverage

A basic automobile insurance policy includes five different kinds of coverage, each of which is priced separately.

Collision

Collision coverage pays for damage to your car that results from a collision with another vehicle or with a stationary object, e.g., a tree or a guardrail. This coverage may also pay for damage caused by potholes. Collision coverage is optional in all provinces except Saskatchewan and Manitoba. It is sometimes referred to as Section C coverage.

Insurers generally sell collision coverage with a deductible, which is the amount that you must pay out of pocket if you make a claim. Even if you’re at fault for an accident, collision coverage will pay for the cost of repairing the vehicle, minus the deductible. Ask your insurance agent how your premium will be affected if you choose a lower deductible or a higher deductible. There may also be a specific deductible requirement for a financed or leased vehicle.

Comprehensive

Vandals can break into your garage and damage your car. Strong winds can hurl debris that damages your truck. Comprehensive coverage insures against loss or damage to your car resulting from all perils except collision, upset of the vehicle (tipping or turning over of the vehicle), and damage to the vehicle or theft of it by a member of your household or someone who repairs your car. Typically covered perils include theft, fires, vandalism, windstorms, hail, floods, riots, explosions, earthquakes, and flying or falling objects. Your car is insured against these perils even when it’s parked and unattended.

Like collision coverage, comprehensive coverage is optional in every province except Saskatchewan and Manitoba, and it is usually sold with a deductible. Lenders may insist that you provide proof of comprehensive coverage if you are taking out a loan to pay for a car.

Liability

Third-party liability insurance helps cover the cost of repairs or lawsuits against you if you are responsible for an accident in which someone else is injured or killed, or in which their vehicle or property is damaged. Coverage may be for bodily injury liability, property damage liability, or both. Your insurance provider will cover these costs up to your coverage limit. In Canada, the mandatory minimum amount of liability coverage is $200,000, but most drivers choose at least $1 million.

Personal Injury Protection

If you’re involved in a car accident, personal injury protection (PIP) or no-fault insurance can help pay medical expenses for you and your injured passengers. Coverage is provided no matter who is at fault for the accident. Personal injury protection covers:

• Medical expenses. In addition to covering the medical bills for you and your passengers, PIP coverage may also cover your health insurance deductible.
• Work loss. Personal injury protection can cover your lost wages if you are forced out of work after an accident.
• Funeral expenses. PIP coverage may pay for burial, funeral, or cremation expenses after an accident.
• Essential services. PIP insurance may pay for the services you would have performed if you had not been injured, like house cleaning and child care.

Uninsured/Underinsured Motorist

Uninsured motorist coverage protects you if injury or death is caused by a driver who doesn’t carry auto insurance coverage. You’re also insured against an accident caused by a hit-and-run driver. Underinsured motorist coverage protects you if you’re involved in an accident for which the at-fault driver lacks adequate coverage.

Insurance companies also provide optional insurance policies or endorsements, which include these types of coverage:

• Loss of use coverage pays for alternative transportation or for a rental car while your primary car is being repaired.
• Emergency road service pays for any roadside assistance or towing needed to get your car to a garage.
• Collision forgiveness protection keeps your premium from increasing if you suffer your first at-fault collision.
• Depreciation waiver coverage ensures that you’re reimbursed for the full market value of your car without any discount for depreciation.

Is Car Insurance Required?

Yes. Canadian law mandates that all drivers, no matter which province they live in, carry auto insurance. Although the rules that govern car insurance differ in different provinces, driving on Canadian roads without insurance is an offence punished by heavy fines and suspension of your driver’s license. You can obtain a vehicle registration only after providing proof of insurance.

Getting the Right Coverage for the Right Price

Getting the right coverage for the right price starts with comparing different carriers and insurance quotes. Read every detail of your insurance quotes and pay attention to limits and deductibles. Here’s how to get the right coverage for the right price.

Bundling discounts

Most insurance providers mention discounts in their policies. But they might not offer these discounts to you unless you ask for them. Car insurance discounts are a good way to lower your monthly premiums, so always ask your insurer for any discounts that you are eligible for. Bundling discounts is quite common among insurance providers. Your insurer reduces the amount of your insurance premium when you buy your auto insurance and home insurance in a single bundle.

Start by getting a quote for your auto insurance from the same company that insures your home. If that company provides both kinds of insurance, you may save money by purchasing both from it.

High deductibles mean lower premiums

The deductible is the amount of money that your insurer requires you to pay out of pocket when you make a claim. Choosing a higher deductible reduces your premium, since the insurer then has a lower burden if you file a claim.

On the other hand, accepting a higher deductible also means accepting a higher financial risk. So be careful not to choose a deductible so high that you would have trouble paying it if you are in an accident. Always choose your deductible in light of your financial ability. Speaking with your insurance representative will help you understand how your deductible is applied.

Monthly billing versus annual billing

How you pay your insurance premium also affects your insurance rates. Some providers will give you a discount for paying the annual premium for your policy up front. A monthly billing option may be better if you think you will need to terminate coverage with your insurer before the end of a full year.