Do you find the nuances of auto insurance a bit confusing? You’re not alone.
Choosing the right coverage and limits can be daunting. You may opt for the minimum coverage required in your province and the lowest deductibles you can afford, but that might leave you underinsured.
To be certain you have the right insurance coverage, consider how much insurance you need to protect your assets and cover your potential liabilities.
Here’s a helpful guide to take the mystery out of auto insurance and help you rise to the challenge.
No fault versus tort
There are two different forms of auto insurance in Canada: no fault and tort (at fault).
No-fault regimes
No-fault laws don’t always protect you from being sued, but they do place restrictions on when you could be sued. Manitoba and Saskatchewan maintain the right to sue for economic losses in excess of no-fault benefits. By contrast, Quebec has a pure no-fault system and forbids suing for collisions involving bodily harm.
Lawsuits happen less often in Canada than they do in the United States, as injuries or damages must pass a monetary or verbal threshold when most health care is provided for free. For example, the medical expenses must exceed a certain dollar figure, or the injuries must be sufficiently serious. The law still requires you to have liability insurance to cover damages if you are to blame for the accident.
Tort regimes
In a tort regime, the law assigns blame and the person deemed responsible will have to cover medical bills, damages, and potentially pain and suffering. This is the case in Alberta and Saskatchewan, which have a dual system. If you caused the accident, your insurance will pay up to the limits specified in your policy. But if the damages exceed that amount, you will be responsible for the rest. There is usually some allowance for medical coverage on a no-fault basis.
Private versus public
Most provinces and territories do not offer their own insurance programs. In Alberta, Ontario, New Brunswick, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island, you must purchase insurance from a private insurer.
British Columbia, Manitoba and Saskatchewan offer insurance through public insurance companies, while Quebec’s public regime only covers bodily injuries. You can purchase other auto insurance coverage through a private insurer.
Liability coverage
Liability auto insurance covers bodily injury and property damage sustained by third parties when the insured driver is responsible. The legal minimum varies by province.
How much liability insurance do you need? You should have higher limits if you travel often or are planning a trip to the United States or a province with a tort regime.
Liability insurance may also cover you if you are in a collision with an uninsured or underinsured driver. If you are injured in a hit-and-run, or hit by a driver with no insurance or insufficient insurance, your liability insurance will cover your losses.
Collision and comprehensive coverage
Two forms of insurance cover damage to your car: collision and comprehensive.
Collision coverage
Collision coverage pays out if your car is damaged or totaled in a collision with another object, such as a car or tree. Collision coverage usually has a deductible. It's also usually optional, although some provinces require collision coverage if your vehicle is leased or financed by a bank or lender.
Comprehensive coverage
Comprehensive insurance pays out if your car is damaged by an incident in which there was no collision. This could be a fire, theft, an act of vandalism, severe weather (windstorm, hail, water, flood or earthquake) or a random event (such as damage caused by an animal). Comprehensive insurance also has a deductible. It's usually packaged with collision insurance on newer vehicles to fully cover damage to the vehicle.
It’s well worth investing in both forms of coverage if your vehicle has a substantial value.
Accident benefits
Accident benefits are often mandatory. They cover medical and rehabilitation expenses that the government does not. This type of coverage is mandatory in no-fault provinces, where it pays out before liability insurance. It applies to the driver, passengers, pedestrians and bystanders.
However, the number of benefits, level of coverage required and damages covered vary greatly from one province to the next. Claims can be made by an insured driver, a passenger or even an injured pedestrian.
Other coverage
There are other coverage options you might want to add to your policy. These include:
- Loss of use: Covers the cost of a rental car while your car is being repaired
Your insurance broker can explain the various coverage options available and help you select what's most appropriate for your situation.
When deciding how much auto insurance you need, remember that provincial insurance requirements are not recommendations for levels of coverage. They are simply the minimum coverage required to legally operate a vehicle. If you are ever in a traffic accident, the damages are likely to be significantly higher. You’ll be glad you took the time to speak with your insurance broker.
