Suppose a tree falls on your car, you’re the victim in a hit-and-run incident, or you hit someone’s car, and the person sues you for damages. Suppose your car gets stolen or damaged by weather. What would you do?
If you are at fault in an accident that causes property damage or bodily injury to others, you would have to pay for damages and their treatment. How would you cover all these expenses? Here’s where auto insurance comes in.
Auto insurance helps you pay for repairs to your car and treatment for your injury, provides liability coverage, and covers the treatment of others involved in the accident. So whether you are buying your first car or already own one, you need to purchase auto insurance.
Choosing the right auto insurance for your car can protect you and your loved ones wherever the journey takes you. This article will walk you through all you need to know about auto insurance, from what it covers to how you can get competitive rates.
Understanding how auto insurance works can help ensure that you have the right coverage and avoid surprises if something should happen to your car. Read on to learn more.
What Is Auto Insurance, and How Does It Work?
Auto insurance, also called car insurance, is an agreement (contract) between you and an insurance company. The insurance company provides financial protection from collision-related expenses outlined in your policy.
As with other insurance like life insurance and rental insurance, you pay monthly or annual premiums. The insurance company promises to cover the cost of injuries for yourself or others, vehicle repairs, and other types of property damage.
To drive a car in Canada, you must have auto insurance. When your vehicle is damaged, stolen, or involved in an accident with another driver, you can make an insurance claim to avoid paying for the cost of damages.
Also, auto insurance follows the car and not you. Your auto insurance policy will cover the damages if a family member or friend borrows your car and is involved in an accident. The insurance company can pay you or the mechanic for the cost of repairing the car. However, your leaseholder or creditor receives the payment if your car is a lease.
Further, many auto insurance policies include deductibles. This is a portion of the claim paid by the insurer to the policyholder. The insurance company deducts this amount from your insurance claim check. The higher the deductibles you pay, the lower the premiums you will have to pay.
Why Do You Need Auto Insurance?
Auto insurance is mandatory in Canada but regulated on a provincial level. Auto insurance is required for all drivers in Canada, regardless of age or experience. Canadians who drive without valid car insurance can face hefty fines, ranging from $5,000 to $50,000. Their driver’s license can be suspended, and their vehicle impounded.
Car insurance requirement differs in provinces and territories in Canada, depending on whether it’s a private or public insurance system. British Columbia, Manitoba, and Saskatchewan operate public insurance systems where you must buy auto insurance from the government.
Ontario, Alberta, and Atlantic Canada have private insurance systems; you can get insurance quotes from multiple insurance companies. Quebec operates a hybrid system that combines public and private insurance systems. You buy injury coverage from the government and purchase property damage from any private insurer.
If you are at fault in an accident that causes bodily damage or property damage to people, you would need to cover all the expenses, including paying for legal defense if the person sues you, judgment, and settlements that could arise from the lawsuit. Car insurance takes care of all the expenses.
What Does Auto Insurance Cover?
By law, every province and territory in Canada requires drivers to have auto insurance. Car insurance offers different types of claims, including injury to yourself, damage to another person’s property, drivers, passengers, or pedestrians.
There are several coverage types. Some are mandatory by the law, and others are optional. Auto insurance companies in Canada let you customize the policy to suit your needs and budget. Here are some mandatory standard auto insurance coverage options:
Liability Insurance (Third-party liability)
Liability insurance covers losses, injuries, or death that your car causes to other people. It covers any damage your vehicle does to other cars.
Suppose you are responsible for an accident that causes bodily and property damage to other people. In that case, liability insurance covers the cost of medical treatment their insurance and covers the repairs for property damage you cause to other drivers.
Liability insurance also covers legal costs like attorney fees if someone sues you for damages after the accident. If the price of losses and damages is more than your liability limit, you will pay the balance from your pocket. The minimum in most provinces is $200,000. Most allow up to $1 million, and you can upgrade to a limit of $2 million.
Liability insurance doesn’t cover the cost of repairing your own vehicle. You need additional insurance to cover your car repairs.
Accident Benefits (Bodily injury insurance)
Accident benefits cover the cost of your medical expenses and income replacement after an accident. The coverage provides you and anyone injured from the accident with coverage for any medical and rehabilitation expenses resulting from the accident.
If you can’t work because of the accident, the accident benefit pays for the loss of income. Accident benefits coverage is optional for drivers in Newfoundland and Labrador. You automatically enroll for accident benefits in Quebec during your driver’s license registration.
Direct Compensation Property Damage (DCPD)
In some Canadian provinces, you have to deal with your insurer to repair your car and other damaged property instead of seeking compensation from the other driver’s insurer if they are at fault.
Alberta, Newfoundland and Labrador, New Brunswick, Ontario, PEI, and Quebec have a no-fault insurance system, where everyone meets their insurer to cover their repairs and not the other person’s insurers, regardless of who is at fault.
This means you only ever deal with your insurer for damages. Your insurer covers the damage to your car and its contents.
Uninsured Auto Insurance
Insurance companies offer this coverage to help you if someone damages your car and doesn’t have any or enough liability car insurance to cover the injuries or damages to your vehicle.
Uninsured auto insurance covers medical costs and damages if the other driver who is at fault does not have insurance or flees the scene and cannot be identified in the case of hit-and-runs.
Uninsured auto insurance coverage allows you receive benefits that you would legally recover from the other driver’s insurer.
Optional Auto Insurance Coverage
Many Canadians usually top up their mandatory auto coverages by adding optional coverages. Here are the most common types of optional car insurance coverage in Canada.
Collision Insurance
This type of coverage offers protection if your car is damaged from colliding with another vehicle in an accident. If your car collides with another car or a stationary object, such as a mailbox, parked car, or a tree, your collision insurance covers the cost of damages and repairs.
The plan is optional, but it is worth adding to your policy. It saves you the cost of repairs in an at-fault accident.
Comprehensive Insurance
This type of coverage offers protection from damages or loss resulting from non-driving objects. Suppose your car is damaged by weather, theft, falling trees, vandalism, or other non-driving events. In that case, comprehensive insurance gives you peace of mind knowing you’re covered.
Specified Perils
You can add extra protection to your policy for specific types of risks. You can buy additional coverage to cover specified perils like theft, hails, fire, wind, flooding, lightning, etc.
You must have them listed in your policy before making insurance claims.
All Perils
This type of optional coverage combines collision insurance and comprehensive coverage. It protects you from all risks unless they are expressly excluded from your policy.
What Does Car Insurance Not Cover?
Saying that car insurance offers full coverage is not valid. Auto insurance in Canada provides a significant amount of protection but doesn’t cover everything.
It provides coverage for most sudden and accidental damages but doesn’t cover standard required maintenance or damages that occur slowly over time.
Auto insurance doesn’t cover the following:
- Electrical breakdown in your car
- Regular wear and tear, like worn-out tires
- Maintenance problems such as faulty wipers or malfunctioning steering system
- Mechanical or engine failure
Notwithstanding, you may be able to get coverage to cover regular repairs in your car through Mechanical Breakdown Insurance (MBI) if your insurance company offers the coverage.
MBI coverage can be expensive, but it covers damages to the mechanical parts of your car, such as engine parts, new brakes, or a blown transmission.
How Do Insurance Companies Calculate Your Premiums?
An insurance premium is a set amount that you pay to your insurance company to compensate for the coverage they provide for your car. Many considerations go into calculating the amount of premiums you pay for coverage.
The premiums you pay for auto insurance are based on several factors. The way insurance companies in Canada determine your rates is unique. Each company has its unique formula to assess risk levels and calculate insurance premiums.
There are factors you can control to help reduce your insurance premiums. Focus on these and reduce how much you pay. Generally, insurance companies use the same factors when determining your insurance quotes. These factors include the following:
- The driver: As the vehicle driver, you are one of the biggest factors insurers consider. Your age, gender, and marital status are significant factors. For example, new drivers under age 25 tend to pay higher premiums because they have a higher risk of getting into accidents. Also, male drivers are considered a higher risk, which is factored onto premiums.
- Location: Insurance providers use your neighborhood, postal code, and region to assess your risk level. If you live in a city, you will likely pay higher premiums than those in rural areas. Insurers look at the accident rates and claim occurrences, theft, and fraud in your current location to determine your risk level.
- Vehicle: Your car model, brand, features, and year are also considered when determining your rates. Expensive cars are more likely to be stolen and also costly to repair. So they have higher premiums.
- Insurance company: The insurance company you buy coverage from directly affects your rates. It is advisable to shop around and compare auto insurance quotes before purchasing auto insurance. If your insurance policy is up for renewal, get quotes, compare options, and choose the one that meets your needs and budget.
- Driving history and habits: How long do you commute with your car? The more you drive, the higher your rates. Also, how long you have been licensed as a driver, when you completed driver’s training school, and tickets are all considered when determining your rates.
- Your coverage needs: the type of coverage you apply for, limits, and endorsements will determine your premiums. If you opt for a comprehensive plan customized to your needs with endorsements, you will pay more premiums than basic plans.
Also, while there are factors that influence your premiums, there are factors that many Canadians believe can affect rates but don’t. They include your car color, parking tickets, employment history, and housing type.
How To Make Auto Insurance Claims
An insurance claim is simply making a record of the event that damaged your car, which the insurance company can verify. You need to make a claim for your insurance company to cover the cost of injuries and property damages after an accident.
Your insurer covers the cost of the damages once you file your claim and it is verified. For most insurance companies in Canada, you can make claims online or using the insurance company’s app.
When you initiate an insurance claim after an accident, the insurance company asks you a few questions to get details of the accident. They may ask:
- Contact information of the other drivers and witnesses
- Whether any injuries required treatment
- The license plate numbers and descriptions of the other cars involved in the accident
- Photos that describe the accident scene and any damage
- Names and details of the responding law enforcement officers
You will have to work with an insurance adjusted during the claims process. An insurance adjuster determines who is at fault after an accident and decides how much you will be paid for damages. If your claim is successful, you will get your payout to cover the cost of your injuries and damages.
Final Thoughts on Auto Insurance
Car insurance is a significant expense and a legal requirement in Canada. It is an unavoidable cost of having and driving cars in Canada.
You cannot compare the price you pay for auto insurance in Canada to what you will face without it.
To make the most of car insurance, evaluate your coverage needs, go for coverages you need, and understand those you don’t need or need less of. Always do your research before deciding which auto insurance policy to buy.
FAQs on Auto Insurance
Does your location impact your car insurance quote?
Yes. Where you live has a significant impact on your car insurance quote. Insurance companies use it as one of the leading variables to assess and determine how much you’ll pay.
What is no-fault car insurance?
With no-fault car insurance, you deal with your insurance company in case of a claim. Your insurance provider compensates you for your claim whether you are at fault or not. All Canadian provinces and territories have some form of no-fault insurance in place.
Is it illegal to drive without car insurance?
In Canada, you cannot drive without valid auto insurance. While it is not a criminal offense, if you are caught behind with wheel of a vehicle that is not insured, you will face severe fines and penalties.