The Ultimate Guide to Collision Insurance in Canada

By Arthur Dubois | Published on 15 Aug 2023

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    If you own a car in Canada, you must have the right car insurance coverage to protect yourself financially in case of an accident. One type of coverage worth considering is collision insurance. In this ultimate guide, we’ll explore everything you need to know about collision insurance in Canada.

    Understanding Collision Insurance

    Collision insurance pays for the damage to your vehicle if you are involved in a collision, regardless of who is at fault. Whether it’s a fender bender or a full-on crash, collision insurance can help cover the costs of repairs or even the replacement of your vehicle.

    But why is collision insurance important? Well, let’s imagine a scenario. You’re driving down the road, minding your own business, when suddenly, another car swerves into your lane and crashes into the side of your vehicle. The damage is extensive, and you can’t drive your car. Without collision insurance, you’ll have a hefty repair bill or the burden of purchasing a new vehicle.

    A standard or basic car insurance policy does not include collision insurance. In most provinces, a mandatory insurance policy has third-party liability, accident benefits, Direct Compensation Property Damage and uninsured driver insurance. A basic car insurance policy typically does not cover you for collision damage.

    Now that we understand the basics of collision insurance let’s take a closer look at how it works.

    How Does Collision Insurance Work?

    When an accident occurs, you’ll need to file a claim with your insurance company to receive compensation for the damages. Filing a claim involves contacting your insurance provider and providing them with all the necessary information, such as the date, time, and location of the accident, as well as any relevant photos or documentation.

    Once you file a claim, an adjuster from the insurance company will assess the damage to your vehicle and determine the cost of repairs or replacement. They will also consider the deductible amount specified in your policy, which you must pay out of pocket before your collision insurance coverage kicks in.

    If the accident was your fault, your collision insurance will cover the repairs or replacement of your vehicle up to the policy’s limit. The insurance coverage means you won’t have to bear the financial burden of fixing or replacing your car entirely alone. However, it’s important to note that collision insurance does not cover any injuries or damages to other people or property involved in the accident. For that, you would need liability insurance, a separate coverage type.

    So, why would someone choose collision insurance if it doesn’t cover injuries or damages to others? Well, for many people, their vehicle is a significant investment. They rely on it for daily transportation, and the cost of repairs or replacement can be substantial. Collision insurance provides peace of mind and financial protection in an accident.

    Furthermore, collision insurance is usually required if you have a car loan or lease. Lenders and leasing companies want to protect their investments, so borrowers must have collision insurance as part of their loan or lease agreement.

    Why Do You Need Collision Insurance in Canada

    Accidents can happen to even the most careful drivers. It only takes a split second for a collision to occur, leaving you with a damaged vehicle and potentially hefty repair costs. Covering repair bills is where collision insurance comes into play.

    Collision insurance provides peace of mind, knowing you won’t have to bear the financial burden of repairing or replacing your vehicle if an accident occurs. It’s a way to protect your investment and ensure you can get back on the road as quickly as possible.

    Suppose you’re driving on a busy highway, following the rules of the road and being cautious. Suddenly, the car in front of you slams on its brakes, leaving you no time to react. Your vehicle collides with theirs, causing significant damage to both vehicles. With collision insurance, you would be able to find the funds to cover the repairs.

    Not having collision insurance can be a risky decision. You never know when an accident might happen, and the costs of repairing or replacing your vehicle can be financially devastating. It’s not just the cost of the repairs that you have to worry about; other expenses, such as towing, storage, and rental car fees, can quickly add up.

    Furthermore, if you have a loan or lease on your vehicle, your lender will likely require you to have collision insurance as part of your loan or lease agreement. This is because the lender wants to protect their investment as well. They want to ensure that they can still recoup their money if an accident occurs and your vehicle is damaged or totalled.

    What is the difference between Collision Insurance and Comprehensive Insurance?

    While collision insurance covers damage to your vehicle resulting from accidents, comprehensive insurance covers damage caused by events other than collisions, such as theft, vandalism, or natural disasters. It’s important to note that collision and comprehensive insurance policies are separate and can be purchased individually or as part of a comprehensive coverage policy.

    One key difference between collision and comprehensive insurance is the types of incidents they cover. Collision insurance focuses solely on accidents, whether a collision with another vehicle, an object or the ground. On the other hand, comprehensive insurance covers a broader range of incidents that can cause damage to your car.

    Both collision and comprehensive insurance provide financial protection for your vehicle. Depending on the source and extent of the damage, each can help cover the cost of repairs or replacement. Additionally, both types of insurance can be added to your car insurance policy as optional coverages, allowing you to customize your coverage based on your needs.

    Costs Associated with Collision Insurance

    Now that you understand the importance of collision insurance let’s delve into the costs associated with this coverage. Several factors can impact the cost of collision insurance. These include your driving record, the make and model of your vehicle, your location, and even your age. Insurance companies assess these factors to determine your level of risk and calculate your premium accordingly.

    Currently, the average cost of car insurance in Ontario ranges from $1400-$1733 per year. Drivers in densely populated areas with a high collision rate usually pay more than drivers in smaller cities and towns.

    The price of collision insurance ranges between $100-$1,000 yearly. Factors besides location that influence the cost are your claims record, vehicle type, and deductible. If you want to add comprehensive insurance to your existing car insurance policy, you can expect to pay about $100-$300 annually.

    Tips to Lower Your Collision Insurance Premiums

    If you’re looking for ways to reduce the cost of your collision insurance, here are some tips that may help:

    1. Consider increasing your deductible: You can often lower your premium by raising your deductible. Make sure you choose a deductible amount you can comfortably afford in case of an accident.
    2. Bundle your insurance policies: Many insurance companies offer discounts if you bundle your auto insurance with other policies, such as homeowners or renters insurance.
    3. Installing items to enhance the safety of your vehicle, like winter tires or anti-theft devices, can lower your premium.
    4. Reducing the amount you drive can lower the cost of your insurance. Insuring your car for higher mileage usually results in a higher premium.
    5. Adding telematics to your car to monitor speed, braking, and other driving habits may reduce your insurance premium.
    6. Ask your insurer if they offer discounts for memberships or affiliations. Some insurers may offer lower premiums if you are a graduate of a certain academic institution or a professional association member.
    7. Shop around for the best rates: Comparing car insurance quotes from multiple insurance providers can help you find the most competitive rates for collision coverage.

    How to Claim Collision Insurance in Canada

    If you are involved in an accident and need to file a collision insurance claim, here’s a step-by-step guide to help you through the process.

    Step-by-Step Guide to Filing a Claim

    1. Notify your insurance company about the accident immediately. They will guide you through the following steps.

    2. Provide necessary information: You’ll need to provide information about the accident, such as the date, time, location, and a description of what happened. It is helpful to have the other driver’s information, such as their name, vehicle, license plate number, insurance company and policy number. The insurer will need to know how many people were involved in the incident, including the number of passengers and if there were any injuries. If police are involved, your insurer may want a copy of the report. You should get the name and badge number of the officer attending the accident. In Ontario, a police report is not required if the damage is under $2,000.

    3. A claims adjuster will contact you to get more information. They review the details to determine how much compensation you may be eligible to receive. You might need to fill out and submit a Proof of Loss form.

    4. Get an estimate: Your insurance company will likely require an appraisal from a reputable repair shop to determine the cost of the damages. Sometimes, your insurer may recommend auto shops that you can consider.

    5. Pay your deductible: If the claim is approved, the insurance company will pay the bill for the repairs less your deductible. If your repairs are $5,000 and your deductible is $500, the insurer will pay $4500. Each insurer has its process for paying claims. It’s best to check with your insurance provider to find out how they will reimburse you for the cost of repairs.

    What to Do If Your Claim is Denied

    In some cases, the insurance company may deny your claim. If this happens, don’t panic. You can contact your insurance company to discuss the reasons for the denial and explore any possible solutions. You can also seek legal advice to understand your options and rights if needed.

    Collision Insurance in Canada: The Bottom Line

    Collision insurance is a crucial component of your overall car insurance coverage in Canada. By understanding what it is, why it’s important, and how it works, you can make informed decisions to protect yourself and your vehicle on the road. Remember to compare quotes, assess your needs, and consult an insurance professional to ensure you have the right coverage. Drive safely and confidently, knowing you’re prepared for whatever the road may bring.

    FAQs About Collision Insurance in Canada

    What is collision insurance?

    Collision insurance is a form of auto insurance that covers the costs associated with damage to your vehicle incurred in a collision. This type of coverage comes into play if your car is damaged due to contact with another vehicle, hitting a stationary object, such as a tree, pole, or guardrail, or if it rolls over. Unlike liability insurance, which pays for damages you may cause to others, collision insurance focuses on the damages sustained by your vehicle. The purpose is to reimburse the policyholder for repair or replacement costs minus any deductible chosen for the policy. It’s worth noting that this coverage is optional in Canada and is often purchased with comprehensive insurance, which covers non-collision-related damages like theft or natural disasters.

    Do I need collision insurance?

    Whether you need collision insurance depends on several factors. The lender usually requires this coverage if your vehicle is leased or financed. For older vehicles that have significantly depreciated, you might decide it’s not cost-effective. Consider the value of your car, the potential repair costs, and your ability to pay out-of-pocket for repairs or a replacement when deciding.

    Do collision claims affect my car insurance premiums?

    Yes, making a collision claim can affect your car insurance premiums. In Canada, if you’re at fault for an accident, it’s more likely that your rates will increase at your next renewal. However, each insurance provider has its policies, and the impact can vary. Some providers offer accident forgiveness programs that might prevent a rate increase after your first at-fault collision.

    Do I need collision insurance on an old car?

    The decision to carry collision insurance on an old car largely depends on the vehicle’s current value and your financial situation. If your car has significantly depreciated, the potential payout from a collision claim, minus the deductible, may not justify the premium costs. Additionally, if you can cover out-of-pocket expenses for repairs or replace the vehicle without financial strain, you might decide to forego collision coverage. However, if repairs or a replacement pose a financial burden, maintaining collision insurance could be prudent.

    Do I need both comprehensive and collision insurance?

    Both comprehensive and collision insurances serve different purposes. Comprehensive covers non-collision-related damages such as theft, vandalism, or natural events, while collision covers damages from accidents. Whether you need both types of coverage depends on your vehicle’s value, where you live, how frequently you drive, and your risk tolerance. You might opt for both for a newer or high-value car, especially one financed or leased, to ensure complete protection. However, you may only need one type of coverage or neither for an older vehicle or one of lesser value.

    Does collision insurance cover the other car in an accident?

    No, collision insurance only covers damages to your vehicle resulting from an accident, regardless of fault. It does not cover damages to the other party’s vehicle. To cover the other car’s damages in an at-fault accident, you’d rely on your liability coverage, which is mandatory in Canada.

    How long do collision claims affect my insurance premiums?

    An at-fault collision claim in Canada can impact your insurance premiums for several years, typically 6 to 10 years, depending on the insurance provider and the province. It will stay on your driving record for six years, but your insurer may go back ten years when calculating your premiums. The exact duration and extent of the impact can vary based on factors such as the severity of the claim, your overall driving record, and your insurance provider’s policies. Some insurers offer accident forgiveness for the first at-fault accident, which can mitigate premium increases.

    How much does collision insurance cost in Canada?

    The price of collision insurance ranges between $100-$1,000 yearly. Some factors influencing the cost are your location, claims record, vehicle type, and deductible.

    Is collision insurance mandatory in Ontario?

    No, collision insurance is not mandatory in Ontario. However, third-party liability coverage with a minimum limit of $200,000 is mandatory. While collision insurance is optional, if you have a car loan or lease, your lender or lessor may require you to have collision coverage to protect their financial interest in the vehicle.

    What happens if you don’t have collision insurance and hit another car?

    If you don’t have collision insurance and hit another car, your mandatory third-party liability coverage in Ontario will cover the damages to the other vehicle up to your policy limits if you are at fault. However, without collision coverage, any damages to your car would need to be paid out-of-pocket. If the other driver is at fault, their insurance would typically cover the damages to your vehicle.

    When does it make sense to take collision off my car insurance policy?

    Removing collision coverage from your car insurance policy can make sense when the cost of the coverage, combined with your chosen deductible, approaches or exceeds the value of your vehicle. As vehicles age and depreciate, there might come a point where the potential payout from a collision claim doesn’t justify the added premium costs. Before deciding, it’s crucial to consider the current value of your car, your ability to pay for repairs or replacement out-of-pocket, and your personal risk tolerance. If you can comfortably absorb the costs associated with potential damages, then it might be financially sensible to drop collision coverage. However, always consult with your insurance advisor before making such decisions.

    Arthur Dubois is a personal finance writer at Hardbacon. Since relocating to Canada, he has successfully built his credit score from scratch and begun investing in the stock market. In addition to his work at Hardbacon, Arthur has contributed to Metro newspaper and several other publications