If you plan to get behind the wheel of a car, you better have car insurance. In Canada, it is illegal to drive without basic third-party liability insurance. You might think you are an excellent driver, but the data is not on your side. According to statistics, the average Canadian driver will be involved in at least one motor vehicle accident every 18 years. That’s almost 5 accidents in your lifetime! Are you prepared to replace another person’s vehicle or property out of your own pocket? How do you feel about being sued? Just because you have car insurance doesn’t mean you’re protected. Let’s talk about comprehensive car insurance in Canada: what it covers, what it doesn’t, and why you should have it.
What happens if you get caught without car insurance in Canada?
In Canada, if you’re caught driving without insurance you’ll be in some serious trouble. It’s not a criminal offence, so you won’t face a criminal trial or go to prison. But you will face some pretty serious repercussions that could have a long-term impact on your life. For a first offence, you could be fined up to $50,000 depending on your province or territory. Other penalties include license suspension or having your car impounded. Failing to pay your fine could even land you in jail.
Just having car insurance isn’t enough. You need to prove that you have it. If you get pulled over and you are unable to produce proof of insurance, you’ll face a fine or penalty for that too. You might get a nice cop on a good day who will give you a slap on the wrist. Or you might end up with the same cop who pulled me over. I had renewed my car insurance the day before but accidentally left the policy on my kitchen counter. Yes, I cried. No, it didn’t work. He suspended my license and gave me a fine.
Is car insurance coverage the same across Canada?
The Government of Canada only mandates that you have car insurance coverage. But the minimum coverage drivers are required to have is determined by each individual province. Therefore, the cost of car insurance and the breadth of coverage varies significantly from province to province. How car insurance is administered to drivers also varies across provinces. There are two kinds of car insurance providers in Canada:
Public Insurance: this type of insurance is provided by the provincial government, also known as a crown corporation. They monopolize the market, which means there are no other insurance companies to provide car insurance. British Columbia, Saskatchewan, and Manitoba all provide public car insurance. Quebec offers a mix of both public and private insurance options and Saskatchewan allows private insurers to offer additional coverage.
Private Insurance: this type of insurance is offered by private, for-profit insurance companies who compete with each other in the marketplace. This means drivers have more options available to them when it comes to car insurance products. Alberta, New Brunswick, Newfoundland, Nova Scotia, North West Territories, Nunavut, Ontario, Prince Edward Island, and the Yukon all have private insurance providers.
Normally, competition among private firms is good for consumers. It ensures private companies compete with each other to capture more customers by offering quality products at reasonable prices. But that’s not always the case. I paid the lowest rates for robust coverage while living in Manitoba under a public insurance system. When I lived in Alberta, it was a much different story. Under their private insurance system, my basic insurance package was significantly more expensive than the coverage I had in Manitoba. My deductible was also 3x higher. My driver’s history was clean during my time in both provinces.
What are the different types of car insurance?
The Government of Canada mandates that each driver has basic car insurance coverage. But there are several different types of car insurance policies on the market. Let’s take a look at the most common types of car insurance coverage in Canada:
Third-Party Liability Coverage
Third-Party Liability coverage is the most basic type of coverage you are required to have if you plan to get behind the wheel of a car. This type of coverage protects the policyholder from being financially responsible for damage or destruction caused to another motorist in a collision. It also protects the policyholder from being sued if they caused an injury or death with their vehicle.
This type of insurance is often coupled with third-party Liability. It protects the policyholder in collisions that do not involve other vehicles, such as striking a telephone pole or cement barrier, for example. It also protects the policyholder in the event they are involved in a collision with another driver who is not insured.
Comprehensive coverage typically combines third-party liability and collision coverage into one policy, along with some other additional coverage. This type of coverage sometimes includes damage or loss caused by a non-collision event, such as theft or damage from extreme weather.
Named Perils or All Perils
This type of coverage is optional and often used as additional coverage, commonly referred to as a “rider.” Named perils offer additional coverage for specific events explicitly named within the policy. An all-perils policy offers additional coverage for pretty much any event that would cause damage or loss. Typically, named perils are outlined within a comprehensive coverage policy and you can purchase supplementary coverage for additional perils.
Gap Insurance doesn’t cover specific damage or loss, but it still offers critical financial protection for the policyholder. In the event your vehicle is a total loss, such as theft or a collision resulting in a write-off, gap Insurance protects you financially if you owe more on the vehicle loan than its current market value.
What does comprehensive car insurance cover?
Comprehensive car insurance coverage differs significantly from province to province. However, below is a list of the most common types of perils covered within a typical comprehensive policy. Your own policy may or may not include the perils on this list. If you are unsure about your coverage, contact your insurance provider.
Theft: if your car is stolen, you sustained a total loss that did not involve another driver or object, so it is not covered under basic liability or collision coverage.
Vandalism: intentional acts of destruction such as slashed tires, broken windows, keying, spray paint, etc.
Extreme weather: such as hail, flood, fire, lightning, high winds, etc.
Natural disasters: such as an earthquake, fire, explosion and other non-weather events.
Wildlife: damage caused by wildlife such as hitting a deer or moose, regardless if the car was in motion or not.
Falling objects: like tree branches or objects thrown from overhead windows or balconies.
Civil disturbance: such as riots, protests, disgruntled NHL fans, etc.
What’s not covered by comprehensive car insurance?
Comprehensive car insurance coverage is often bundled with third-party liability coverage. On its own, it only covers damage or loss caused to your own vehicle. Generally speaking, comprehensive car insurance only covers you for events outside the context of a multi-car accident. Some limitations include:
Collision: If you collide with another motorist or pedestrian, comprehensive coverage likely will not cover you for any damage caused or sustained. That type of claim will fall under your third-party liability and/or collision coverage.
Roadside assistance: If you get a flat tire, blow a tire, break down or slide into the ditch, your comprehensive car insurance will not pay for assistance. If your vehicle incurs damage in one of those scenarios like hitting a telephone pole because you slid into the ditch, for example, that could fall under your collision coverage if you have it.
Bodily harm or disability: If you are involved in a collision that causes bodily harm, disability or death to another motorist, passenger or pedestrian, comprehensive coverage will not pay for their medical expenses or lost income. That will fall under your third-party liability coverage, which is the minimum coverage you are legally required to have.
Single car collision: If your vehicle sustains damage from a collision not involving another motorist, like striking a guardrail or median, comprehensive insurance likely won’t cover you. That will fall under collision Insurance if you have it.
Maintenance: There is no such thing as insurance that covers mechanical/electrical failures or damage from neglect. You, and you alone, are responsible for maintaining the wellbeing of your car. Also, you cannot make an insurance claim for things like faulty drivetrain, oil leaks, engine failures, etc. Unless you have warranty coverage through the vehicle manufacturer or dealership, you will need to pay for general maintenance and repairs yourself.
How much does car insurance cost?
When it comes to how much you will pay for your car insurance coverage, your provider will take several factors into consideration. Ultimately, it comes down to how much coverage you need along with the level of risk you and your vehicle pose to your insurance provider. Let’s take a look at the most common variables that determine the cost of mandatory basic coverage:
Type of car
The first thing your car insurance provider will look at is the make, model and year of your vehicle. That’s because some cars are prone to more expensive claims than others. Sports cars are more likely to be involved in a collision, they are also more expensive to repair or replace. High-end luxury vehicles are more likely to be stolen, which means you are statistically more likely to make a claim. Also, the claim itself will be more expensive than if your older model sedan was stolen.
Car insurance providers will also factor in your postal code. Some cities and neighbourhoods have much higher rates of crime than others. You could be charged higher insurance premiums if you live in an area that has a higher rate of car insurance claims like theft and vandalism. Even safe but densely populated neighbourhoods could affect your premiums if they have a higher rate of collision claims.
Age and gender
It is industry standard, and legal, to adjust the price of insurance according to age and gender. That’s because insurance providers believe certain demographics pose inherently higher risks than others. Generally speaking, men pay higher rates than women and younger drivers pay higher rates than older drivers.
Your personal driving history will play a critical role in how much you end up paying for premiums. If you have a clean driving record free from collisions or driving infractions, you pose less of a risk to your insurance provider and your premiums will be cheaper. On the other hand, if you have a history of claims or driving offences, you are more likely to make a claim in the future. You pose a higher risk to the insurer which will be reflected in your premiums.
How you intend to use the car also plays a role in the cost of coverage. That’s because the more time your vehicle spends on the road, the more likely it is to be involved in a collision. If you need your vehicle to commute back and forth to work every day, your premiums will be higher than if you only use it occasionally for enjoyment.
Believe it or not, in some provinces your credit score could influence your premiums. Some insurance providers argue those with good credit scores are safer drivers and take better care of their vehicles. Car insurance providers cannot deny basic coverage to those with damaged credit, but they could charge more. However, this is not standard practice in every province and is actually illegal in a few. Currently, the only provinces that permit the use of credit scores are Alberta, New Brunswick, Nova Scotia, PEI and Quebec.
Car insurance deductible vs. car insurance premium
The cost of your car insurance coverage also depends on the deductible outlined in your policy. The higher your deductible, the lower your monthly premiums will be. The lower your deductible, the higher your monthly premiums will be.
A deductible is a payment you are required to pay before your car insurance company will approve your claim. Almost all types of insurance policies, from property insurance to health insurance, require some type of deductible. The size of your deductible depends on the type of coverage you have and the nature of your individual policy.
Your deductible is usually a flat rate that remains the same regardless of the total cost of the claim. For example, if someone hits you on Don Valley Parkway and your deductible is $500, you will pay that whether the total claim amount is $700 or $7000 dollars. Sometimes, your deductible is more than the total cost of damage. In that case, you could pay for the repairs yourself and not file a claim.
Your insurance premium is the price you pay to your insurance provider to keep your coverage active. You can pay upfront in a lump sum, but most people pay their premiums on a monthly recurring basis. The cost of your car insurance premiums depends on the level of risk you and your vehicle pose to your insurance provider, along with the size of the deductible required by the policy.
Should you have comprehensive insurance in Canada?
Comprehensive car insurance is a personal choice that depends on your individual needs and budget. However, life in Canada presents unique challenges for drivers. If you are trying to decide if comprehensive car insurance is right for you, here are a few things to consider:
The cost of housing and your commute
If you live in a densely populated city, you’ve no doubt noticed the parabolic rise in real estate prices. The cost of housing has forced Canadians to move further away from their workplace into more affordable neighbourhoods. This increases the commute to-and-from work. The more time your car spends on the road, the more likely you are to be involved in some type of collision. Comprehensive car insurance is a good idea if you spend a lot of time behind the wheel.
Millions of Canadians live outside city limits, in small towns and municipalities. We all have friends or relatives living in areas that span across townships, provinces and even south of the border. If you do any highway, rural, or cross country driving you are keenly aware of the risks wildlife pose to motorists. Striking a deer can cause considerable damage, a moose can cause a total loss of your vehicle. For this reason, Canadians need to consider how comprehensive car insurance can protect them in the event they collide with the local wildlife.
Canada is experiencing the impact of climate change. From severe fires in Alberta, flash floods in Ontario and tornados on the prairies, extreme weather events are becoming more frequent. It would be wise to consider the risk of extreme weather, natural disasters, and other perils associated with where you live or work to ensure you have the appropriate insurance coverage.
Ultimately, the right type of insurance depends on what you need and your budget. Basic third-party liability coverage is mandatory for motorists in Canada. But that doesn’t mean you are protected. Third-party liability only relieves your financial responsibility if you cause damage or injury to someone else from behind the wheel of your car. It doesn’t protect you or your vehicle from the risks other motorists and perils pose to you. You might have a spotless driving record, but there is very little you are in control of once you pull out of your driveway. Your safety depends, in large part, on the driving habits of others. Even the best drivers make catastrophic mistakes. Then there are all the non-driving related risks that could cause considerable damage or loss to your vehicle. If you need your vehicle but could not afford to repair or replace it should the unforeseen happen, you probably need comprehensive car insurance.
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About The Author: Heidi Unrau
Heidi Unrau is the senior Finance Journalist at Hardbacon. She studied Economics at the University of Winnipeg, where she fell in love with all-things-finance. At 25, she got her first bank job as an entry-level teller. She moved up the ranks to Credit Analyst, Loans Officer, and now a Personal Finance Writer. In her spare time, you'll find her hiding in the car listening to Freakonomics podcasts, or binge-watching financial crime documentaries with a pint of Häagen-Dazs. When she's not chasing after her two little boys, she's in the hot tub or arguing with her husband over which cash back card to use for date night. She’s addicted to coffee, crypto, and obsessively checking her credit score on Borrowell.
Fun Fact: Heidi has lived in five different provinces across Canada, loves her free Tangerine bank account, and will never cut back on Starbucks. Like ever.
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