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Your Guide to Auto Liability Insurance in Canada

Watch our 3 part video on liability insurance
(total time: 1 min 49 sec)

Millions of Canadians drive cars every day. It’s a seemingly natural part of life. However, once you’re the one in the driver’s seat, the idea of something going wrong becomes very real. As a result, if you plan to drive a car, you’ll need to have the minimum insurance coverage to legally be on the road. This coverage is called liability insurance.

Liability insurance provides drivers the coverage they need to financially protect themselves in the event they:

  1. injure someone else while operating a motor vehicle
  2. cause damage to someone else’s property or vehicle while operating a motor vehicle
  3. are injured while operating a motor vehicle

Liability insurance has four major components including third party liability, accident benefits, direct compensation property damage (DCPD) and uninsured motorists.

Third Party Liability

Financially protects you if you damage somebody else's property or cause then injuries while driving

Accident Benefits

Covers certain expenses your incur if injured in an auto accident (medical expenses, income replacement, rehabilitation expenses)

Direct Compensation Property Damage (DCPD)

Covers damage to your car if your're involed in a not at fault accident.

Uninsured Automobile Coverage

Protects you and your family if you are injured or killed by a hit-and-run driver or by an uninsured motorist. it also covers damage to your vehicle caused by an identified uninsured driver.

How Third-Party Liability Insurance Works

If you are involved in a car accident and are deemed at fault, your liability insurance will be used to pay for the damages incurred by others involved. This includes paying for medical bills that are not covered by OHIP, repairing or replacing the damaged automobile of the other driver(s), and legal fees in the event the other party sues you for compensation.

Without liability insurance, legal and medical bills can be unaffordable for the average Canadian. They can be well into the millions of dollars in certain circumstances and you’ll be forced to pay these fees out of pocket if you don’t have enough coverage. And if the court rules in favor of the party suing you and you don’t have enough funds to pay for the damage, the court could use your property and other assets to make up the difference.

This is why many citizens choose to increase their coverage above the minimum. Though the premium may cost a little more for more coverage, the financial impact in the long-term can be worth it in the event you become involved in an at-fault accident.

At a minimum, Ontario motorists are legally required to carry $200,000 in liability coverage. However, given the increase costs of claims most Canadian insurance providers now require you to have at least $1 million worth of coverage, and even recommend having $2 million.

The minimum liability in each Canadian province or territory is as follows:

British Columbia $200,000
Manitoba $200,000
New Brunswick $200,000
Newfoundland $200,000
Nova Scotia $500,000
Northwest Territories $200,000
Nunavut $200,000
PEI $200,000
Quebec $50,000
Saskatchewan $200,000
Yukon $200,000

How is fault determined

The responding police officers will review the accident, take statements from witnesses, and try to piece together the events to determine what caused it, and you are expected to provide this information to your insurance company. From an insurance perspective, it is ultimately the insurer who will decide who is at fault using a set of pre-determined fault determination rules. It’s best practice never to admit fault, even if you think you contributed to an accident. There may be underlying factors you weren’t aware of, so it’s best to leave it to the professionals to figure out the cause.

What Liability Insurance Doesn’t Cover

Given that liability insurance is the bare minimum coverage, there will be several items that it does not cover. Typically, personal possessions that are stolen from your car or items that are damaged in an accident do not fall under liability policies.

Also, liability insurance does not cover damage or repairs to your own car or property in the event you are at fault in the accident. These losses are covered under physical damage coverage also known as collision and comprehensive coverage which comes at an additional premium.

Physical damage to your property or vehicle
Theft
Vandalism
Natural disasters
Hit and run
Physical damage due to colliding with an animal or object

Who should only have liability coverage?

Simply having Liability insurance is not a suitable option for all drivers. Many people will need to increase their coverages depending on the value of their vehicle and specific financial circumstances. If your vehicle is financed or leased, the financing company will require you to have physical damage coverage to ensure your vehicle (and their loan) is protected.

As a general rule of thumb, you can consider only having liability coverage with no physical damage coverage for your own vehicle if:

Your vehicle is older and has depreciated significantly.
Your vehicle has high mileage and has depreciated significantly.
Your vehicle is not financed or leased
Your vehicle has significant wear and tear
The overall value of your vehicle is low

So far we have discussed how liability insurance works to financially protect drivers in the event they injure or cause property damage to a third party. However, majority of the insurance premiums for liability insurance are generated from the accident benefits portion of the coverage. This is the part of the coverage that protects the insured driver in the event they themselves are injured in an accident. To learn more about accident benefits coverage click the next part of our video series below.

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