How Does Car Insurance Work in Canada?

Published: February 1, 2018

Updated: May 15, 2018



Chances are that when you purchased you first car, you also purchased your first car insurance policy. You could have done so without thinking thoroughly about it. It might be that you bought the most affordable policy with the coverage required by your lender. If that be the case, you need to take the time to learn a bit more about how auto insurance work to help you comprehend the insurance policy that you bought.

Types of car insurance:

An understanding of how car insurance work starts with an understanding of the various types of policy coverage and what type your policy belongs to. There is liability coverage for all car insurance policies. This coverage pays the cost of damage or injury you cause to somebody else or another car involved in the accident. This is required by law in most provinces.

Collision coverage is yet another popular type of coverage. This pays for damage to your vehicle in the event of a collision, even if you were at fault or if you gave authorization to someone else to drive your car.

Comprehensive type of coverage covers other kinds of damage to your vehicle. For example, vandalism, theft, natural disaster, or damage that occurs when your car is parked will all be covered in a comprehensive policy. Most lenders seek for comprehensive and collision coverage on cars that have loans on them. These are the three fundamental types of coverage. You may also include medical payments coverage which foots the medical bills of accident victims who are occupants of the vehicle, even if the accident was caused by you. You may also select personal injury protection, which is a similar type of policy that covers lost wages and other expenses. Another popular coverage is uninsured motorist or underinsured motorist coverage. This coverage pays for repairs to your vehicle if the accident was caused by someone driving without car insurance. Each province has requirements on the type of insurance drivers must obtain, so confirm with your insurer to be sure that your policy meets these requirements.

Basic Policy Terms:

Your auto insurance policy has deductible. It is the amount you must pay out of pocket for expenses covered before you will get any money from insurance. The cost of your premium will be reduced if your deductible is raised. Your insurance firm adds deductibles to the policy to prevent you from making a claim that will cost a huge amount to process and pay.

Insurance coverage also has policy caps or limits. For example, your insurance policy may cover up to $50,000 in medical coverage and $20,000 in damage to your vehicle. Each province has a minimum required amount which is often very low when compared to the amount you may need after an accident. Ensure that there is adequate coverage in your insurance policy. Bear in mind that the lower the policy caps are, the lower will be the cost of the insurance. You need to choose a policy that has an affordable premium as well as a generous policy cap.