Car Insurance Explained

We all need car insurance to drive, but few Canadians really understand how it works. It doesn’t have to be a mystery, though. These are the big factors that determine how car insurance works in Canada.

Different Types of Coverage

Most insurance providers just advertise their lowest rates to attract more inquiries, but it’s not the best way to make insurance work for you.

That’s why it pays to understand the basic kinds of car insurance out there and how they protect you on the road.

Liability

Liability is the most basic form of car insurance in Canada. In fact, it’s illegal to drive at all without a bare minimum of $200,000 in liability auto insurance coverage, and it’s unlikely you’ll be able to get a policy with anything less than a $1,000,000 in coverage. That coverage pays for legal fees (and possibly injury damages) in the event that you’re sued for causing damage on the road.

$1,000,000 or $2,000,000 is most common to cover more legal fees as you see fit. Since some people need serious care after car collisions, it’s not a bad idea to get more than the bare minimum level of coverage.

Remember: this covers your legal liability, but not repairs to the other car, or someone else’s property (or to your own).

Collision

Collision insurance covers the cost of repairing or replacing your car in the event that you hit another car or object while driving.

Liability insurance doesn’t cover this, so collision coverage isn’t included in the mandatory, bare-minimum coverage that gets advertised a lot. If your car is financed or leased (or even just new), then it’s wise to get collision coverage—especially if you commute on highways for work.

In fact, most lease agreements require proof of collision coverage.

Comprehensive

Comprehensive car insurance covers the cost of damage to your vehicle from sources other than another vehicle—but in most policies they’ll have to be named explicitly.

For example, comprehensive coverage would have your back if your car was:

  • Stolen
  • Damaged by fire
  • Hit by a falling branch
  • Pelted by hail (think broken windshields)

It’s not usually worth it on cars older than 10 years unless it’s a high-value vehicle, but it helps a lot if you drive a relatively new car and leave it parked outside frequently.

Factors That Lower (or Raise) Auto Rates

There’s no secret ingredient to getting better savings on your car insurance. It’s a combination of factors that you can use to work for you, rather than against you.

Driver History

The most important factor in your car insurance policy is your history as a driver. If you only have a few parking tickets (which don’t affect your rate), or maybe the odd speeding ticket over time, then you’re in a good spot.

On the other hand, having several speeding tickets and reported accidents on your record will flag you as a higher risk. Higher risks are more likely to file claims, so they get charged more.

Pro tip: This applies to secondary drivers on your policy, too!

Bundling Home and Auto

Bundling your home and auto policies with the same insurance provider bring clear and immediate savings. Bringing in more money every month “in bulk" (so to speak) incentivizes insurance providers to offer discounts on both.

It’s common to see at least 15% discounts on auto insurance when you bundle them together, which is a win in our books. Some insurance companies offer even higher discounts on bundled home policies, too.

Location Matters

Location is one of those factors that’s still used to calculate a driver’s insurance rate, even if it doesn’t have anything to do with driving habits.

That’s because insurance companies calculate the likelihood of paying a claim to you based on the amount of claims and reported damage in your area. This is decided directly by insurance providers who underwrite policies, not brokers (who shop around for you).

Deductibles

Deductibles are amounts of money that you agree to pay to cover costs before your insurance policy kicks in to start paying out.

Every policy comes with a deductible that you set, usually at $0, $500, or $1,000. Raising your deductible lowers your monthly payment in exchange for you paying more up-front in the event of a claim.

The Vehicle Itself

The vehicle itself isn’t usually the biggest factor in calculating car insurance unless it’s super expensive, which would drive up the cost to repair or replace it—think Porsche, here.

Otherwise, the biggest things to keep in mind about your vehicle is its level of safety and the cost of replacing and recalibrating electronics built into it.

Those are the basics to understanding car insurance in Canada. Staying on top of these factors will keep your car insurance low while still covering you for what you really need.