Types of Car Insurance: What Coverage Do You Need?
The main types of car insurance you need to know
The foundation of every car insurance policy in Canada is third-party liability insurance, which allows other drivers to recover their losses if you cause injuries, deaths, or property damage in a motor vehicle collision. If another driver brings a lawsuit against you, liability insurance will also help to cover your legal costs.
Liability insurance is the most important type of car insurance because it reduces the financial burden of car accidents on individual people, and reduces the need for personal lawsuits between drivers.
But liability isn’t the only type of car insurance you need to know. Here are the five main categories of car insurance coverage included in Canadian auto policies:
In addition to these core types of car insurance—both mandatory and optional—you can customize your car insurance policy with a wide number of endorsements. Think of these less as distinct coverage types and more as perks or benefit programs that you can tie to your auto policy.
Insurance works differently from province to province. Four provinces—British Columbia, Manitoba, Quebec, and Saskatchewan—have public car insurance programs that provide the same essential coverage to all residents. In this article, we’ll focus on car insurance types in Ontario. All coverage options in Ontario come through private insurance companies, with no public auto insurance plan available.
Mandatory car insurance coverage
In Ontario, only three types of car insurance are mandatory for all drivers:
- Third-party liability insurance
- Statutory accident benefits (SABS)
- Uninsured automobile coverage
Third-party liability insurance
Third-party liability insurance pays for other people’s expenses and your potential legal fees if you’re at fault in a motor vehicle collision. It contains two components:
- Bodily injury liability: Pays for other drivers’ medical bills and rehabilitation costs
- Property damage liability: Pays to repair damage to other people’s property, such as vehicles, fences, or guard rails
Why do you need it? Car accidents generate enormous costs, and somebody needs to pay those costs. The average driver may not be able to afford bills as high as $1 million or more if they’re injured or cause injuries to others on the road. Liability insurance shifts these steep costs onto insurance companies that can pay out huge sums in the event of a crash.
How much do you need? Ontario law requires all drivers to carry at least $200,000 of third-party liability coverage, but most insurance advisors recommend a minimum of $1 million to cover your potential liability.
Statutory accident benefits (SABS)
Statutory accident benefits offer financial assistance to the insured, their family members, and anyone else listed on the policy if they’re injured by a car—regardless of who caused the accident. These no-fault benefits apply whether you were driving, cycling, or even walking at the time of the incident.
Key accident benefits include:
- Medical and rehabilitation benefits: Pays for medical costs not covered by public health care, such as physiotherapy, mental health support, mobility devices, and more
- Attendant care benefits: Pays for care services if you need help with personal tasks like bathing and dressing after an accident
- Income replacement benefits: Pays out up to 70% of your gross income (up to a maximum of $400/week) if you’re unable to work
- Non-earner benefits: Offers financial assistance if you weren’t working at the time of the accident (e.g., stay-at-home parents) but can’t continue with daily activities
Medical and rehabilitation benefits have different coverage limits depending on how serious your injuries are, based on assessments by medical professionals and your insurance company. These limits fall into three categories under the Statutory Accident Benefits Schedule:
Why do you need it? Accident benefits coverage ensures that all Canadians receive quick and straightforward benefits after an accident, regardless of who was at fault. No-fault insurance goes straight through your own insurer, meaning you don’t have to wait for a third-party liability claim to go through to get benefits like rehabilitation or income replacement.
How much do you need? Ontario law requires all automobile insurance policies to include medical, rehabilitation, and attendant care benefits. Other benefits, such as income replacement, are currently mandatory but will be optional starting in July 2026 (see below for more info).
Starting July 1, 2026, only three types of SABS coverage will be mandatory for drivers in Ontario:
- Medical
- Rehabilitation
- Attendant care
The previously-mandatory benefits that will become optional under the new law are:
- Loss of income
- Non-earner
- Caregiver
- Lost educational expenses
- Expenses of visitors
- Housekeeping and home maintenance
- Damage to clothing, glasses, hearing aids, etc.
- Death
- Funeral expenses
When the new law takes effect, these benefits will only apply to the named insured, their spouse and dependants, and anyone listed on the policy as a driver of the insured vehicle. Check carefully to make sure that you understand your benefits, and make any necessary changes to your policy going forward.
Uninsured automobile coverage
Uninsured automobile coverage, also known as uninsured motorist coverage, ensures that you and your family are protected financially if you’re injured or killed by an uninsured motorist or hit-and-run driver. In these situations, the expenses that would normally be covered by the at-fault driver’s third-party liability insurance can be paid through your own insurance company.
In Ontario, uninsured automobile coverage also pays for damage to your vehicle caused by an uninsured driver, but not by an unidentified driver.
Why do you need it? Exact figures aren’t available, but law enforcement estimates suggest that up to 2% of drivers in Ontario may be uninsured. If you’re injured by one of these drivers, you could be missing an important source of financial protection that insurance is meant to provide. This coverage is also important in hit-and-run situations where the at-fault driver can’t be identified or their insurance can’t be reached.
How much do you need? Ontario law only requires you to buy $200,000 of uninsured automobile coverage, but it’s a good idea to raise this limit to match your liability insurance. Experts recommend at least $1 million in coverage for both.
Optional car insurance coverage
Five types of car insurance coverage are optional under Ontario law but included in most insurance policies. They may be required by lenders if your car is leased or financed. All five types deal with paying for repairs to your own vehicle.
Optional coverage types include:
- Direct compensation property damage (DCPD) coverage
- Collision or upset coverage
- Specified perils coverage
- Comprehensive coverage
- All-perils coverage
It’s better to think of these as a range of options for necessary coverage rather than as truly “optional” add-ons.
Direct compensation property damage (DCPD) coverage
Direct compensation property damage coverage covers damage to your vehicle, its contents, and the loss of its use caused by a collision where another driver is at fault. It simplifies insurance claims after a collision by allowing you to file a claim directly with your own insurer rather than going through a lengthy third-party liability claim process.
To file a DCPD claim after a collision, all of the following must be true:
- The collision took place in Ontario
- At least one other vehicle was involved in the accident (i.e., no single-car rollovers)
- At least one other vehicle involved in the accident is insured by an insurer licensed in Ontario
Direct compensation property damage (DCPD) coverage used to be mandatory in Ontario. As of 2024, you can opt out of DCPD coverage by filling out Ontario Policy Change Form (OPCF) 49: Agreement Not to Recover for Loss or Damage from an Automobile Collision.
Most insurance professionals don’t recommend opting out of this coverage, as it could leave you with significant out-of-pocket expenses in the event of a collision where you are not at fault.
Collision or upset coverage
Collision coverage pays for damage to your vehicle caused by any type of collision, even if you’re at fault. The definition of “collision” includes:
- A crash with one or more other vehicles
- A single-car rollover
- A collision with any object in or on the ground (e.g., a mailbox, guardrail, or telephone pole)
Most lenders in Canada require collision coverage if your vehicle is leased or financed.
Specified perils coverage
Specified perils coverage supplements collision coverage by paying for damage to your vehicle caused by a specific list of non-collision incidents. The exact perils covered by your policy may vary depending on your plan details, but they typically include:
- Fire
- Theft or attempted theft
- Lightning
- Windstorm
- Hail or rising water
- Earthquake
- Explosion
- Riot or civil disturbance
- Falling or forced landing of an aircraft or parts of an aircraft
- The stranding, sinking, burning, derailment, or collision of any kind of transport in, or upon which, an insured vehicle is being carried on land or water
Specified perils coverage does not cover damage caused by vandalism or falling objects.
Comprehensive coverage
Comprehensive coverage is an upgrade from specified perils coverage. It covers damage to your vehicle from all the perils covered by specified perils coverage, along with damage caused by:
- Vandalism
- Falling objects
Most lenders in Canada require comprehensive coverage if your vehicle is leased or financed.
All-perils coverage
The most robust form of physical damage coverage, all perils combines collision and comprehensive coverage. It also covers two types of auto theft excluded by comprehensive coverage:
- Theft by someone who lives in your home, or damage caused by attempted theft
- Theft by an employee who drives, services, or repairs your car, or damage caused by attempted theft
Car insurance endorsements
In addition to the core coverage options outlined above, you can customize your car insurance policy by adding endorsements.
An endorsement is optional coverage that either adds a specific benefit to your insurance coverage or modifies an existing benefit. Available endorsements vary by company, but some of the most common endorsements in Ontario include:
- Roadside assistance: Covers services like towing, flat tire changes, battery charging, and other roadside help if your vehicle breaks down away from home
- Accident forgiveness: Ensures your insurance company won’t raise your insurance premiums after your first at-fault accident
- Removing depreciation deduction: Allows you to claim the full purchase price of your vehicle if it’s stolen or declared a total loss; also called a limited waiver of depreciation
- Transportation replacement coverage: Helps to cover the cost of alternate transportation (e.g., a rental car or public transit) if your insured vehicle is in the shop after a covered claim; also called loss of use coverage
- Family protection coverage: Extends coverage up to your policy’s own limits if you or a family member is injured by an at-fault driver whose liability limits aren’t sufficient to pay for your expenses
- Agreed value coverage: A common option for classic cars, this bases your physical damage coverage on a value agreed upon by you and your insurer, not the vehicle’s actual cash value
This isn’t an exhaustive list of all the endorsements and policy change forms you can use to modify or enhance your car insurance policy. Talk to your insurance agent and research available endorsements before you finalize your coverage.
How to choose the right types of car insurance
To choose the right type of car insurance for your vehicle, you need to make three decisions:
- How much mandatory coverage will you buy? All auto insurance policies come with at least the minimum mandatory coverage required by law, but you can raise your limits—and most insurance professionals recommend you do so.
- What level of optional physical damage coverage (if any) will you include? Again, most insurance professionals recommend carrying this coverage, but you’ll have to choose between a lower level of coverage, like specified perils, and a more robust option, like all-perils coverage.
- Do you want to add any endorsements to your policy? Endorsements can be low-cost ways to enhance your coverage, but they can also bring small costs that add up quickly.
When you shop for car insurance with PolicyMe, you’ll have the chance to connect with a licensed insurance advisor before finalizing your policy. They can walk you through your coverage options and help make sure your policy fits your needs.
FAQ: Types of car insurance
This article is for general information only and is not insurance or legal advice. Examples and any sample quotes or rate ranges are illustrative and do not constitute an offer or guarantee of coverage, price, or eligibility. Actual coverage, discounts, and premiums depend on your individual circumstances and the insurer provider; if there is any discrepancy, your policy and insurer documentation govern. For advice about your situation, speak with one of our licensed insurance professionals.