How does car insurance work in Canada?

Are you in the market for car insurance and finding that you have some questions about how car insurance in Canada works? Below, we outline what car insurance is, how it works in different provinces, the most popular car insurance coverages available to drivers, and more.

Understanding what car insurance is

Car insurance is basically a contract between you and an insurance company. You agree to pay a set amount (your premium), and in return, the company helps cover certain damages or losses if something happens.

How much your insurance will pay if you file a claim depends on the type of coverage you have and your deductible—the amount you have to pay out of pocket before insurance kicks in.

Without car insurance, you’d be on the hook for all repair or liability costs yourself, which can get expensive fast, especially if you’re involved in a serious accident or lawsuit.

Private and public car insurance in Canada

In Canada, car insurance comes in two types: public and private, and just to keep things interesting, Quebec uses a mix of both. Here's what you need to know:

Public car insurance

With public insurance, the government runs the insurance company that provides coverage to drivers in that province. In some cases, you can choose to top up your coverage with a private insurance company if you want extra protection.

Private car insurance

With private insurance, your coverage comes from companies that are either privately owned, publicly traded, or mutual insurers. This is the setup in most provinces, meaning drivers can shop around for the best rates and coverage options.

Is car insurance mandatory in Canada?

Yes, car insurance is mandatory in Canada, so every driver needs to have at least basic liability car insurance before getting on the road. No matter where you live in Canada or what kind of car you drive, you must have a valid auto insurance policy to legally drive. If you drive without auto insurance, you could face steep fines and even lose your driver’s licence.

Although car insurance is required everywhere in Canada, its regulation is actually handled by each province, rather than the federal government. Therefore, the rules and coverage requirements can vary depending on your location. Here's a breakdown of mandatory coverage in each province and territory:

Common types of car insurance coverage in Canada

Now that we've explored which coverages are mandatory in different parts of Canada, let's delve a little into what these types mean, as well as other popular optional types of car insurance coverage that many Canadian drivers add to their car insurance policy:

Third-party liability coverage

Third-party liability insurance is what protects you if you're responsible for an accident. If you cause a crash that injures someone or damages their property, this coverage helps pay for things like medical bills, vehicle repairs, and even legal fees if you're sued.

Every province sets a minimum amount of liability coverage that drivers must have, but you can always choose to get more for extra protection.

Accident benefits coverage

Accident benefits coverage helps pay for medical expenses after a car accident, no matter who was at fault. Whether you’re the driver, a passenger, or even a pedestrian involved in the crash, this coverage can step in to help with costs.

It can cover things like rehab, prescription meds, lost wages, ambulance bills, and physical therapy—basically, the stuff you need to recover without having to stress about the price tag.

Uninsured automobile coverage

Uninsured automobile coverage protects you if you get into an accident caused by a driver who doesn’t have insurance or doesn’t have enough to cover the damages. It also helps protect you and your passengers in case of a hit-and-run.

Collision coverage

Collision coverage is optional, but it’s great to have if you want extra protection. It covers damage to your car if you hit another vehicle or object, no matter who’s at fault.

If your car needs repairs after an accident, collision coverage helps cover the cost, so you’re not stuck paying out of pocket. It’s especially useful if you want to avoid hefty repair bills after a crash.

Comprehensive coverage

Optional comprehensive coverage is like an extra layer of protection for your car—it covers all the unexpected things that aren’t collision-related. While standard auto insurance helps with accident damage, it won’t cover things like theft, vandalism, fire, water damage, or even falling objects—but comprehensive coverage does.

Direct compensation-property damage coverage

Direct compensation-property damage (DCPD) coverage kicks in when you’re in an accident that wasn’t your fault. It helps cover damage to your car and even injuries you might have from the crash. It's mandatory in most no-fault provinces.

Instead of dealing with the other driver’s insurance company, your own insurer handles the claim and reimburses you directly. It’s a smoother, faster process that saves you from the hassle of chasing down the at-fault driver’s insurer.

Loss of use coverage

If your car is in the shop after an accident, loss of use coverage helps keep you moving. Whether you need to rent a car, take public transit, or use a rideshare, this coverage helps cover the cost so you're not stuck without a way to get around. It can be a real lifesaver if your car is out of commission for days—or even weeks.

Accident forgiveness coverage

One final type of optional car insurance coverage popular among Canadian drivers is accident forgiveness. Accident forgiveness is additional coverage that can be added to your car insurance policy as an endorsement to protect your driving record and to help prevent your insurance premium from increasing if you have an at-fault accident claim. Note: coverage varies by province.

What is no-fault car insurance in Canada?

When explaining how car insurance works in Canada, we must also explain no-fault car insurance. Several Canadian provinces operate under what's called a no-fault insurance system. These provinces include:

• Alberta
• New Brunswick
• Newfoundland and Labrador
• Nova Scotia
• Ontario
• Prince Edward Island
• Quebec

The term "no-fault" auto insurance can be pretty misleading. Some people think it means no one is to blame for an accident, so they assume they won’t be entitled to compensation—but that’s not the case at all.

No-fault insurance doesn’t mean no one is responsible for a crash. It simply means that if you’re injured in an accident, you deal with your own insurance company for compensation, regardless of who caused the accident.

How it different from a fault-based system

In a traditional fault-based system, when two cars collide, the insurance companies argue over who was at fault and to what degree. This matters because the at-fault driver’s insurer is the one responsible for covering the damages. While the insurance companies go back and forth, the injured drivers are stuck waiting—sometimes for weeks or months—to find out if their claim will be paid.

However, in no-fault provinces like Nova Scotia or Alberta, each driver files a claim with their own insurance company. This speeds up the process of getting compensation for medical expenses, lost income, and other costs. Since there’s no need for insurers to fight over blame before paying out, injured drivers can get the support they need much faster.

How does no-fault car insurance work?

No-fault insurance is really about how claims are handled, not about who caused the accident. Someone is always fully or partially responsible, and it’s up to the insurance companies to figure out who and to what degree. This helps determine how a driver’s policy—and potentially their premiums—will be affected.

Insurance companies follow something called the Fault Determination Rules to assess each driver’s level of responsibility in an accident. These rules provide guidelines for assigning fault based on the actual details of the crash.

For example, let’s say you get into an accident with a distracted driver. Your insurance company covers your repair costs upfront, then turns around and seeks reimbursement from the at-fault driver’s insurer.

What are car insurance premiums, and how are they calculated?

As we mentioned earlier, your car insurance premium is what you pay to keep your coverage active. Think of it like putting money into a safety net—you're paying into a fund that’s there to help cover costs if something happens to your car. When it comes to calculating car insurance premiums, car insurance companies consider several factors, such as:

• Year, trim, make and model of your vehicle
• Where you live (and work - if you commute to work)
• Age
• Driving experience
• Driving record
• Annual mileage
• How you use your vehicle
• Past claims
• Your deductible(s)
• Prior insurance coverage
• The policy options you choose and their limits

With premiums, you can either pay them annually or monthly. Monthly is generally the financially easier option, but if you pay them annually, you can often save money on extra fees like administrative costs.

How much does car insurance cost in Canada?

Car insurance rates aren’t one-size-fits-all—as we said above, car insurance companies look at a bunch of factors to figure out what you’ll pay. That's why car insurance rates for Ontario vary significantly from auto insurance costs in British Columbia or Quebec. Even two people in the same town, driving the same car, can have completely different premiums.

Looking for the best car insurance? At BrokerLink, we shop the market to find the most competitive rates and the best coverage tailored to your needs. Contact us today to get a free car insurance quote.

Questions to ask an auto insurance provider

Reaching out to potential auto insurance providers is a key step when buying car insurance in Canada. Anytime you contact a provider, it’s best to be prepared. Remember, they are offering you a service, so treat each meeting like an interview. Ask them various questions to see if they are a good fit for you. Here are some questions to ask:

1. Do I have the coverage I need?
2. Am I eligible for any car insurance discounts or savings?
3. What is covered if my car is damaged in an accident?
4. When does my auto insurance policy renew?
5. What is my auto insurance policy deductible?
6. What happens if I miss an insurance payment?

Contact BrokerLink for more information on car insurance

Want to learn more about how car insurance works in Canada? BrokerLink is happy to answer any questions you might have. Our car insurance brokers have strong relationships with many top insurance providers and are well-versed in their products, which means they can also offer advice on which company is right for you.

Plus, whenever you’re ready to purchase car insurance, BrokerLink can help. We will take the time to understand your unique insurance needs before contacting insurers in Canada to obtain quotes. We also invite all drivers in Canada to take advantage of our free car insurance quotes, ready in just minutes.

Get started today by giving us a call, sending an email, visiting us in person, or requesting a no-obligation car insurance quote using our free online quote tool.

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