In the market for car insurance and want to learn more about how car insurance companies work in Canada? Below, we outline what car insurance is, how much car insurance costs, and the car insurance coverages available to drivers.
What is car insurance?
Car insurance is a contract between a driver and an auto insurance company. As with most other types of insurance, a policyholder (driver) agrees to pay a certain amount of money (known as a premium) in exchange for the ability to be compensated for certain damages or losses if they happen. The amount that the driver will be compensated in the event of a claim varies depending on the coverage they purchased and their deductible. Further, each driver’s premium is unique as it is based upon a number of factors, including their age, driving record, claims history, location, and more.
Without car insurance, a driver would be responsible for paying the cost of these damages out of pocket, which can add up quickly, especially in the event of a major collision or lawsuit. Auto insurance policies are typically paid either monthly or annually (though paying annually may translate to cheaper rates).
Is car insurance mandatory in Canada?
Yes, car insurance is mandatory in Canada, which means all drivers must purchase auto insurance before hitting the road. No matter which province or territory you live in or what kind of car you drive, you must have a valid car insurance policy to get behind the wheel. Each province and territory in Canada has its own unique regulations, and drivers must ensure that their policies meet the minimum coverage requirements of the jurisdiction they live in. For example, in Ontario, all car insurance policies must include no less than $200,000 in third party liability coverage, as well as uninsured automobile coverage, accident benefits coverage, and direct compensation - property damage coverage. Failure to purchase the necessary insurance and choosing to drive anyway can result in hefty fines and the suspension of your driver’s licence.
Coverage offered by car insurance companies
The coverage offered by car insurance companies varies but should include the mandatory coverage types in your province. Many insurers also offer optional coverage types, such as accident forgiveness, collision, and comprehensive coverage. We break down a few of the most common coverages offered by car insurance companies below:
Third party liability coverage
Third party liability coverage protects drivers if they get into an accident that they are at fault for. For example, if you cause a collision that results in bodily injury or property damage, liability coverage can help you cover the costs of medical expenses or vehicle repairs. It can also help pay for any necessary court fees or legal counsel. Many provinces require drivers to carry a certain amount of third party coverage. For example in Ontario and Alberta, drivers must hold a minimum of $200,000 in third party liability coverage at all times.
Direct compensation - property damage coverage
Direct compensation - property damage coverage protects the policyholder in the event that they get into an accident that was not their fault. This type of coverage offers compensation if you suffer an injury or your car is damaged in the accident. In the case of direct compensation, the insurance company may reimburse the policyholder directly for their claim.
Accident benefits coverage
Accident benefits coverage can help cover the costs of medical expenses following a collision. This type of coverage can be claimed no matter which party was at fault for the accident, and it can help pay for the medical expenses of the driver, passenger, or any pedestrians involved in the accident. Examples of medical expenses accident benefits can cover include rehabilitation, prescription medications, and physical therapy.
Uninsured automobile coverage
Uninsured automobile coverage protects you and any passengers in your vehicle if you’re involved in an accident with an at-fault driver who is uninsured or underinsured. This mandatory coverage type may also protect against hit-and-runs.
Collision coverage
Collision coverage is optional and protects the policyholder if they get into an accident with another vehicle or object on the road, no matter who is at fault for the accident. Under the collision coverage section of your policy, you can receive compensation to help pay for any property damage that resulted from the accident, such as a damaged car in need of repair.
Comprehensive coverage
Comprehensive coverage protects drivers against a wide range of unforeseen events on the road. While standard auto insurance coverage in Canada provides a certain degree of protection against collisions, it does not protect motorists from non-collision-related circumstances. That’s where comprehensive coverage comes in. This optional coverage type can safeguard your car against insured perils like theft, vandalism, falling objects, water damage, and fire.
Accident forgiveness coverage
One final type of optional car insurance coverage popular among 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.
How much does a car insurance company charge for an auto insurance policy in Canada?
Insurance companies consider a wide range of factors when calculating auto insurance premiums. Therefore, drivers in Canada can pay vastly different rates, even if they drive the same type of vehicle or live in the same town. From a driver’s age and marital status to their driving record and claims history, many details can influence auto insurance costs in Canada. We’ve put together a list of the most common factors influencing insurance rates so drivers can better understand how their premiums are calculated below:
- Age
- Driving record
- Driving history
- Claims history
- Location
- Local laws
- Make, model, and year of your vehicle
- Coverage, limits, and deductibles
- How frequently you drive your car
- Gender
- Marital status
How to compare quotes from car insurance companies
When shopping for car insurance, make sure to obtain quotes from multiple insurance companies first (or have a broker do this for you). In order to obtain an auto insurance quote, you will be asked to provide some basic information about yourself and your vehicle. The more information you provide, the more accurate your quote will be. We recommend having the following information handy:
- Current policy number and renewal date
- Years of prior insurance
- Vehicle details including the year, make, and model of your vehicle
- Vehicle Identification Number (VIN)
- Driver’s licence number and dates licenced for all drivers in the household
- Current coverages and deductibles for all vehicles in the household
- Distance driven in kilometres to work and annually for each vehicle (you must note if your car is used for business)
- Out of province experience letters and driver’s abstracts
- Details regarding any tickets (moving violations and/or suspensions) in the last three years or accidents in the last ten years (including date, type of accident, or ticket)
Once you’ve obtained multiple quotes from different insurance companies, it’s time to compare them. Comparing quotes is the most effective way of ensuring you are purchasing the best policy (the one with the most comprehensive coverage at the lowest rate) and avoids overspending. We recommend getting quotes from at least three insurance companies or enlist the help of a broker to do this for you, and assess each option according to the following criteria:
- The coverage and deductibles included with the policy: Chances are, the quote with the cheapest rate may also offer the least amount of coverage and the largest deductible. Depending on your vehicle, driving record, and driving habits, the minimum coverage may not be enough to suit your needs. Make sure to carefully consider the coverage you need and the deductible you are willing to take on.
- Your payment options: Compare quotes according to the payment options. For example, do all providers give you the option of paying monthly, or are you required to pay annually? Are additional fees charged if you pay monthly rather than annually and what are they?
- Eligible discounts: You should always ask about discounts (conditions and amounts) and factor in any discounts you qualify for into the quote. Though one quote might seem like the best value, this may not be the case when you adjust for a safe driver, bundling policies, or winter tire discount.
Remember to provide each insurance company with the same details (e.g. location, age, driving history, VIN, etc.) so that you can fairly compare each quote. Once a quote has been provided, remember to double check that your personal details, coverage needs, and driving record are all accurately reflected.
Questions to ask an auto insurance provider
Reaching out to prospective auto insurance providers is a central component of buying car insurance in Canada. Anytime you contact a provider, it’s best to be prepared. Keep in mind that they are providing a service to you, which means you can treat each meeting like an interview. Ask them a variety of questions to gauge whether they are a good fit. We recommend asking the following questions:
1. Do I have the coverage I need?
This is the first question you should ask an insurance provider. The answer will partially depend on the province or territory you live in, as each has its own minimum insurance requirements. Once you have confirmed that your policy meets the minimum coverage requirements, ask the insurance agent to explain and recommend additional coverage options based on your unique needs. Some of the most common optional coverages are collision, comprehensive, and accident forgiveness, though they may not all be worthwhile depending on your circumstances. As they lay out your options, they should also explain how each coverage will impact your premium and what expenses you may still be responsible for paying out of pocket in the event of an accident.
2. Am I eligible for any car insurance discounts or savings?
The cost of car insurance depends on many factors, including your age, gender, marital status, driving record, claims history, and the coverage and deductible you choose. While there isn’t much wiggle room within these factors, there is still one way to lower your premium: by qualifying for a car insurance discount. Insurance companies offer a wide range of discounts to drivers that can help them save money on car insurance. Be sure to ask your insurance agent if you are taking advantage of all the discounts you are eligible for. Some of these discounts may include:
- Safe driver discount
- Driving school discount
- Telematics discount
- Winter tire discount
- Private parking discount
- Retiree discount
- Bundling policies discount
- Electric vehicle discount
- Anti-theft device discount
- Policy renewal discount
- Insuring multiple cars discount
3. What is covered if my car is damaged in an accident?
There is a common misconception that auto insurance will automatically cover the cost of replacing or repairing a car in the event of an accident. The reality is that this is only true with certain types of coverage. For example, third party liability coverage pays for damage to another driver’s car or property if you are at fault for the accident. Therefore, to cover the repair or replacement of your personal vehicle, you may need to purchase collision coverage (for collision-related accidents) or comprehensive coverage (for non-collision-related accidents). Even then, these coverages may only protect your vehicle if the damage is caused by a specific peril, such as fire, water damage, theft, or vandalism. At the end of the day, it’s crucial to ask a car insurance company what exactly your coverage entails so you know what you will be responsible for paying out of pocket in the event of an accident.
4. Am I covered if I am involved in an accident and another driver is injured?
Are you prepared in the event you get into a collision that results in another party being injured?. In most cases, third party liability coverage will come into play if you are in an at-fault accident that injures another driver, passenger, or pedestrian. This coverage can help pay for legal fees, medical expenses, vehicle repair bills, and more. However, all coverage has limits so the insurance company will only be responsible for damages up to the policy limit (a reminder that in Ontario and Alberta the minimum policy limit for third party liability coverage is $200,000).
5. When does my auto insurance policy renew?
Before signing on the dotted line, make sure you know when your auto insurance policy renews. Most car insurance policies expire one year from the date they begin. Find out the exact date, as well as whether your policy automatically renews and how your insurance provider sends your renewal notice (by email or mail). With this information, set a reminder to yourself roughly one month from the expiry date. At this time, we recommend consulting with a broker or shopping around for other car insurance policies to determine whether your current policy is still the best option. You might be surprised to learn that a lot can change in a year which can impact your rates. Insurance companies are constantly underwriting behind the scenes. Plus, a change of vehicle or location can also affect your premium. Therefore, it’s always best to shop around before renewing your current car insurance policy (and starting early is key as you want to avoid a gap in coverage).
6. What is my auto insurance policy deductible?
Asking about your deductible is also important, especially if you end up in an accident. A deductible is how much money the policyholder agrees to pay out of pocket before the insurance company steps in to cover the remaining costs. Insurance companies allow policyholders to choose their deductibles. Generally speaking, the higher the deductible (and the more responsibility you agree to take on), the lower your premium will be. That said, setting your deductible so high to the point that you can’t afford to pay it is a mistake. Understand your financial limitations before agreeing to a high deductible.
7. What happens if I miss an insurance payment?
Anytime you buy car insurance, you must read the terms and conditions carefully. Understanding what happens if you make a late insurance payment or miss one entirely is crucial. Insurance companies often charge penalties for late or missed payments, however, these penalties vary as do the circumstances around them (e.g. the number of days late your payment can be before you incur a charge). Further, some insurance companies might outright cancel your policy if you fail to make payment, while others might be more flexible.
8. How do I file a claim?
Finally, make sure to ask an insurance provider about the claims-filing process. Many insurance companies have different rules and processes, including how long you have to file a claim from the date of the incident and how quickly you can expect to receive compensation. Knowing what to expect if you need to file a claim can also help you decide which insurance provider is best for you.
Questions a car insurer will ask you
Just as you should be prepared to ask an insurance agent questions, you should also be prepared to answer a few questions. Some of the most common questions auto insurance companies ask prospective policyholders are as follows:
1. What is your postal code?
This is usually one of the first questions a car insurance provider will ask you. Your postal code determines your location, which has a major impact on your premium. Drivers who live in metropolitan areas tend to have higher car insurance rates than those in rural areas, simply because there is more traffic which increases one’s odds of getting into an accident. However, other factors, such as crime rate and likelihood of weather or climate disasters will also come into play.
2. What type of car are you insuring?
The next question an insurance provider is likely to ask you pertains to your vehicle. They will ask for the make, model, year, and vehicle identification number (VIN) of your car. This is because an insurer will take into account a vehicle’s claims history and repair/replacement costs when calculating rates. Drivers of vehicles with higher safety rates and lower rates of theft will often benefit from lower rates. However, the value of the vehicle also matters, with more expensive cars often costing more in insurance.
3. How do you use your vehicle?
To answer this question, you will need to state the primary uses of your vehicle. For example, do you use your vehicle primarily to commute to and from work or school? Do you use it for business or pleasure? If you operate a vehicle as part of your business, your insurance needs may be different than if you use the car exclusively for personal reasons. In addition, your driving habits (e.g. if you frequently drive at night or on major highways) can also impact your premium.
4. How many kilometres do you drive each year?
To better understand your risk as a driver, an insurance company may also ask about how many kilometres you drive annually. To calculate this, try to add up your weekly mileage and multiply it by 52. If you spend an above-average amount of time on the road, you may have a higher premium since your odds of getting into a collision go up. Conversely, if you spend a below-average amount of time behind the wheel, your rates may be lower.
5. Does your vehicle have an anti-theft device?
Another question you might get asked by an insurance agent is whether your vehicle has any anti-theft devices. These devices can make your vehicle safer, which might reduce your premium or allow you to qualify for a discount. Generally speaking, anti-theft devices can be helpful if you want to lower the cost of comprehensive coverage. The discount you are eligible for will depend on what device you have. For example, if the device can help track your car in the event that it is stolen, it might be worthy of a bigger discount than a basic audible alarm.
Buying insurance from a car insurance company vs. a car insurance broker
Before contacting several car insurance companies directly, take the time to consider whether purchasing insurance through a company or a broker is right for you. To help you determine this, we break down the pros and cons of working with an insurance company vs. an insurance broker below:
Insurance company
An insurance company sets premiums and creates policies. They consist of insurance agents who are licensed to sell insurance policies on the company’s behalf. Insurance agents are licensed provincially and highly knowledgeable about the specific products offered by the insurance company they represent. The main benefit of purchasing car insurance through an insurance agent is that you cut out the middleman. Since you will be purchasing the policy directly through the insurance company, you can do so quickly and easily. The drawback of purchasing insurance through a company is that you may not be getting the best price. As their interests lie with the insurance company, they may not be able to offer much advice on how you can save money.
Insurance broker
On the other hand, an insurance broker works independently of insurance companies. Instead, they work for you, the customer. Insurance brokers typically work at brokerages and have extensive knowledge of the insurance industry and the current market. They are fully licensed, and rather than specializing in one company’s product offerings as insurance agents do, brokers have a high degree of knowledge about multiple companies’ offerings. They also have established relationships with many of the top insurance providers in Canada, which allows them to find policies that suit their customers’ needs. Ultimately, the main benefit of working with an insurance broker is that they solely represent the customer, which means your needs will be their priority. Additionally, insurance brokers shop around on behalf of their customers which makes for a hassle-free car insurance experience. They also have the ability to cater to drivers of all budgets as they aren’t limited to one company’s product offerings. By shopping around and obtaining quotes from several companies, they can find a plan that meets your lifestyle and budget. As with buying car insurance from a company, insurance can be purchased online, over the phone, or in person through a brokerage.
It must be noted that insurance brokers cannot bind coverage, so this final step is conducted by the insurance company. However, an insurance broker can connect you with the product sold by the insurance company and guide you through the entire purchasing process. A broker can also help modify your policy with the insurer in the future and can even help you file a claim.
Contact BrokerLink for more information on car insurance
Want to learn more about how car insurance companies work in Canada? BrokerLink is happy to answer any questions you might have. We have strong relationships with many top insurance providers and are well-versed in their products, which means we 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, visiting us in person, or requesting a no-obligation auto insurance quote online.
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