What is Liability Car Insurance?

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What is liability car insurance?

Liability insurance is a mandatory coverage that must be included on your car insurance policy in order to legally drive a vehicle in Canada. If you’re at-fault in a car accident, your liability coverage helps cover the cost of legal expenses arising from damages caused to other drivers, pedestrians, or property, up to your policy limit.

What is a liability-only policy?

When someone requests “Liability Only” car insurance coverage, they are typically referring to a policy that includes only the minimum amount of insurance required by law. However, in Ontario this is more than just liability - it includes liability, accident benefits, DCPC, and uninsured automobile coverage.

What does liability insurance cover?

There are two types of coverage under the liability section of your car insurance policy; bodily injury and property damage.

Bodily injury covers expenses associated with injuring someone else in an at-fault accident. Your policy may respond by covering the costs of their medical expenses and loss of wages as a result.

Property damage helps pay for damage you cause to someone else’s personal property during an accident. This can include anything from their car to their house.

How much liability coverage do I need?

Every driver is required to carry a minimum coverage that is specified by their province, with an example being Ontario's requirement of $200,000 in liability coverage on their car insurance policy. However, due to increasing legal costs and lawsuit settlements in Canada, the minimum amount of coverage typically recommended by insurance professionals is now $1,000,000.

In many cases, it is advisable to carry even higher liability limits up to $2,000,000, especially if any of the following applies to you:

You frequently carpool or drive with others in your vehicle
You drive your vehicle for business reasons
You drive to the United States frequently
You often drive in areas with lots of traffic or high accident rates

Types of auto insurance coverage

Insurance brokers will help you determine the right coverage for you and your needs. There are many types of auto insurance coverage available. Depending on where you live, certain types of insurance coverage are required by law, and others are optional. Before purchasing insurance coverage, you should find out what kind of car insurance coverage is required where you live. You can find out if you have the right insurance coverage in your province by speaking with a broker who understands the laws in your home province. Let's learn more about each one to help you find the best coverage available:

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Liability insurance, also known as third-party liability coverage, helps pay for accidental injuries and property damage that occur in a car accident. It might also cover medical expenses or lost wages, as well as legal defence and court fees if necessary. This mandatory coverage is required across Canada, with its minimum amount varying depending on your province.

[Not mandatory in Newfoundland] With accident benefits coverage, you and any passengers who were in the vehicle at the time of the incident will receive compensation if someone gets hurt or killed as a result of the incident. It covers medical expenses, such as rehabilitation programs, caregivers, income replacement and funeral expenses if necessary.

[Not mandatory in Alberta] Like other insurance products, this type of coverage is mandatory. Uninsured automobile coverage will come into effect if you get into an accident with an uninsured or underinsured driver. It helps pay for damages caused by the accident even if the other driver leaves the scene in a hit-and-run and there's no one at fault for the collision.

[Not mandatory in Ontario] Also known as no-fault insurance, direct compensation coverage will help pay for damages if you get into an accident that was not your fault. This can include injuries and damages to your vehicle. However, you will only receive coverage when you are at fault if you have collision and comprehensive coverage.

Collision coverage is a popular type of optional coverage. It provides compensation for damages if your vehicle collides with another driver, a stationary object, or if your car rolls over. While this coverage is optional, you may be required to carry it if your vehicle is leased or financed.

Comprehensive coverage is another popular type of optional car insurance. It will help if your vehicle is damaged for reasons other than an auto accident. Expenses covered by comprehensive insurance can include theft, vandalism, fire, water damage, or even hitting an animal like a deer. You may also be required to carry this if your vehicle is leased or financed.

When you get into your first at-fault accident, accident forgiveness coverage prevents your insurance company from raising your rates after going through the claims process. It will allow you to maintain a clean driving record as you stay with the same insurance company. This is another popular type of optional coverage.

If you're buying a new car, adding this coverage to your policy is worth considering. It ensures you're covered for the full value of your vehicle without factoring in depreciation. That means if your car is stolen or totalled, you'll be reimbursed for the cost of a brand-new vehicle—not just what it's worth after wear and tear.

If you ever get into an accident and your car needs repairs, loss of use coverage has your back. While your car is in the shop, this coverage helps pay for other ways to get around—whether that's hopping on public transit, using ride shares, or renting a car. It can be a real lifesaver, especially if your car ends up being out of commission for days or even weeks.

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How much does liability-only insurance cost?

Just like most other insurance policies, the cost of liability-only coverage is almost impossible to pinpoint. This is because a number of factors are considered when calculating each individual’s final cost. These factors can include your age, the make of your vehicle, where you live and your driving history.

One major aspect of liability coverage that really doesn’t affect the price too much is how much coverage you choose to have. This may seem surprising, as liability coverage ranges from $200,000 to $2 million. However, the cost to increase your liability coverage is small in most cases, and most coverage options cost a similar price to one another.

What liability insurance does not cover?

To put it simply, liability insurance provides protection against damage you inflict on other people and their property, but does not cover any of your own damages.

For example, if you have a liability-only car insurance policy and are involved in an at-fault accident, you’re responsible for paying for damages to your own car out-of-pocket, while your medical expenses will be covered under the mandatory accident benefits section of your policy, subject to your policy limits.

In order to be covered for your own property damage, you must have either Collision Coverage or Comprehensive Coverage on your policy. These coverage options will offset the following expenses that liability-only does not cover:

Physical damage to your property or vehicle
Theft
Vandalism
Natural disasters
Hit and run
Physical damage due to colliding with an animal or object

Who is liability-only insurance recommended to?

Liability-only coverage is definitely not a suitable option for everyone. Some people may require more coverage if their vehicle is financed or leased, while others may appreciate more peace of mind in knowing that they have extensive insurance protection.

On the other hand, full-coverage insurance also isn’t necessary to have in every situation. Other important factors to consider when deciding whether or not to drop your full coverage include:

The age of your vehicle; the older it is, the more likely it has depreciated
The mileage you have put on your vehicle; more mileage decreases the car’s value
The replacement cost of your vehicle
The overall wear and tear of your vehicle

Get in Touch

Deciding whether to get a Liability-Only policy, or something more comprehensive, is a very big decision. When making this choice, it is important to consider your own individual situation and what options will benefit you the most.

Have more questions about Liability-Only Insurance or any other coverage options? Get in touch with one of our licensed insurance professionals.

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