Liability car insurance in Canada

What does liability auto insurance not cover?

Liability insurance covers damage you cause to other people and their property, but does not cover damage to your own property. 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 damage to your own car, while your medical expenses may 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 would need to have either:

• Collision coverage, which helps pay for damage to your vehicle after a collision with another vehicle or object

• Comprehensive coverage, which helps protect against non-collision losses such as theft, vandalism, fire, hail, falling objects, wildlife encounters or certain weather-related damage

Province-by-province overview

Some provinces in Canada operate public auto insurance systems, while others rely on private insurance providers. But regardless of the system, all drivers must carry the minimum amount of third-party liability coverage set by their province or territory to legally operate a vehicle on public roads.

How much liability coverage do you actually need?

Every driver in Canada must carry a minimum amount of third-party liability set by their province or territory. For most provinces and territories, the minimum is set at $200,000. However, Quebec has its set at $50,000 while Nova Scotia and Manitoba have theirs set to $500,000.

But the legal minimum is simply the starting point. Your liability limit represents the maximum amount your insurance company will pay per occurrence. If the total cost of a claim exceeds your liability limit, you may be personally responsible for paying the remaining balance out of your own pocket.

Each year, drivers across Canada face situations where those limits are tested. According to Transport Canada’s latest collision data, there were more than 1,900 motor vehicle-related deaths and 118,000 serious injuries reported in 2023. The 2022 report also shows similar death and injury volumes across the country. This shows that drivers face thousands of situations each year where they may be held legally responsible for medical expenses, lost income, rehabilitation, property damage and legal fees. In more serious injury cases, your costs can extend to long-term rehabilitation or income replacement or involve multiple vehicles or infrastructure, increasing the total significantly.

For this reason, many drivers choose limits higher than the legal minimum.

Higher limits

Due to increasing legal costs and lawsuit settlements, insurance professionals often recommend a minimum liability coverage of $1 million.

For example, if two or more injured parties each pursue compensation for lost income and ongoing rehabilitation, the combined claim value can approach or exceed several hundred thousand dollars. A $1 million liability limit helps reduce the risk that you would need to cover remaining costs personally.

Some drivers even opt to increase their liability limits to $2 million for even more protection, particularly if they:

• Frequently drive in high-traffic areas

• Regularly transport passengers

• Use their personal vehicle for business purposes

• Frequently travel to the United States

• Own other assets to protect

The cost difference between $1 million and $2 million in liability coverage is often smaller than drivers expect, yet the amount of added protection can be significant in a serious claim. A broker can help you decide what liability limit is best for your driving habits.

Hypothetical example for liability coverage

Imagine you are driving home during a snowstorm and slide through an intersection, striking another vehicle and pushing it into a third car. Two people in the other vehicles are injured and require emergency medical care and follow-up physiotherapy. All three vehicles sustain significant damage.

While basic hospital care may be covered under their provincial health insurance, injured parties may still pursue compensation for lost income, future care needs, out-of-pocket medical costs and pain and suffering depending on the laws in your province. And any property damage claims could include repairs or total loss payments for one or both vehicles.

Without liability coverage, you would have to pay for those injury-related and property damage costs, as well as your own legal defence expenses. But with liability insurance coverage in place, your auto insurance policy would respond to covered claims and legal fees on your behalf, up to your policy limits, helping protect your savings, income and future assets.

Liability-only vs. full coverage

Choosing your liability limit is one part of building your auto insurance policy. The other consideration is whether you want coverage for your own vehicle. This is also known as choosing between one-way insurance and two-way insurance.

Liability-only coverage means you are meeting the legal insurance requirement in your province, but you are accepting responsibility for repair or replacement costs to your own vehicle. For some drivers, this may be a practical choice. For others, especially if a vehicle is financed or leased, they may need more coverage.

The right approach for you will depend on the value of your vehicle, your financial situation and how much risk you are comfortable assuming. Talk to a broker to help you decide what’s best for your needs.

Who is liability-only insurance recommended for?

Liability insurance is mandatory for everyone who wants to drive on public roads in Canada. It exists solely to protect you financially if you are found legally responsible for a car accident. While no one expects to cause a collision, the financial consequences of even a single at-fault incident can be significant.

That’s why having just a liability-only policy may not be suitable for everyone. Some people may require more coverage by their lenders 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