How Much Car Insurance Do I Need?

Car insurance is mandatory in Canada. Without it, you can’t legally drive. Each province requires you to have a certain amount of liability insurance coverage, including bodily injury liability coverage, which protects you financially if you cause injuries to others in an accident.

But the important question is: Will it be enough after a road accident?

There’s no one-size-fits-all answer, but often, having additional auto insurance coverage makes sense. Besides understanding your province’s requirements, consider your personal financial situation when looking at how much car insurance do I need?

Let's cover this in more detail.

Key Takeaways:

• Liability insurance is mandatory for drivers in all provinces in Canada
• How much liability coverage you need varies between provinces, and so do your options to buy mandatory and optional coverage
• Buying additional coverage is often recommended
• The cost of car insurance depends on many factors, some of which are in your control.

Why do You Need Car Insurance?

Car insurance can provide financial protection when:

• You’re at fault in an accident that causes property damage or bodily injury to third parties;
• You’re injured in an auto accident; or
• Your car is stolen or damaged

It also allows you to meet the minimum coverage requirements mandated by your province.

Penalties for driving without auto insurance in Canada differ by province, but it usually includes fines, license suspension, and vehicle impoundment. The fine for the first offense can be anywhere between $5,000 and $25,000, depending on where you live.

Protects Against Financial Loss

Car insurance is your financial safety net in the event of an accident or other damage to your vehicle. It helps cover the costs of repairs, medical expenses, and other related costs, ensuring you don’t face financial hardship.

Imagine the stress of having to pay out-of-pocket for a major car repair or medical bills after an accident. With the right auto insurance, you can avoid these unexpected expenses and focus on getting back on the road. You protect yourself from significant financial loss and ensure you can recover smoothly from any unforeseen events.

Provides Peace of Mind

Having car insurance provides invaluable peace of mind. Knowing that you are protected in case of an accident or other unexpected event allows you to drive with confidence. You can enjoy the freedom of the open road without worrying about potential financial consequences. It acts as a safety net, giving you the assurance that you are covered for any mishaps. This peace of mind is priceless, allowing you to focus on the joy of driving rather than the what-ifs of the road.

How Does Car Insurance Work in Each Province?

Each province handles car insurance differently. How much car insurance you absolutely need and how you can purchase it differs from one Canadian province to another. 

How do you buy car insurance in Canada?

Some provinces have a public car insurance marketplace, meaning the government issues the basic level of auto insurance mandated by law. However, in other provinces with a public auto insurance system, car owners can purchase additional coverage through private companies. These provinces are referred to have what is called a hybrid marketplace. 

Other provinces have private car insurance marketplaces, where both mandatory and additional coverage is available through private companies. 

However, in all Canadian provinces, it is the government agencies that regulate car insurance. 

How much car insurance do I need in each province? 

Ontario

Ontario residents need at least $200,000 in third-party liability coverage, accident benefits coverage, direct compensation for property damage coverage, and uninsured automobile coverage.

Quebec

All Quebec vehicle owners must have a civic liability insurance policy of at least $50,000. 

Alberta

Like other provinces in Canada, liability coverage is mandatory in Alberta. All drivers in the province must have third-party liability coverage of at least $200,000. They also need to have direct compensation for property damage as well as accident benefits protection. 

British Columbia

All car owners in British Columbia must have liability coverage of at least $200,000. The mandatory coverage is referred to as Basic Autoplan insurance. 

Manitoba

Insurance is available through Manitoba Public Insurance (MPI). Basic Autopac coverage is mandatory for all drivers. It has three components: 

• Third-party liability coverage (up to $500,000)
• All perils coverage (up to $70,000) 
• Personal injury protection coverage

New Brunswick

Mandatory coverage for drivers in New Brunswick includes: 

• $200,000 of third-party liability insurance
• Direct compensation for property damage
• Accident benefits
• Uninsured automobile and unidentified automobile insurance

Newfoundland and Labrador 

Along with third-party liability coverage (minimum coverage amount = $200,000), you need uninsured motorist coverage. 

Northwest Territories

All drivers in Northwest Territories must have car insurance coverage that includes: 

• $200,000 in third-party liability
• $25,000 of medical coverage per person
• Uninsured motorist cover
• Accident benefits, such as disability income, death benefits, and funeral expense benefits

Nova Scotia

To legally drive in Nova Scotia, you must have:

• $500,000 in third-party liability
• $50,000 in medical payments coverage per person
• $2,500 in funeral benefits
• Uninsured and unidentified driver insurance 
• Accident benefits, such as disability income and death benefits

Nunavut 

If you own a car in Nunavut, the law requires you to have third-party liability coverage ($200,000), as well as accident benefits and uninsured car insurance coverage. 

Prince Edward Island 

In Prince Edward Island, all drivers are required by law to carry at least $200,000 in third-party liability for bodily injury and property damage and accident benefits coverage. 

Saskatchewan 

Saskatchewan drivers are required by law to carry liability coverage of at least $200,000 in third-party liability insurance and accident benefits coverage. 

Yukon

The minimum automobile insurance in Yukon is $200,000 in third-party liability and accident benefits. 

Types of Auto Insurance Coverage

Liability Insurance 

This coverage pays for property damages and/or bodily injuries to someone caused by a car accident in which you’re at fault. It also provides coverage for legal expenses and any settlements or court-ordered payments in case you are sued due to an accident.

All provinces in Canada require car owners to have a certain amount of liability coverage. However, the minimum coverage amount may not be sufficient. It’s generally a good idea to buy additional liability coverage. Otherwise, any amount above the coverage limit will have to be paid out of pocket.

When considering how much liability insurance to purchase, it is recommended to have at least $500,000 in coverage to protect against potential lawsuits and consider umbrella insurance for additional protection.

Uninsured Motorist Insurance 

An uninsured motorist helps cover your property damages and medical bills caused by an uninsured or underinsured driver. Having uninsured motorist coverage is a legal requirement in most parts of Canada. 

Even where it is optional, the coverage is usually worth having. It costs relatively little and could potentially save you thousands of dollars if you’re hit by a driver who has inadequate or no insurance.   

Collision and Comprehensive Coverage

Collision coverage covers the cost of repairing or replacing your car if you are involved in a collision with another vehicle or object. Comprehensive coverage, on the other hand, helps pay to repair or replace your car if it’s stolen or damaged because of events beyond your control, like vandalism, floods, storms, fire, and more. 

Collision and comprehensive car insurance cover different types of events in which your vehicle can get damaged, but usually, they are sold as a package. While neither is a legal requirement, you may want to opt for both since they can save the day for you in a variety of situations. 

Personal Injury Protection

Personal injury protection (PIP) coverage, also called no-fault insurance, covers a range of expenses in the event of an accident, regardless of who’s at fault. Covered expenses include: 

• Hospital bills
• Medical bills
• Lost wages
• Funeral expenses

Do you need PIP if it is not required by law? The answer depends on whether you have a robust health insurance plan or not. If you have comprehensive health insurance, you can decline it. But keep in mind some of the expenses covered by PIP are not covered by health insurance, such as lost wages. 

Rental Reimbursement Insurance 

It pays for a rental car or transportation expenses while your car is being repaired following a covered accident. 

Roadside Assistance Insurance

If your car is stuck on the side of the road, this coverage pays for assistance services, such as a jump-start, tow truck, locksmith, or fuel delivery. 

What is Included in a Car Insurance Policy?

A comprehensive policy typically includes several types of coverage to protect you in various situations:

• Liability Coverage: This essential coverage helps pay for damages or injuries you may cause to others in an accident. It’s the backbone of any policy and is required by law in all provinces.
• Collision Coverage: This coverage helps pay for damages to your vehicle if you’re involved in an accident, whether it’s with another car or an object like a tree or guardrail.
• Comprehensive Coverage: This coverage protects your vehicle from non-collision-related damages, such as theft, vandalism, or natural disasters. It’s a great way to ensure your car is covered in a wide range of scenarios.
• Uninsured Motorist Coverage: This coverage helps pay for damages or injuries you may suffer if you’re involved in an accident with someone who doesn’t have insurance. It’s a crucial addition to your policy, providing extra protection.
• Medical Expenses Coverage: This coverage helps pay for medical expenses if you’re injured in an accident, ensuring you get the care you need without worrying about the cost.

By understanding these different types of coverage, you can tailor your car insurance policy to meet your specific needs and ensure comprehensive protection.

What Factors Affect Your Cost of Car Insurance?

How much you’ll pay depends on:

1. Your Location

Car insurance premiums differ from province to province and even from one postal code to another. For example, Brampton has the highest car insurance rates in Ontario, at $2,707 per year. Rates vary by postal code because:

• Densely populated areas, like big cities, have a higher risk of automobile accidents, theft, and vandalism
• Car repair costs and medical expenses vary from one city to another
• Some provinces have a higher minimum requirement for liability insurance than others

2. Your Age

Insurance is more expensive for young, inexperienced drivers. Why? Research shows young drivers get into more accidents than older drivers.

3. Your Driving Record

Someone with a clean driving record will pay less for car insurance compared to a person who has been in multiple accidents.

4. How Much You Drive

Your annual mileage can impact your monthly car insurance premium. Statistically speaking, the more you’re on the road, the higher the odds of your being involved in an accident.

5. Gender

Women tend to pay lower premiums for car insurance than men. This is because:

• Women are less likely to be involved in a road accident
• They drive fewer miles a year than men
• They are more likely to wear seat belts
• They get arrested on DUI charges less than men

6. Credit Score

Companies will likely reward you with lower premium rates if your credit score is high. Data shows drivers who have poor credit scores file more auto insurance claims than drivers with better scores.

7. Car Make & Model

Car make and model also affects your monthly auto insurance premium. A luxury sports car is costlier to insure than a standard SUV.

Even your age impacts your premium rate. Newer cars are worth more than older cars and, thus, are more expensive to insure. The same is true for electric cars since they have higher repair costs than conventional vehicles.

8. Type & Amount of Coverage

All provinces require you to have a certain amount of liability coverage, but you can opt for more than required by law. You can also opt for additional insurance, such as collision and comprehensive coverage. The level of coverage you choose will impact your car insurance cost.

9. Deductible

A deductible is the amount of money you pay out of pocket toward an insured loss before the auto insurance company chips in.

Let’s say you’re involved in a fender bender. The total cost of repairs is $1350, and your deductible is $300. The total amount your auto insurance will cover is $1,050 ($1,350 - $300). When the cost of repairs is less than the deductible amount, you’ll bear the entire cost.

Deductibles are typically between $100 and $2,500. Choosing a higher deductible can reduce the premium cost. However, raising this amount beyond what you can comfortably afford to pay in the event of an accident is counterproductive. Consider your tolerance for risk while choosing a deductible amount.

Choosing the Right Car Insurance Policy

Selecting the right policy can feel overwhelming, but considering a few key factors can simplify the process:

• Coverage Limits: Ensure you have enough coverage to protect your assets in case of an accident. Higher limits offer more protection but may come with higher premiums.
• Deductible: Choose a deductible that you can afford to pay out-of-pocket in the event of a claim. A higher deductible can lower your premium but be sure it’s an amount you can comfortably manage.
• Premium: Consider the cost of the premium and ensure it fits within your budget. Balancing coverage and cost is key to finding the right policy.
• Insurance Company: Research the insurance company to ensure they have a good reputation and are financially stable. Customer reviews and ratings can provide insight into their reliability and service quality.
• Discounts: Ask about available discounts, such as those for good grades, safe driving, or bundling multiple policies. Discounts can significantly reduce your premium.

By keeping these factors in mind, you can choose a policy that meets your needs and provides the protection and peace of mind you deserve.

How to Save on Car Insurance

On average, Canadian drivers pay $1,300 for car insurance a year or more. But that doesn’t mean you can’t get a better deal. 

Here are some ways to save big on your insurance: 

1. Shop Around

If you live in a province where car insurance is sold by private insurers, shopping around is a smart idea. Even though insurance carriers use similar factors such as age, location, and driving history to determine your premium rate, each company weighs these factors differently. 

2. Drive Safely

Traffic violations can bump up your premiums. On the other hand, insurance providers reward people who drive safely and have impeccable driving records with lower premiums. 

3. Drop coverage you no longer need

No matter the make, model, or mileage, there’s one thing that’s true for all cars: they depreciate quickly. 

For example, after the first year, the value of a car drops by roughly 15%. By the end of five years, it loses 50% of its value. If you own a car that’s worth less than $4,000, it might be time to do away with collision and comprehensive coverage — which helps cover the cost of repairing your car.

4. Pay premiums yearly

Most private car insurers offer the option to pay premiums monthly or yearly. Some of these insurers (if not all of them) give a discount if you pay off all 12 months at once. If you can comfortably budget for a lump sum payment, paying the premium yearly can save you about 4.5% a year on average. 

5. Take advantage of other discounts

Buying more than one type of policy from a provider can be a money-saver. You can also save money if you make your car more secure. Check with your provider what security devices it offers discounts for.  

6. Opt for usage-based car insurance

Don’t drive a lot? You may want to consider usage-based car insurance. It can save you between 10% and 40% on your car insurance premium. 

Your premium is based on your driving habits, including the annual mileage, which the insurer monitors using a smartphone app or a telematics device. Details and rules vary by insurer, but generally, the fewer kilometers you clock in a year, the greater the cost savings. 

Conclusion

All car owners in Canada are required to have car insurance. Liability coverage is the main mandated coverage, but the minimum amount of coverage varies by province. However, having only mandatory coverage may leave you underinsured. Consider purchasing the maximum car insurance coverage you can comfortably afford for comprehensive protection in many scenarios.

Reaching out to a reputable insurance broker like Dundas Life can help you better understand how much car insurance you need and secure the right coverage at a great price. Work with one of our advisors to find the best rates today.

Frequently Asked Questions (FAQs)

What does liability insurance cover?

Covers how much car insurance pays for property damages and/or bodily injuries to a third party caused by a car accident in which you’re at fault. This is the main mandated coverage in Canada, though you can add other types of coverage to your car insurance policy to enjoy more comprehensive protection. 

What is collision coverage, and do I need it?

Collision coverage reimburses you for the cost of repairing or replacing your car minus the deductible. Collision coverage is not required by law, but you should consider it if you drive a new car. 

Should I consider additional coverage options, such as rental car reimbursement or roadside assistance?

Rental reimbursement pays for rental car fees — and in some cases, even bus fare, ride-sharing services, and train tickets — while your vehicle is repaired following a covered accident. If rental care costs or transportation fees in your area are expensive, rental care reimbursement may be worth the cost. The same goes for roadside assistance, which helps you if your vehicle gets stuck on the side of the road by paying for services such as battery jump-starts, fuel delivery, flat tire changes, and more. 

How often should I review my car insurance policy?

Review your car insurance once a year or whenever a significant change occurs in your circumstances, such as moving to a new location, completing a defensive driving course, or adding a new driver to your plan. Reviewing your plan on a regular basis ensures your coverage meets your current needs and offers adequate protection.