What are the liability insurance minimums in each province and what happens if the claims against you exceed the coverage you have? What is the recommended liability coverage? Should it be higher if you drive in a densely populated area? – Chris, Toronto
In most provinces, including Ontario, you need a minimum of $200,000 in liability insurance.
But that could leave you on the hook for $1-million – or more – if you cause a serious crash.
“The minimum is ridiculously low. Nobody should have that,” said Traci Boland, a London, Ont.-based insurance broker and president of the Insurance Brokers Association of Canada. “You’re saving a few dollars a month, but it could destroy your life if you didn’t have enough coverage and you were found legally liable in a court of law.”
There are three main types of car insurance coverage: liability, collision and comprehensive.
Liability covers damage and injuries that a driver causes to other people, vehicles or property. Collision covers the cost to repair or replace your own vehicle if you’re in a collision and you’re at fault. Comprehensive covers almost anything else that isn’t a collision, including theft and vandalism.
There’s also all-perils, which combines collision and comprehensive.
So, basic insurance covers damage to your vehicle if someone hits you and they’re at fault – although Ontario will start allowing drivers to opt out of that coverage starting in January.
But, if you’re at fault in a collision, the cost to fix or replace your vehicle will only be covered if you have collision Insurance. If a tree falls on your car, for example, the damage will only be covered if you have comprehensive insurance.
A minimum amount of liability coverage is mandatory everywhere in Canada. In most provinces, the other two are optional (collision and comprehensive are part of basic insurance in Manitoba).
In most provinces – British Columbia, Alberta, Saskatchewan, Ontario, New Brunswick, Prince Edward Island, Newfoundland, Nunavut, Northwest Territories and Yukon – the minimum liability coverage is $200,000, according to the Insurance Bureau of Canada.
In Quebec, the minimum is $50,000. In Nova Scotia and Manitoba, it is $500,000.
While most insurance policies start with a minimum of $1-million in liability, you can get a policy in Ontario with the $200,000 minimum, Boland said.
“If the customer requests it, we need to offer it; it’s the legal requirement in Ontario to drive your vehicle,” she said. “But there will be lots of paperwork. You’ll be signing off that you’re fully aware of what you’re doing – because it’s not recommended.”
How much do you need?
Liability insurance kicks in when you cause a crash that injures or kills someone or damages their property, including their vehicle.
In most provinces, a court will find you legally liable and determine how much you owe. If it’s more than what you have in liability insurance, you would have to pay the rest, Boland said. She said she’s seen courts award more than $1-million.
According to the Financial Services Regulatory Authority of Ontario (FSRA), which regulates insurance in the province, third-party liability coverage “will pay for claims resulting from lawsuits against you up to the coverage limit and pay the costs of settling the claims.” The court could either rule that you owe a specific amount in damages – or the amount could be dictated in a settlement before it gets to court, Boland said. Either way, you’ll have to pay anything above your policy’s limit, she said.
We asked the Insurance Bureau of Canada whether the number of liability claims and the average amount awarded per claim have gone up and didn’t get an immediate answer.
The Insurance Bureau of Canada recommends at least $1-million in coverage, but Boland thinks that’s not enough.
“I think $2-million is the minimum that you should have,” she said. “We’ve been recommending that for the last 10 years.”
Typically, bumping up coverage from $200,000 to $2-million would cost about $10 more a month, said Daniel Ivans, an insurance expert with Rates.ca, a rate comparison site. To add $5-million in liability, it would cost about $20 more a month.
“It’s important for consumers to weigh the potential cost of cutting coverage in order to save a few dollars each month,” Ivans said in an e-mail. “Claims can get expensive very quickly.”
But he says you don’t necessarily need more liability insurance if you live in a big city.
“Liability insurance is there to ensure that consumers are protected in the event of sudden and unexpected losses, and these can happen in rural areas just as easily as urban areas,” Ivans said.
Over all, you need to look at your risks. For instance, if you plan to drive in the United States, you may need more liability insurance because of the exchange rate, Boland said.
For instance, if the U.S. dollar is worth $1.40, then a US$1-million claim in the United States could cost you $1.4-million.
Also, be aware that if you have both home and auto insurance, you can get an umbrella policy that provides added liability coverage.
“That could top you up to $5-million,” Boland said. “If you have one car and one house, you could be looking at $250 more a year. If you have four cars and three houses, the price goes up.”
Have a driving question? Send it to globedrive@globeandmail.com and put ‘Driving Concerns’ in your subject line. Emails without the correct subject line may not be answered. Canada’s a big place, so let us know where you are so we can find the answer for your city and province.