How does car insurance work?

Laws in most provinces require some form of car insurance in order to drive. You probably have a vague idea that you need insurance to help pay for damages if you were to cause an accident, but it can be hard to understand what else is covered or how much insurance you should have. If you are in the habit of keeping only the minimum coverage because it’s the most affordable, then you might want to reconsider how car insurance works and whether the coverage you have is adequate.

With that in mind, we’ll explore how to get the best balance of coverage and low rates for your auto policy.


Different types of car insurance and how they work

Auto insurance companies offer several types of insurance. There are 5 parts of your car insurance policy, including optional coverage:

  1. Third-party liability insurance is the minimum insurance required in most provinces. It’s the insurance that will pay for damage to someone else’s vehicle if you are at fault in an accident. It will also cover medical expenses if others are injured in an accident that you were found to be at fault.
  2. Direct compensation for property damage, which pays out a benefit when someone else damages your car or whatever is inside of it. Windshield insurance claims can often covered under this.
  3. Statutory accident benefits coverage covers your medical expenses in the event of an accident, plus some related costs like rehabilitation or attendant care.
  4. Uninsured driver coverage, for when the other driver doesn’t have insurance (making it illegal to drive).
  5. Optional coverage that you can request at your discretion.

The first four parts come with every auto policy by default. You can choose the amount of liability coverage, but your policy comes with a minimum of $200,000 in coverage by law. Most insurers won’t write policies for anything less than $1,000,000 in liability coverage these days either, since medical care and rehabilitation can add up to well beyond $200,000 over time.

You can also buy a wide range of optional coverage for your policy as well, which would count as the fifth component of your auto policy.

  • Accident forgiveness, which waives higher premiums the next time you’re found to be at-fault in an accident.
  • Collision coverage  is also usually required if your car is being financed. This insurance covers your vehicle if it is damaged in a collision with repairs or the actual cash value of your vehicle.
  • Comprehensive coverage covers damage to a vehicle caused by anything other than a collision, such as vandalism, theft, wind, hail, fire or flood. This is also probably required by the lender if your vehicle is being financed.
  • Uber driver insurance coverage for part-time drivers (aside from Uber’s own coverage).



Deductibles and auto insurance

You’ll also find a deductible on most auto policies, unless you’ve specifically asked for a 0$ deductible. The meaning of an insurance deductible is an amount of money that you pay on a claim before your insurer pays out the rest of it. Insurance companies introduced deductibles decades ago to prevent people from filing a claim every time some paint was scratched off their cars, or when they sustained some other kind of small or miniscule damage. Preventing that many claims also keeps people’s rates from rising over “small potatoes,” too.

Most policies have deductibles of $500 or $1,000, although you can choose $0 or $1,500, too. The idea is that lower deductibles will raise your premiums, while raising it will lower them. Higher deductibles mean that you’ll pay more out of pocket in the event of a claim, so insurance companies are willing to charge less to make up for that fact. Similarly, making your deductible $0 costs more for your monthly premium to reflect the fact that you’d pay nothing if you made a claim.


How do car insurance claims work?

If you are in an accident, or if your vehicle is damaged by another type of incident, then call your insurance company using the number on the back of pink slip you’ve been issued. Your insurer will ask for your policy number along with detailed information about what happened, and if another driver was involved, they will need their license and insurance information. They will assign a claim number, which you will need if you call to follow up on the status of the claim.

Remember to follow these do’s and don’ts for car accident insurance claims!

They will also review injury claims. Once they have completed their investigation, you should receive a cheque for what you’re owed, minus the cost of the deductible on your policy.

Your insurance agent can help review your policy and determine if your coverage needs are adequate. He or she can also answer any questions you may have on how car insurance works and what to expect if you should have to file a claim.

If you’re looking to upgrade your insurance coverage, you’re always welcome to get a free 5-minute quote for your vehicle online, or to call us and we’ll be glad to help you experience our vision of insurance.

Seriously, what else can you do in 3 minutes?

Boil half an egg?

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