Every car owner knows that they need to buy car insurance by law. Yet many owners don’t understand exactly how car insurance works, what coverages are included in a policy or where the legal requirements end, and optional coverages begin. Before getting insurance or updating your policy. You should know just what does third-party car insurance cover?
Third-party liability is one of the most important coverages included in Ontario and Alberta auto insurance policies. In this article, we are going to explore what does third party car insurance cover, why it’s so important and how it works as one of the components found in a car insurance policy.
What Does Third Party Car Insurance Cover: Frequently Asked Questions
What Is third-party auto insurance on your auto policy?
Third-party liability insurance coverage steps in to pay for damages that you or the driver of your vehicle caused to someone else. These damages may be something as simple as paying to replace a fence you ran into or repairing a car that you backed into in a parking lot. In more serious situations, it can pay to replace a vehicle that was totaled in an accident caused by you or the medical bills and other expenses of someone seriously injured in an accident, in which you were found to be totally or partially at fault.
These are legal claims made against you by other drivers, their passengers, pedestrians, and property owners (or more commonly, by their insurance companies) and can result in substantial sums of money owed to the victims. In Ontario and Alberta, it is not unheard of for some third-party liability awards for very serious injuries to run into millions of dollars.
For all claims made against you, your third-party liability coverage also pays any legal fees necessary to defend you in court.
In Ontario with No-Fault insurance, each person’s insurance pays for their own physical damage to their vehicle whether or not at fault. So if your vehicle was hit and damaged, your insurance would pay for your damage but the person at fault would be charged for the accident on their insurance. Even if your car was totaled when hit, your insurance would pay to replace your car.
How third-party liability insurance works?
Third-party liability is just one of a several insurance coverages that work together to protect you against economic losses caused by a car accident. The other components of this coverage include:
Accident benefits coverage – This protects you and anyone in your car, if any of you are injured or killed in an accident, regardless of who was at fault. Accident benefits coverage pays for expenses such as any additional healthcare costs not covered by your provincial health plan, including rehabilitation costs, physiotherapy, attendant therapy, and the cost of cleaning and maintenance if the injured person isn’t able to take care of their home. There’s also some loss of income coverage that will continue to pay a portion of your salary if the injured person is unable to work.
Uninsured automobile coverage – This coverage responds if you or a family member are injured or killed by a hit and run driver or a driver who doesn’t have insurance. It also pays to repair or replace your vehicle if it’s damaged by an identified uninsured driver. This means that hit-and-run property damage is not covered when the other driver is unidentified.
These coverages along with third-party liability are all part of a standard car insurance policy in both Alberta and Ontario. In Ontario there is also one more standard coverage.
Direct compensation – property damage coverage – This is an Ontario coverage and is not part of the standard Alberta auto insurance policy. It pays to repair or replace your car and any contents that were inside the vehicle if you’re involved in an accident caused by someone else. There are some restrictions to this coverage though, and it only applies to multi-vehicle accidents that take place within Ontario.
The adoption of no-fault insurance in both provinces sometimes blurs the lines between coverages, and in fact, it is not unusual for several different coverages to be combined in any specific claim. For example, if you were to cause an accident that results in a catastrophic injury to the occupant of the other vehicle, it is likely that the other vehicle’s insurance will pay their accident benefits coverage with third-party liability coverage paying for any property damage, as well as ongoing medical care above what is provided by accident benefits coverage.
Why is it important to have third-party liability insurance?
As we explained above, third-party liability coverage protects you against legal claims that you, or a driver of your vehicle, were responsible for damaging someone else’s property or causing them bodily harm or death.
Obviously, being sued for damages for something you did can be pretty unsettling. Having third-party liability coverage means that your insurance company will step in to guide you throughout the process and will pay any legal fees required to defend you in court. Not only that, but they will also pay the cost of any settlement made against you up to your policy limits. Knowing that your insurer has your back in these difficult circumstances can go a long way to protect your mental health. It can also help ease any guilt you have about the accident by ensuring that the injured party is properly compensated for their loss or injury.
What Is Covered by third-party liability insurance?
Third-party liability can be broken down into two distinct coverages:
Bodily Injury – This coverage steps in when the driver of your car causes an accident that kills or injures a pedestrian or someone in another car. Third-party liability coverage will pay any lawsuits made against you, up to the limits of your policy.
Property Damage – This pays for any property that’s damaged as the result of a car accident. Claims may include the cost to replace trees, hedges, utility poles or fences damaged in an accident. It could also pay the cost to replace a bicycle involved in a crash.
For both bodily injury and property damage claims, your third-party liability coverage also pays any legal fees necessary to defend you in court.
How much third-party liability insurance do I need
With third-party liability being such an important part of your car insurance policy, it only makes sense to ask yourself how much third-party liability coverage do I need? The short answer is as much as you can afford.
In Ontario and Alberta, the government requires that every vehicle be insured with a minimum of $200,000. However, this amount of coverage is woefully inadequate in our modern world. One only needs to watch the news or read the news to see how large court awards have become.
In recent years, a number of auto accidents in Canada have resulted in awards in excess of $10 million and there have been hundreds of cases in the past decade that exceeded $1 million.
One infamous Ontario case involved three young men who were driving in a pick-up truck after drinking at a nearby patio. The driver tried to pass on a curve, lost control of the vehicle and two of the passengers received catastrophic injuries in the resulting crash, including paralysis and brain damage. The courts awarded a total of $24 million to the two men, making it one of the costliest car accidents in Canadian history.
In another case, a teenaged driver drove through a stop sign, resulting in the car becoming airborne and smashing into a ditch. A 15 year-old passenger in the vehicle suffered a catastrophic brain injury that made her unemployable the remainder of her life. A judge in this case awarded the passenger more than $18 million, including funds to replace her expected income.
While these may seem like extreme examples of a third-party liability claims, it demonstrates that serious liability claims do happen, and they can occur within a fraction of a second. It should also be pointed out that these huge awards also did not cover the defendant’s legal costs, which in cases like these may run into hundreds of thousands of dollars.
Almost all insurance professionals will advise you to buy at least $1 million in third-party liability and many will strongly encourage you to purchase $2 million in coverage or more. Speak to your insurance professional to discuss your third-party liability coverage and which limit makes sense for you.