How Car Insurance Works in Canada

How Car Insurance Works in Canada

How Car Insurance Works in Canada: Law is unambiguous. Auto insurance is a legal requirement for vehicle operation in Canada. In all provinces and territories, it is required. If you are discovered driving without insurance, you risk having your license revoked, having your car impounded, and paying a large fine.

For a first offense, fines in Ontario, for instance, range from $5,000 to $25,000. In addition, you must pay a 25% victim fine surcharge, which amounts to an additional $2,500 in the case of a $10,000 fine. Fines for a second offense might reach $50,000.

Even if you’re fortunate and only receive a relatively small fine, your future insurance costs will skyrocket.

Why you need car insurance in Canada?

You must have car insurance in Canada if you own a car or other vehicle. It is a necessity if you own a car in Canada.

Car insurance may protect you from:

  • having to pay to repair your car or other vehicle if it’s damaged or in an accident
  • liability claims if you’re held responsible for an accident causing damage to another person’s vehicle or injury to other people​

Insurance companies may refer to car insurance as property and casualty insurance. Property and casualty insurance also includes home insurance, business insurance and disaster insurance.

Who a car insurance in Canada policy covers

If you get into a car crash, your insurance may cover:

  • ​the driver
  • all passengers
  • other people who are involved

In some provinces, injured passengers or other people involved in the accident who have their own insurance policy must make a claim under their policy first.

The principal driver is the person who drives the car most often.

Additional drivers are other drivers in the household who may use the car as part of their routine, such as driving to school or work. Your insurance policy must list additional drivers. If additional drivers have a poor driving record, your premiums may increase.

Occasional drivers are drivers who only use the car from time to time.

What a car insurance in Canada policy covers

Coverage is the maximum amount of money the insurance company will pay you if you make a claim for a loss or an event covered by your policy.

Mandatory insurance coverage

Canadian provinces and territories require drivers to have mandatory coverage. Some provinces may require more coverage than others.

Liability insurance

Liability insurance covers losses, such as injury or death, which your vehicle causes to other people. It also covers damage your vehicle causes to other vehicles. If the cost of the losses or damage is more than your liability limit, you’ll need to pay the balance of the settlement yourself.

Liability insurance does not cover the cost of repairs to your own vehicle. You may need to consider additional insurance to cover these costs.

Accident benefits/bodily injury insurance

Accident benefits cover the cost of your own medical expenses and loss of income when you’re in a car accident.

In Quebec, you’re automatically enrolled for insurance that covers bodily injury. Premiums are paid as part of your driver’s licence registration. You don’t need to buy extra coverage for this.

Canada Car insurance Coverages

Your car insurance policy may also provide you with additional benefits.

Mandatory coverages:

Each province has its own rules and regulations when it comes to mandatory coverage, but there are some commonalities. All Canadian car insurance policies must include the following:

  • Third-Party Liability (TPL) – If you are responsible for an accident in which someone is injured or killed, or their property is damaged, TPL will help cover the cost of lawsuits against you up to your coverage amount. The minimum amount of required coverage is $200,000, but most drivers opt for at least $1 million. In Ontario, Quebec, Nova Scotia, New Brunswick and Prince Edward Island, TPL contains a component called Direct Compensation – Property Damage (DCPD). If you are in an accident where you are deemed not-at-fault, DCPD coverage means your insurer will pay for repairs, without having to recover damages from the other driver.
  • Uninsured Automobile – This protects you financially in the case of death or injury caused by an uninsured driver or as a result of a hit-and-run by someone else. It also covers damages to your vehicle by an identified uninsured driver. Uninsured automobile coverage is mandatory across Canada.
  • Accident Benefits (AB) – This coverage is mandatory everywhere except for Newfoundland and Labrador. If you are hurt in an accident, this coverage will pay for income replacement, medical treatments, and even funeral costs should you succumb to your injuries, regardless of who is at fault.

Optional coverages:

While third-party liability, uninsured automobile, and accident benefits insurance are mandatory across the country, there are many optional coverages that you can add to your policy to increase your coverage for an additional cost.

The most popular optional coverages are collision and comprehensive insurance. In fact, they are mandatory in Saskatchewan and Manitoba, and usually required by the lender (such as a bank) if you have taken out a loan to pay for your car in any other province.

  • Collision Coverage – This pays for repairs if you collide with another vehicle or object, even if you are at fault or someone else was driving your car. If your vehicle is damaged beyond repair, collision coverage will help pay for a replacement.
  • Comprehensive Coverage – This covers the cost of repairing damage caused by vandalism, theft, fire, natural disasters and other hazards, even when your car is parked and unattended.
  • Specific Perils Coverage – This protects you financially from specific perils identified in your policy (e.g. fire, earthquake).
  • All Perils Coverage – This is the broadest coverage available. It includes both collision and comprehensive coverage.


You can add endorsements to your policy to enhance your coverage. Some of the most popular endorsements are outlined below:

  • Loss of Vehicle Use – This covers transportation costs if you are in an accident, and your vehicle is temporarily unavailable due to repairs.
  • Damage to Non-Owned Vehicle – This covers you in case you cause damage to a vehicle that you rent.
  • Depreciation Waiver – This is recommended if you have a brand new car. It ensures you receive the full value of your vehicle following a write-off.
  • Family Protection – This comes into play if you’re involved in an accident with a driver who has no insurance, or less coverage than you and not enough for your claim.
  • Accident Forgiveness – This endorsement is offered by some insurance companies. If you buy it, they won’t count your first at-fault accident against you.

How much coverage is necessary?

Aside from choosing which coverages to include in your policy, you also have to decide how much coverage you will need. Each province has a minimum required amount, but it’s not always enough. When deciding how much you will need, consider the value of your car, and the financial consequences of a serious accident.

Given the vast amount of auto insurance coverage options available, it is important to do your homework ahead of purchasing a new policy to ensure you have the appropriate coverage types and limits. You’re encouraged to shop around and use our free car insurance comparison service to get several quotes tailored specifically to your needs.

Collision insurance

Collision insurance covers the cost of repairing or replacing your car if you hit another car or object. This is sometimes included with your mandatory insurance coverage.

Ask your insurance company what coverage your policy provides.

Comprehensive car insurance in Canada

Comprehensive car insurance covers the cost of repairing or replacing your car due to other types of damage or loss. This may include:

  • vandalism
  • damage to your windshield
  • theft


Comprehensive car insurance doesn’t cover loss or damage to your car if you hit another car or object in a collision.