Liability Car Insurance: Cost And Coverage

4 min read

While a good car insurance policy is made up of several types of coverage, third-party liability car insurance is the foundation. It’s required in all provinces and is usually the most expensive portion of a policy.

It’s also a coverage you don’t want to skimp on. If you don’t buy enough liability coverage, you could be setting yourself up for financial disaster if your car insurance can’t cover all the bills of a car accident you’ve caused.

What Is Third-Party Liability Car Insurance?
Liability insurance pays others when you’re at fault for a car accident that causes bodily injury or property damage. Liability insurance also pays for legal-related costs if you’re sued because of a car accident. These costs include your legal defence and judgments and settlements that arise out of a lawsuit.

Here are examples of when liability coverage comes into play:

  • You’re looking at your navigation system and rear end the car in front of you.
  • You swerve and accidentally hit someone else’s car.
  • You mistakenly hit the gas instead of the brake and crash into a neighbour’s fence.
  • What Does Liability Insurance Cover?
  • Third-party liability car insurance covers you when you are in a car accident that results in bodily injury or property damage to others.

There are two components to liability car insurance:

Bodily injury (BI) liability coverage:  This coverage handles medical bills and lost wages for people in another vehicle if you are at fault for the crash.
Property damage (PD) liability coverage: Property damage liability coverage has payment limits for property damage in any one accident that you cause.
Within third-party liability coverage, most provinces use a direct compensation property damage (DCPD) framework, whereby a driver works with their own insurance company to recover damages caused to their car instead of recovering damages from the at-fault driver. DCPD is used in Ontario, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, PEI and Alberta.

What Doesn’t Liability Insurance Cover?
Liability insurance doesn’t cover everything. For example, it doesn’t pay to repair your own vehicle or replace your car if a thief steals it. Other types of car insurance can cover those issues.

Here are some common types of car insurance:

  • Accident benefits. This coverage is for injuries after a collision and pays for medical care, rehabilitation, income replacement and other benefits. In the event of a death, it also covers funeral expenses and survivor benefits. This insurance is mandatory in all provinces except Newfoundland and Labrador.
  • Uninsured automobile coverage. This coverage pays the medical bills and other expenses for you and your passengers if a driver without liability insurance or not enough liability insurance crashes into you. Uninsured motorist coverage is mandatory.
  • Collision insurance. This pays for car repair bills (minus your deductible) if you get into a car accident, no matter who is at fault for the accident. Collision insurance is an optional coverage type, meaning you’ll have to pay more to add it to your policy.
  • Comprehensive insurance. This pays to repair or replace your car for problems such as floods, fires, falling objects, hail, collisions with animals, vandalism and car theft. Comprehensive insurance is an optional coverage type and you will have to pay more to add it to your policy.
  • How Much Does Liability Insurance Cost?
  • The average cost of third-party liability insurance in 2020 was $367.75, according to the Insurance Bureau of Canada. This is in addition to the mandatory accident benefits coverage, as well as optional collision and comprehensive coverage.

Keep in mind that your cost for insurance is based on several factors, including:

  • Your driving history, such as speeding tickets and other moving violations.
  • Your claims history.
  • The amount of coverage you buy.
  • Your age.
  • Your postal code.
  • Other factors that can vary by province and insurance company, including gender, marital status and occupation.
Auto insurance rates vary widely among companies because each has its own way to calculate risk. You might be able to find the cheapest car insurance for a much better price when shopping around. That’s why it’s a good idea to compare car insurance quotes from several companies.

Do I Need Liability Car Insurance?
Yes. Third-party liability insurance is mandatory across Canada.

How Much Liability Car Insurance Do I Need?
Each province and territory has the following mandatory minimum third-party liability coverage:

  • British Columbia: $200,000
  • Alberta: $200,000
  • Saskatchewan: $200,000
  • Manitoba: $500,000
  • Ontario: $200,000
  • Quebec: $50,000
  • New Brunswick: $200,000
  • Nova Scotia: $500,000
  • Newfoundland and Labrador: $200,000
  • PEI: $200,000
  • Yukon: $200,000
  • Northwest Territories: $200,000
  • Nunavut: $200,000
Each province and territory may also have its own cap that dictates how claims payments will be allocated. For example, in Ontario, Alberta, Northwest Territories, Nunavut, PEI, Saskatchewan and Yukon, for claims reaching the mandatory amount, the payment for property damage is capped at $10,000 and the balance is attributed to the bodily injury claim. In Newfoundland and Labrador, New Brunswick, Manitoba and British Columbia, the property damage cap is $20,000.

While choosing only the minimum required coverage might save you with the monthly premium, it can be very costly if you have an accident. That’s because if you do not have enough car liability insurance, your assets could be at risk if you cause a collision that results in substantial damage or injuries. A general rule of thumb is to buy enough liability insurance to cover what you could lose in a lawsuit, based on your assets. Common coverage amounts are $1,000,000 or $2,000,000.

How To Save Money on Car Insurance
Liability insurance is a vital part of your auto insurance coverage. It’s not a good place to skimp.

A better strategy for saving money is to look elsewhere for ways to save on your policy. For instance, ask the insurance company how much you would save by increasing your deductible on collision and comprehensive insurance.

The insurance deductible is the amount that is deducted from your insurance claims cheque if you make a collision or comprehensive claim. The higher your deductible, the less you’ll pay in premiums. But make sure you can cover a higher deductible amount if you need to make a claim.

You could also ask your insurance agent about car insurance discounts. You may qualify for discounts that you’re currently not getting.

Another good discount is a multi-policy discount. That’s when you bundle your auto and home insurance policies. It’s typically one of the best discounts you can get.

If your car isn’t worth much, you might want to skip buying collision and comprehensive car insurance. These are two separate coverage types that are often sold together. Collision covers your vehicle damage if it’s damaged in a crash with another car or object (like a fence). Comprehensive covers your vehicle for problems like fire, flood, hail, vandalism, falling objects, collisions with animals and car theft.