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How Much Car Insurance is Enough?

You need car insurance to drive a car anywhere in Canada. If you’re thinking about not getting insurance and just paying for any collisions out of your own pocket, then think again. If you’re caught driving without insurance you could be between $5,000 and $25,000 for a first offence, along with a 30-day license suspension. The penalties are even harsher if you are involved in a collision while uninsured.

So you need insurance, but how much exactly? In Ontario, the law only requires you to have $200,000 of third-party liability coverage. That sounds like a lot of money – and it is! Unless you crash into a McLaren, it’s unlikely the repair or replacement cost of the vehicle will be more than $200,000.

The real point of third-party liability coverage is to pay for the medical expenses of someone if they get injured in a collision with you. Therapy and rehabilitation are time-consuming and costly, and can easily exceed your coverage.

$200,000 in liability is the most bare-bones insurance policy you can get, which means it’s also the cheapest. Liability-only coverage is so cheap because you don’t get any reimbursement if you damage your own car, or if your car was damaged by weather, fire, or if it was stolen or hit in a hit-and-run. You’d have to pay out of your own pocket for those expenses.

To be fair, insurance is already extremely expensive. Ontario has some of the highest insurance rates in the country, with Brampton and nearby areas having the absolute most expensive insurance premiums. It’s understandable to want to cut back on one of your largest monthly expenses, especially when you hardly ever see the tangible benefit of insurance. It’s not like you get into an accident every day – right?

There were 118,404 car collisions in 2015 alone that resulted in injury or death. There are even more that resulted in only car damage. With 7.9 million cars in Ontario, that means there’s around a 3% chance to be involved in a car crash every year. Luckily, this number is steadily decreasing.

Once you’re able to afford an increase to your monthly insurance premiums, it’s in your best interest to start adding additional benefits. If you are unfortunate enough to be at-fault in a collision, not having enough coverage can be devastating.


What happens if you don’t have enough coverage?

If you are partially or completely at fault for a collision, you’re personally responsible for some or all of the costs. Normally the costs won’t exceed your coverage limit. But what happens if they do?

Like I said, you’re personally responsible. So if you only have $200,000 in coverage but need to pay $300,000 for medical treatment and property damage, you have to pay the other $100,000.

The injured party has the ability to garnish your wages or force you to sell property in order to pay them. Your insurance company won’t help you out, either, as they would have already paid out your policy’s max amount.

Most people that can’t afford better insurance don’t have thousands of dollars in cash set aside, meaning it could take years to pay back.

As soon as you can afford to increase your liability coverage, you should do so. It would also be nice to add collision and comprehensive coverage onto your policy, but that’s not necessary. And if your car is old, it may not be worth it as you could end up paying more in premiums than you would get back if your car needs to be repaired or replaced.



Most insurance providers offer third-party liability coverage in the following “chunks:”

·        $200,000 (the legal minimum)

·        $500,000

·        $1 million

·        $2 million

If you’re not at fault for a collision, their liability policy would cover you.

While Ontario does cover many medical costs with the Ontario Health Insurance Plan (OHIP), it doesn’t cover everything. Necessary services after an accident such as physiotherapy, medical equipment like crutches and wheelchairs, or in extreme cases, the cost of continued care if they become disabled, can add up quickly. Car repairs or replacement are also quite pricey. The larger your liability coverage is, the less likely it is that you’ll be required to pony up any extra cash.


Collision Coverage

If you are rear-ended at a stoplight, or T-boned at an intersection where a driver ran a red, then their liability insurance will pay entirely for your repairs (so long as they are 100% at fault). However, what if you were the driver that hit something – even if no one else was involved?

A collision policy pays for repairs to your vehicle if you did something to damage it. If the only policy you have on your insurance is the minimum $200,000 liability, and you cause a collision with an inanimate object or someone else, such as a tree next to your driveway or someone else’s car in the parking lot, then you have to pay out of pocket for your own repairs. If the damage is substantial, then you could be out thousands of dollars.


Comprehensive Coverage

So liability coverage is for when you hit something you need to pay for, and collision coverage is for when you hit something and need to fix your car. What happens if your car is damaged without getting into a collision at all?

Fire, water, hail, and theft are all ways your car can be damaged or lost. And since you don’t have to even be driving your car to suffer those kinds of damages, you can’t rely on your collision coverage. Also, since there’s no other drive to blame, you can’t use their liability policy either.

For everything that isn’t a car crash, you’ll need to use your comprehensive policy. Adding comprehensive coverage can really jack up your monthly premiums, but the security could be worth it.

Forgoing collision can be justified if you believe you’re an excellent driver. You only need to use your collision coverage when you’re at fault. If you’re a good, defensive, and alert driver, you may never be in an at fault collision.

But what if your car is vandalized in your driveway, or dented in a hailstorm? Those are circumstances that you can’t control no matter how good of a driver you are.


What if I’m in a hit and run?

A hit and run is a collision where the person responsible drives off. While this is a serious offence with hefty consequences, that doesn’t always deter would-be offenders. If someone hits your car while it’s in a parking lot, or if they drive away after causing a collision while you’re in the vehicle, try to get as much information as possible to bring to the police.

It’s an unfortunate reality that if the police or insurance company are unable to track the perpetrator down, you will have to pay for your repairs to your vehicle. Even worse, this amount comes out of your collision policy, and not your liability policy. If you have only liability because you’re trying to save money on premiums, then you will have to pay the full cost of repairs without any help.


How much should I spend on insurance?

Because insurance costs are calculated on an individual case-by-case basis, I can’t give you an exact number. I can only tell you what you should have.

Your first priority, assuming all you have is a $200,000 liability policy, is to increase it to $2 million. While claims over $1 million are rare, the cost difference between a $1 million policy and a $2 million policy is not much annually, and could potentially save you from bankruptcy.

Your second priority should be to get collision protection. The amount you get depends on the replacement value of your vehicle. If your car is worth $50,000 and you only have $25,000 coverage, then you should increase it. If your car is worth $6000 and you have the same $25,000 coverage, you should decrease it.

Remember that as time goes on, your car is worth less and less. If you set your policy for the full amount of a brand new car and never adjust it, you’re paying extra for entirely useless coverage.

Finally, consider comprehensive protection. This includes things like damage in case of fire or theft.

Each of these additions will increase the cost of your insurance, but will be invaluable if you actually need it.

To find the best price for insurance, you're going to have to shop around. You probably won't get the lowest car insurance payments without doing some research, so head over to the RateShop insurance page to do get 5 quotes in less than 5 minutes.

Chris Chris 02/07/2019
Canadian personal finance buff and all-around writing enthusiast, Chris loves breaking down complicated money ideas to show that they're really not so complex. 
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