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Mon, 07 Jan 2013 18:45:00 GMT | By Gordon Powers, MSN Money

What car insurance really covers

No matter what type of vehicle you drive, or where you live in Canada, car insurance is mandatory.

Gordon Powers, MSN Money

There’s no way around it. Car insurance is expensive, particularly for younger drivers. But cutting corners by not having adequate coverage can be nothing short of devastating.

If you’re involved in a major accident where cars are wrecked, people are injured or killed, and property is damaged, the financial impact could be hundreds of thousands, if not millions, of dollars.

And, yes, it could happen to you.

According to Transport Canada statistics, accidents on the road kill one Canadian every three hours; they disable someone every seven minutes. That means you have about a five per cent chance of being involved in a crash during your lifetime.

And that, in a nutshell, it why having car insurance — at least the most basic kind — is compulsory.

Most people don’t have the money to pay for the losses (property damage, injury, death) they might cause while driving, so governments require drivers to carry a certain amount of liability insurance to cover any losses they might cause others to suffer.

Drivers are also required to carry coverage for their own medical expenses and loss of income resulting from driving-related injuries.

Here, according to the Insurance Bureau of Canada, is what you’re paying for.

Liability/Bodily injury

Protects you if someone else is killed or injured or their property is damaged. It will pay for legitimate claims against you up to the limit of your coverage and will also pay for the costs of settling the claims.

The minimum amount of coverage is $200,000, but the IBC recommends much higher limits.

Accident benefits

Provides benefits if you’re injured or killed in an automobile collision anywhere in Canada and the United States, regardless of who caused the collision.

These benefits may include: income replacement; payments to non-earners who suffer a catastrophic injury and can no longer carry on a normal life; the cost of care for someone who can’t continue as a primary caregiver for their household; medical and rehabilitation costs, funeral expenses; and payments to survivors of a person who is killed.

Uninsured automobile

Just because you’re covered, that doesn’t mean the other driver is as well. This requirement protects you (up to $200,000) if you’re injured or killed by an uninsured motorist or a hit-and-run driver — to the extent that you weren’t at fault.

You’re also covered for damage to your vehicle caused by an identified uninsured motorist for up to $25,000, subject to a deductible of $300.

Direct compensation/Property damage

This allows you to claim for damage to your vehicle and its contents caused by someone else. It’s called direct compensation because even though someone else causes the damage, you collect directly from your own insurer, instead of the person who caused the damage.

DCPD means that, to the extent that you’re not at fault in a collision with another vehicle, your own insurer will pay for damage to your vehicle and its contents. The standard deductible is $500, which can be increased or decreased.

These are the mandatory minimums in terms of coverage. But most policies don’t stop there.

While you’re not required by law to purchase collision or comprehensive coverage, most people do. And, in some cases, you don’t have a choice anyway.

If you owe money on your vehicle, for instance, the lienholder — the person or group you’re making payments to — will likely require you to have these types of coverage to protect their interest in your vehicle.

Here are your options:


This pays for damage to your vehicle to the extent that you’re at fault or for damage caused by an unidentified vehicle or object. The standard deductible is $500; however, you may choose a higher deductible in order to decrease your rates.


Pays for all insured damage to your vehicle except for collision damage (i.e. fire, theft and vandalism). The standard deductible is $300, again adjustable.

All perils

This coverage combines collision and comprehensive. It is the broadest coverage available and it includes all types of coverage unless specifically excluded.

Specified perils

In this instance, you’re only covered for losses caused by perils specifically listed in the policy (primarily fire and theft).

Increased liability

You may buy coverage beyond the minimum required by law, generally up to $2 million. The cost of buying higher limits of liability insurance can usually be entirely offset through purchasing higher deductibles.

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