Car Insurance 101:
A Guide and Glossary for Canadians
Are you set on finding the best car insurance at an affordable price that works for your budget? Yet, does the process feel a bit overwhelming? With differing requirements and minimums across provinces and territories, a wide range of coverage options, and a tangle of industry jargon, it’s no wonder many feel lost.
To make the process easier and bring you closer to your goal, it helps to start with a solid understanding of the fundamentals of car insurance in Canada. In this beginner-friendly guide, we’ll walk you through the essentials. By offering clear, straightforward explanations, you’ll gain the confidence to make informed decisions. Plus, the included glossary of car insurance terms will serve as a handy reference, helping you quickly navigate any unfamiliar terminology you encounter along the way.
Car insurance is a contract between you and an insurance company that offers financial protection for your vehicle if it’s damaged, stolen, or destroyed in an accident. In exchange for paying a premium, usually on a monthly basis, your insurer agrees to cover the losses or damages specified in your policy.
Keep in mind that car insurance doesn’t cover every possible risk or situation you might face as a driver. While all policies must meet the minimum requirements set by your province or territory, it’s up to you to customize your policy with optional coverages for additional protection. The extent to which you choose to customize your policy will depend on your needs, preferences, and, of course, your budget.
Let’s take collision coverage as an example. Since it is an optional type of coverage, you get to decide whether you want to pay extra for the protection it provides in cases where you crash your car and are at fault. If you choose to add it and so long as all policy conditions are met without exclusions, you can make a claim to receive compensation for the losses or damages. On the other hand, if you opt not to include it, you would be fully financially responsible for the repair of your vehicle.
Ultimately, this decision cannot be made for you. It is a personal one that will come down to everything from your risk tolerance to the market price of your car and, of course, your financial situation. So, always take the time to carefully consider these aspects when determining which types of coverage to include in your car insurance policy and which to forgo.
Yes, as stated on the Government of Canada’s website, “It is illegal to drive without car insurance in Canada. If you own a car, you must get insurance coverage. If you regularly drive a car that belongs to a relative or friend, you should make sure you’re listed on their car insurance plan.”
Simply put, every driver must be insured – and for good reason! Without insurance, individuals risk facing significant financial liabilities in the event of an accident. This includes the costs of vehicle repairs, medical expenses for injuries sustained, and potential legal fees if another party is involved. Furthermore, driving without insurance in Canada can lead to severe penalties, including fines, license suspension, and even legal action.
Every province and territory has its own list of required coverages and minimum coverage limits that must be included in any car insurance policy. These mandatory coverages are designed to help drivers meet their legal and financial obligations in the event of an accident. While this may suffice for some, particularly those with older or less valuable vehicles, others may find the protection too limited.
To address this, insurers across Canada offer a range of optional coverages that allow you to customize your policy to suit your unique needs and lifestyle. This flexibility is ideal for those who want, and are willing to invest in, broader protection against a wider variety of risks.
Below, we’ll explore the most common types of car insurance coverage available and explain what each covers, so that you can make an informed decision about what’s right for you:
- Third-party liability
- Property damage
- Uninsured motorist
- Accident benefits
- Collision
- Comprehensive
- Loss of use
- Roadside assistance
- Rental and borrowed cars
Third-party liability coverage
Third-party liability coverage is designed to provide financial protection if you’re found at fault in an accident. It typically covers damages, injuries, or losses sustained by the other driver. Without this coverage, you would be personally responsible for all accident-related costs, which could quickly add up to thousands of dollars. It is for this reason that third-party liability coverage is mandatory in all Canadian provinces and territories.
Accident benefits coverage
Accident benefits coverage is designed to provide compensation if you, one of your passengers, or a pedestrian is injured or killed in a car accident. It typically covers medical treatments, rehabilitation services, income replacement for lost wages, and even funeral expenses in the unfortunate event of a fatality, regardless of who is at fault in the accident. In provinces like Ontario and Alberta, accident benefits coverage is mandatory, while in others, such as Quebec, it is optional.
Uninsured motorist coverage
Uninsured automobile coverage is intended to protect you if you get in an accident with a driver who is not only uninsured, underinsured, or unidentified, but who is also at fault. Depending on the province or territory, you may be required to have this type of coverage. If you are, then it can provide financial compensation for associated medical expenses, property damage, and even lost wages due to injuries.
Property damage coverage
Property damage coverage is a mandatory form of insurance in some Canadian provinces, though not all. It is designed to pay for damages inflicted on another person’s property, which can include their vehicle, home, or other items. Given that the cost of property damage can be substantial – especially in urban areas where property values are higher – this type of coverage helps prevent significant out-of-pocket expenses.
Collision coverage
Collision coverage, also known as upset coverage, is designed to cover the repair or the replacement of a vehicle that is involved in a collision with another vehicle, an object (ex. guardrails), or the ground (ex. potholes), Unlike some other types of coverage that depend on fault, collision coverage applies even if you’re responsible for the accident. For example, if you accidentally back into a tree getting out of your driveway, collision coverage might be able to help cover the associated repair costs.
Comprehensive coverage
Comprehensive coverage protects a vehicle from a variety of non-collision situations, including fire, theft, vandalism, and even windshield replacement. It is especially useful as it even covers you when you are not driving. For instance, if the vehicle suffers weather-related damage, comprehensive coverage ensures that you are financially protected against repair costs, provided that no exclusions apply.
Loss of use coverage
Loss of use coverage reimburses you for transportation expenses while your vehicle is being repaired or replaced after a covered event. This can include rental car fees, public transit costs, or even rideshare services, making it an appealing choice for those who rely heavily on their vehicles and need to maintain their mobility during their vehicle’s absence.
Roadside assistance coverage
Roadside assistance coverage offers immediate support for drivers when they encounter unexpected issues on the road, such as breakdowns, flat tires, or running out of fuel. This might be worth it to you if you’re someone who frequently drives long distances, travels in remote areas, or simply prefers the security of knowing help is just a call away when it’s needed.
Rental car coverage
Rental car coverage protects you when you’re driving a rental vehicle. If your credit card offers coverage, it’s often limited to collision and comprehensive coverage, which will only protect the rental car in case of accidents, theft, or vandalism. It usually doesn’t include other important types of coverage, like third-party liability or accident benefits coverage. To get that level of protection, it is better to have rental car coverage added to your car insurance policy by your insurer.
While standard car insurance policies cater to the needs of most drivers, some individuals and vehicles require more tailored protection. For those who don’t fit the typical insurance profile, the following forms of specialty car insurance exist.
- Occasional driver insurance
- High-risk car insurance
- Student and young driver insurance
- First-time insurance
- Modified car insurance
- Electric car insurance
- Classic car insurance
- Luxury car insurance
Insurance for occasional drivers
Occasional driver insurance, also referred to as secondary driver insurance, is designed for individuals who use another person’s vehicle. Since it is typically added to an existing policy, it will likely affect the premium, though the extent of the change will depend on various factors, such as the driving record and age of the occasional driver being added to the policy.
Insurance for high-risk drivers
High-risk driver insurance is intended for people who have a history of multiple traffic violations, at-fault accidents, canceled policies, or other factors that contribute to a higher risk profile. It typically comes at a higher price, which the FSRA explains is because “Insurance companies consider you to have a high probability of being involved in a claim and therefore must be compensated for taking the risk of insuring you.” Some insurance companies specialize in this market, focusing exclusively on providing coverage tailored to high-risk drivers.
Insurance for students and young drivers
Student driver insurance, also referred to as young driver insurance, is designed for young people with little to no driving experience, typically between the ages of 16 and 25. It typically comes at a higher price, mostly because young drivers “are at a greater relative risk of crash than older, more experienced drivers.”
Insurance for first-time policyholders
First-time car insurance is for drivers purchasing car insurance for the first time. While you may have been listed as occasional or secondary drivers on a family member’s, friend’s, or company’s car insurance policy, this is the first time you are named as the primary policyholder.
Insurance for modified vehicles
Modified vehicle insurance is designed for individuals who have made significant modifications to their vehicles for reasons such as accessibility, performance, or aesthetics. These modifications can enhance the car’s value or introduce new risks, which your insurer will take into account when determining coverage and premiums.
Insurance for electric vehicles
Electric car insurance, also referred to as green vehicle insurance, is designed for drivers of electric or hybrid vehicles. While the coverage remains the same regardless of whether the vehicle is electric, hybrid, or fuel-powered, some companies offer discounts on insurance for green cars.
Insurance for classic cars
Classic car insurance is designed for vehicles that are typically at least 20 years old and driven under a limited number of kilometers each year. It covers the agreed value of the car so that in the event of a total loss or theft, you would receive the pre-determined amount rather than the car’s current market value.
Insurance for luxury, exotic, and sports cars
Car insurance for luxury, exotic, and sports cars is designed for drivers who own high-performance vehicles. Given that these cars are capable of higher speeds, are at an increased risk of theft, and typically have higher repair costs, your insurer will likely adjust your policy and/or premium to reflect these factors.
There are a number of factors that go into the calculation of your car insurance premium. Insurers assess a combination of personal and vehicle-related details, such as your claims history, driving record, age, and even where you live. The make, model, and production year of your vehicle also play a key role in determining costs, as certain parts are more expensive to repair or replace.
To give you a general sense of the cost, the following table shows how much car insurance costs YouSet users in Ontario and Québec. You can also find out how much others in your city pay by giving this car insurance calculator a try.
| Province | Cost per month | Cost per year |
| Ontario | $220 | $2,641 |
| Québec | $75 | $898 |
It’s important to note that differences in provincial pricing, particularly between Ontario and Québec, are largely due to Québec’s public car insurance plan, which requires drivers in the province to purchase only a portion of their coverage from private insurance companies or brokers, such as YouSet. In contrast, Ontario drivers must obtain their entire coverage from these providers.
When you’re ready to buy a policy, there are many reputable car insurance companies in Canada to choose from, including:
- YouSet
- RBC
- CAA
- Sonnet
- Scotia Insurance (Scotiabank)
- belairdirect
- TD Insurance
- Square One
- Co-Operators
- Desjardins
- Beneva
Remember, car insurance is not a one-size-fits-all. While an insurer might come highly recommended to you by a friend or family member, there’s always a chance that they can’t offer you the price, perks, or coverage you need. So instead focus on shopping around, doing your research, and asking questions. It’s the best way to ensure you end up with the right insurance for you and your loved ones.
Car insurance terms glossary
The car insurance industry is rife with jargon. Terms like deductible, premium, and peril get used left, right, and center, with the assumption that everyone understands what they mean. While those in the industry or who have been buying insurance for decades might, there are many Canadians who feel like they need a decoder ring just to buy car insurance.
If that sounds familiar, you’ve come to the right place. Think of this car insurance terms glossary as exactly that – your trusted decoder ring. It includes straightforward definitions paired with relatable examples for the terms you’re most likely to come up against. With it on hand, you’ll be able to navigate the world of car insurance with a greater sense of confidence, which is important if your goal is to get all the coverage you need for the best price.
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Accident
An accident occurs when a vehicle collides with another vehicle, a person, an object, a road hazard, or the ground, resulting in damage, injury, or both. For example, if you lose control on an icy road and hit another car, a pedestrian, or a parked vehicle, this would be considered an accident.
Actual cash value
Actual cash value is the amount your car insurance provider will pay to replace or repair your vehicle after a claim, factoring in depreciation. So if your five-year-old vehicle is stolen, your insurer would calculate its value based on age, mileage, and wear and tear, and you would be compensated for that depreciated amount, not the cost of a brand-new vehicle.
All perils coverage
All perils coverage combines the risks typically addressed separately by collision and comprehensive coverage into one package.
Bodily injury
Bodily injury refers to physical harm or injury sustained by a person as a result of a car accident. For example, if you are at fault in an accident that injures another driver, your third-party liability coverage would likely be used to cover any associated medical bills.
Bundle
A bundle refers to purchasing multiple types of insurance policies from the same insurance company, often resulting in a discount. For example, when you bundle your home and car insurance with YouSet, you can save an additional 15% off your premium.
Claim
A car insurance claim is a formal request to your insurer for financial compensation after a covered loss or damage. For instance, if your car is vandalized, you can file a claim, which your insurer will review and, if approved, compensate according to your policy’s coverage.
Coverage
Coverage refers to the specific risks and perils that your insurance policy protects against, making them eligible for compensation in the event of a claim. For example, collision coverage helps pay for repairs to your car if you’re involved in an accident, regardless of fault.
Coverage lapse
A lapse in coverage occurs when there’s a gap between the expiration of your previous car insurance policy and the start of your new one. These gaps are marked on your insurance record and may signal to future insurers that you are a higher-risk client, potentially resulting in higher premiums.
Coverage limit
A coverage limit refers to the maximum amount your insurer will pay for a specific type of loss or damage under your policy. For example, if your policy includes a $50,000 limit for collision coverage, your insurer might cover repair costs up to that amount, with any costs beyond the limit being your responsibility.
Deductible
A deductible in insurance is the amount of money you agree to pay out-of-pocket when a claim is approved. For example, if your car needs $2,000 in repairs after a covered accident and your deductible is $500, you would pay the $500, and your insurer would cover up to $1,500 (the remaining amount), depending on your policy’s terms.
Driving record
A driving record is a person’s official driving history. It includes a record of one’s traffic violations, accidents, and other relevant information from the past several years, with the exact number depending on where you live. A “clean” driving record, meaning you have no serious violations or accidents, is just one of the many things that can help reduce how much you pay for car insurance.
Endorsement
An endorsement allows you to add, remove, or modify the coverage included in your existing car insurance policy. For example, you might add an emergency roadside assistance endorsement to your policy so that you can get reimbursed for the cost of towing services if needed.
Exclusion
An exclusion refers to a specific type of damage or peril that car insurance does not cover. For instance, driving a car that isn’t roadworthy, intentional damage, and wear and tear are all common exclusions.
Fault
In insurance, fault refers to the assignment of responsibility for an accident. For example, if you are found to be at fault, it means your insurer determined that you were responsible for causing the accident. Insurers in each province or territory use a standardized set of rules to determine this, which helps keep things as fair and consistent as possible.
High-risk
High risk refers to a category of drivers who statistically have a greater likelihood of filing claims or getting into accidents. For example, drivers with several lapses in coverage on their insurance history might be deemed high risk because such lapses can indicate irresponsible behavior or financial instability.
Liability
Liability in car insurance refers to your legal responsibility for accidents or injuries that occur as a result of your actions while driving. For example, if you rear-end another vehicle at a stoplight, causing damage to that vehicle and injuries to its occupants, you would likely be deemed “liable.”
Loss of use
Loss of use refers to the inability to drive your vehicle due to damage or repairs resulting from an accident or other covered event. For example, if your car is in the repair shop for a week after an accident and you have opted for loss-of-use coverage, your insurance may reimburse you for the associated costs of renting a vehicle during that time.
Named insured
The named insured refers to the individual specifically listed on a car insurance policy. This person must be the registered owner of the vehicle, is responsible for paying premiums and filing claims, and is entitled to receive the coverage benefits outlined in the policy.
Peril
A peril refers to an unexpected or unpredictable event that may cause damage or loss to your vehicle. Falling objects, fire, theft, vandalism, wind, and hail are all examples of perils.
Policy
A car insurance policy is a legal contract between a driver and an insurance company. Your policy documents will include information such as your premium amount, deductibles, covered perils, and exclusions, as well as terms and conditions outlining the rights and responsibilities of both parties.
Premium
A premium is the amount you pay for car insurance, either on an annual or monthly basis. For instance, if your annual premium is $1,200, you must pay that total to your insurance company to maintain your coverage eligibility.
Replacement cost
Replacement cost refers to the amount of money required to replace or repair a damaged vehicle with a new or comparable model of similar quality, without factoring in depreciation due to age or wear and tear. For example, if your car is damaged beyond repair, replacement cost coverage would provide enough money to buy a new car of the same make and model.
Write off
In the context of car insurance, a write-off refers to a situation where an insurer determines that a vehicle is too damaged to be repaired at a reasonable price, and so it is declared a total loss. For example, if your car is involved in a severe accident and the estimated repair costs exceed its market value, your insurer may “write it off” and give you a payout based on the car’s pre-accident worth.
Next Steps: Get Better Car Insurance for Less
Regardless of whether you’ve just started driving or have decades of experience under your belt, there’s a universal objective among drivers – find the best insurance at the most affordable price.
While understanding the basics of car insurance in Canada, as you’ve learned in this guide, is crucial, it alone might not be enough. What you might also need to do is tap into the expertise and insights of a seasoned team of insurance experts who help drivers like yourself achieve their goals, day in and day out. This is YouSet. A free, user-friendly online platform built by industry professionals that automatically compares prices from multiple insurers and applies exclusive discounts, all so that you can buy affordable car insurance online and in less time.
