Although each province and territory maintains its own laws regarding auto insurance, some type of coverage is mandatory regardless of where you live. You must at least have third-party liability coverage if you plan to drive. The required minimum varies by province.
A growing number of people wonder why car insurance is mandatory, especially if they rarely submit claims, and have never been involved in an accident. As the economy continues to struggle, and household budgets remain tight, the annual premium may seem more burdensome than ever. There are compelling reasons, which we’ll explain in more detail below. We’ll also present your insurer’s perspective, and describe what you can expect if you’re caught driving without coverage. If you’re tempted to abandon your coverages in an attempt to save money, the following may prompt you to reconsider.
Mandatory Versus Optional Coverages
As you’re likely aware, there are several types of coverages available, and each addresses different circumstances. Some are compulsory while others are sold as endorsements (i.e. they are optional). For example, we mentioned earlier that third-party liability is mandatory throughout Canada. You must have this type of coverage if you plan to drive. It pays for property damage and medical care for injuries stemming from an accident for which you are at fault.
Another type of compulsory insurance is called Accident Benefits. The only province in which it is not required is Newfoundland and Labrador. It provides compensatory benefits in the event you or your passengers are injured or killed during an accident. The benefits include payments for physical therapy, medications, funeral arrangements, and income replacement.
Uninsured and underinsured motorist coverage is also compulsory throughout Canada. This type of insurance covers injuries and damage sustained as a result of an accident caused by someone who lacks sufficient insurance. It also covers the policyholder in the event he or she is hit by someone who leaves the scene without providing identification (i.e. a hit-and-run).
A number of endorsements can be added to your policy to customize it according to your needs. These include collision and comprehensive coverages, Family Protection, Loss Of Use, and Liability for Damage to Non-Owned Automobiles. While each can be valuable depending on the circumstances, our focus here is directed toward mandatory coverages.
Why Are Some Coverages Compulsory?
The purpose of mandating insurance coverage is to spread the risk – and by extension, the costs – of an accident across a large pool of people. This is necessary since many people would be tempted to disregard insurance coverage were it not compulsory. As a result, the victim of an auto accident would be unlikely to receive compensation from the at-fault driver if the resulting costs of the event were substantial.
By spreading the costs associated with occasional accidents across a wide pool of participants, each policyholder can externalize the risk. He or she may be unable to pay thousands of dollars for repairs, property damage, and medical care stemming from a collision. But premiums paid by millions of policyholders can absorb such a cost with relative ease.
Considering Your Insurer’s Perspective
The challenge confronted by your insurer is to forecast the likelihood of claims from the large pool of policyholders it insures. To do so, it considers each person’s driving record, type of car, average number of miles driven each year, and many other factors. If your carrier makes a poor forecast, and the aggregate amount of claims submitted exceeds the aggregate premiums it collects during the same period, a financial loss will result.
The fact that some coverages are compulsory helps your insurance company. It is able to build a larger pool of participants, thus collecting more premiums and further spreading the risk and costs of claims. But for reasons described above, it also helps the broader car insurance system to operate more smoothly.
Risks Of Driving Without Car Insurance
Operating a vehicle without auto insurance can lead to severe consequences. Each province and territory will apply penalties to those who are caught driving without coverage. In Ontario, a first offence may result in a fine that can reach $25,000. In Toronto, the fine can reach $20,000 for a first-time offence.
Depending on where you live, you may also expose yourself to lawsuits seeking compensation in the event you cause an accident. Moreover, if you’re hit by a driver lacking adequate insurance, you’ll have no recourse to seek compensation for repairs and medical care from your insurer (i.e. uninsured motorist coverage).
The need for auto insurance is clear. Yet many people choose to drive without it in order to save money. Resist the temptation. A better solution is to compare car insurance quotes from several insurers to reduce your car insurance rates as much as possible.
