I know I have the option of adding coverage like Collision and Comprehensive to my auto policy, and now we have to pay extra to buy back most of our Accident Benefits coverage, yet insurance is mandatory!
I don't have Collision or Comprehensive coverage, so what's this "Mandatory" stuff I'm getting for my $1,500? Liability coverage? Is this what's called Third Party Liability insurance? Can you define it and give some examples of what it covers?
Can I save money by reducing any part of this mandatory insurance? If so, how much money are we talking? If I added Collision and Comprehensive coverage, would I be doubling my cost?
The basic insurance policy covers you for Liability and Accident Benefits.
Accident Benefits cover your medical care and rehabilitation costs for serious and catastrophic injuries. These limits vary from province to province.
You're also covered for Liability, which is properly referred to as Third Party Liability. It's called this because the limit purchased can never be collected by the insured. It's reserved for payment to someone outside of the policy, not the insured or insurer, but to a third party that the insured is liable to pay for causing injury or damage.
Third Party Liability coverage protects you if you're responsible for an accident and are sued for the injury or damages you caused. In other words, this coverage provides you legal protection against being sued. Should a judgment be rendered against you, your Liability Coverage will pay for the judgment on your behalf up to the limit purchased in the policy. Most drivers are insured for $1-million of Liability Coverage.
It's important to note that the limit purchased is specifically reserved to pay these judgments. Any defence costs, court costs or other legal expenses incurred as a result of the insurer providing the defence are included, and absorbed by the insurer as part of the claim "in addition" to the limit purchased.
The most common lawsuits that your Third Party Liability Insurance protects you against are:
- You strike a pedestrian, the pedestrian suffers injuries and the pedestrian sues you.
- You strike another motorist and the other motorist is killed. The family of the deceased motorist sues you.
- You strike municipal property, like a utility pole. You are responsible to compensate the city or municipality for the damages you caused to their property and the city or municipality sues you to recover the costs associated with the damaged utility pole.
The most common amount selected for Liability Coverage is $1-million; however, you can reduce or increase your limits. Interestingly, your Liability Coverage is the best deal going; to increase your Liability Coverage from $1-million to $2-million, you're generally looking at under $100 annually. For my policy. it would only cost me $40 to increase it by an additional million.
Conversely, if you're trying to save money by decreasing your Liability Coverage, it isn't going to give you any kind of windfall - going from $1-million to $200,000, which is the lowest you can go in Ontario, may only save you $100. For me, reducing my Liability Coverage from $1-million to $500,000 only saves me $40, reducing it to a low of $200,000 would save me $78 annually.
Here's a quick way to dissect the cost difference between the "mandatory" coverages of the policy, to a policy with Collision and Comprehensive coverage added on (Comprehensive coverage is protection against such things as fire, theft and vandalism).
For a policy with Collision and Comprehensive coverage added to it, generally three-quarters of the cost relates to the mandatory coverage: Third Party Liability and Accident Benefits. Collision and Comprehensive coverages add about one-quarter more to your cost, with collision accounting for about 70 per cent of that cost.
So if you're paying $1,500 for your basic policy, adding Collision and Comprehensive coverage to it will probably cost you an extra $500. Many drivers have decided to "self-insure" themselves for this portion. Maybe some day we'll be given the option to self-insure ourselves for Third Party Liability coverage, too.
Lee Romanov is an insurance consumer advocate and creator of romanovreport.com.