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Matt Hands, VP, Insurance and MoneySense
Your car insurance policy protects you in several situations. Accident benefits provide compensation for any injury-related expenses resulting from an injury in a car accident. Collision car insurance coverage covers the cost of repairs for any damage done to your vehicle in an accident. In contrast, comprehensive car insurance covers the cost of repairs for any damage inflicted on your car in other scenarios (bad weather, vandalism, etc.). The most critical and mandatory type of coverage in your policy will always be third-party liability insurance.
It sounds like a businesses insurance product companies purchase to protect themselves should their work result in a lawsuit and not to confuse things further, but businesses also must purchase liability insurance, it's just a different type of liability insurance. To be held liable is to be held responsible. Third-party means it didn't happen to you, but to someone else. Third-party liability insurance protects you when you're at fault in a motor vehicle accident. It covers the victim's property and any medical costs due to injury. Third-party insurance pays the charges when someone makes a claim against you or your car insurance company. Third-party insurance is mandatory on all auto insurance policies across Canada.
For example, if you accidentally rear-ended another car, injuring the driver and damaging their vehicle, the other driver could file a claim against you. Your third-party liability insurance would cover their medical costs, loss of wages (if applicable), and repair costs to their vehicle.
What does third-party liability insurance cover?
Your liability car insurance coverage is important because it will cover the following accident related costs:
- Medical fees for anyone's injuries (including pedestrians, cyclists, and fatalities)
- Repair costs to any vehicles you’ve damaged (except your own vehicle)
- Repairs or replacement for damage to other people's property
What is not covered by third-party liability insurance?
Third-party liability insurance doesn't cover the cost of any injuries or damage you have personally suffered due to an accident where you're at fault. For that, you would need accident benefits and collision coverage.
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The minimum amount of third-party liability insurance in Canada is $200,000, except in Quebec, where it's $50,000. However, every insurance company will recommend buying additional coverage. That's because one accident could easily exceed $200,000, and you wouldn't want to be held financially responsible for the rest. Opting for a lower amount of liability coverage can give you short-term savings on your monthly premium, but it could also cost your life savings following an accident.
Most Canadians purchase $1-5 million of third-party liability insurance for a broad safety net of coverage in almost all situations. Remember, third-party liability insurance doesn't cover the cost of any injuries or damage you have personally suffered due to an accident where you're at fault. For that, you would need accident benefits and collision coverage.
We recommend having at least $1-2million in liability coverage on your policy to protect yourself. Our default insurance quotes come with $1 million in coverage, but depending on your personal net worth or situation you may choose to up that amount.
If you're in an accident, and it was your fault, the people who suffered injuries or reported the damage to their property will immediately open a claim. They'll begin seeking medical treatment and get their repairs started.
In a no-fault province, everyone involved will deal with their own insurance provider for any claims. The insurance companies will sort out who owes what. In regions without no-fault insurance, you'll need to engage in legal action to sue the at-fault driver for damages. Depending on your provider, you may have to pay out-of-pocket to cover everything, or the treatment or repair facility can submit expenses directly to your provider.
Once repairs are complete and the injuries are healed, the claim can close. However, your car insurance company will review the case and offer them a settlement. If the injured does not agree on the amount, they can seek legal advice and open a lawsuit for pain and suffering, in some provinces.
Is third-party liability insurance mandatory in Canada?
Do I need third-party liability insurance to rent a car?
How can I buy third-party liability insurance?
Matt Hands, Business Director of Insurance
With 6+ years of experience at Ratehub.ca, Matt’s focus has been on growing its newest business unit, Insurance. He is a thought leader and a valuable resource to respected publications across Canada. read full bio
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