Auto insurance 101: Understanding liability
auto insurance liability sued

You try your best to stay safe when you’re driving your car. But, accidents can still happen. Liability insurance plays a huge part when it comes to at-fault accidents, so it’s important to understand how it works. But your insurance policy isn’t always easy to read. That’s why we’re here to break it down for you. Learn what liability does and doesn’t cover, and when you’ll need to use it.

What is liability insurance for a car?

Have you ever thought about what would happen if you got into a car accident? What if it was your fault and you damaged someone’s car – or worse, injured them?

If an accident is your fault, you’re responsible for covering legal and other costs if you’re sued. Third-party liability coverage is the part of your insurance policy that protects you if you’re sued (or threatened to be sued) for a physical injury or damage to someone else’s property.

Did you know? In Canada, liability is mandatory if you want to legally drive your car.

How much liability coverage do I need on my car insurance?

When you set up your policy, it’s up to you to choose a limit for your liability insurance. Each province has its own minimum liability limit. As a rule of thumb, a limit of at least $1 million is recommended. But things could get messy if you don’t have enough liability coverage. The average auto liability claim can cost well over $1 million. In fact, many pros in the business say you should carry up to $2 million. Choosing the higher limit protects you from paying huge amounts out of pocket if something happens.

The good news is, in most cases upping your liability from $1 to $2 million doesn’t affect your price all that much! For just a few more dollars a month, getting extra coverage is well worth the peace of mind.

Tip: Because lawsuits are much more common (and generally more expensive) in the U.S. than in Canada, if you travel there often you should have a liability limit of $2 million.

How much does liability car insurance cost?

It’s really hard to predict how much your liability insurance will cost. Every individual’s car insurance premium will be different, even if they drive the exact same car! This is because premiums are based on personal factors like your age, where you live, and your driving record. Plus, any extra coverage you add will also have an impact on what you pay.

But, if you’ve chosen to have a liability-only policy (don’t worry, we’ll cover this next) then your insurance will generally be cheaper than if you’re paying for the “full package” with collision and comprehensive.

Your best bet for finding coverage you can afford? Shop around and don’t settle for the first policy that looks half decent. This way, you’ll get the protection you need at a price that works for you.

What’s liability-only car insurance?

A liability-only policy does not include collision and comprehensive coverage. This means your car won’t be repaired or replaced if it’s damaged in an at-fault accident. It also won’t be covered if it’s vandalized, or damaged by anything else that falls under comprehensive coverage (like hail, or fire). It does include accident benefits, since it’s mandatory in most provinces (except Newfoundland and Labrador).

This type of policy isn’t right for everyone, though. Without collision and comprehensive, you’ll probably have to pay out of pocket if something happens to it that falls under either of those two coverages. And, if your car is leased or financed, you’ll probably be required to have a certain amount of physical damage coverage. Most people need more coverage than just the bare minimum.

So when should you consider a liability-only policy? It’s really only recommended if you have an older vehicle that you wouldn’t bother getting repaired or replaced.

Here’s what to consider before removing physical damage coverage:

  • The age of your car (older vehicles have less value)
  • The mileage you’ve put on your car
  • The overall wear and tear of your car

As always, talk to your insurer if you’re unsure what coverages you need on your car.

Heads up! If your car is damaged in an accident where you’re not at fault, it could be covered under DCPD (Direct Compensation Property Damage) in provinces where it’s applied.

Does liability have a deductible?

No. Unlike collision and comprehensive, you won’t have to pay your deductible for a liability claim.

Does liability cover a single-car accident?

This is something most people don’t know, but single-car accidents – like if you swerve off the road and hit someone’s fence – usually fall under your collision coverage. So, the damage to your car isn’t covered by liability.

But, your liability can come into play. Let’s say when you swerved off the road, you damaged that fence. Your liability could handle the payout to help cover those damages.

Does liability car insurance cover theft?

No, it doesn’t. Your liability is there to protect you in the event that you are sued. But, there are other coverages that cover different types of theft when it comes to your car.

If your car is stolen, it could be covered by comprehensive coverage. This coverage is optional so make sure you’ve added it if you want protection from theft.

And what if your car is broken into and your stuff (like a gym bag or laptop) gets stolen? It could be covered by your home, condo, or tenant insurance – not your car insurance – under your personal belongings coverage.

Can I use my liability insurance to rent a car?

When you’re renting a car, there are two things you need to make sure you’re covered for:

  • Your liability while you’re driving the rental
  • Damage to the rental car itself

The good news is, you have a few options to cover your rental car:

  • The rental car company. If you don’t have your own car insurance, you can buy insurance from the rental company at extra cost. But, it might not cover everything. Make sure you know what they cover and what they don’t.
  • Your personal auto policy. If you’re a car owner with your own insurance, you can add an endorsement for rental car protection. This is sometimes called coverage for damage to non-owned vehicles. Ask your insurer how your liability could cover you if you’re sued while driving a rental. Coverage offered depends on what province you’re in and where you’re driving.
  • Some credit cards. Your credit card could have limited coverage for rental cars. Give them a call to ask what they have to offer if you’re renting a vehicle.

Liability can get tricky. If you have any questions at all about what’s covered and what’s not, reach out to your insurer to chat. They’re always the best source of info! Want to speak with us? We’re happy to help, too. Just reach out via email or chat and we’ll answer your questions about liability – and more.

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