What is Car Insurance & How Does it Work? (2024)

Car insurance can be tricky, especially if you're new to car insurance in Canada. If you're wondering what car insurance is, what coverage options are available to you, and how to get it, we've briefly gone over some common questions to help you get a better grasp on the topic. And sinceit’s illegal to drive your car without insurance, not to mention insurance is there to protect you as the owner/driver, it’s a good idea to really understand how car insurance works and what type of insurance you need to purchase before you hit the open road. Or any road for that matter. So, let's start off with the basics.

What is car insurance, and do you need it to drive?

Car insurance is mandatory protection you need to purchase to protect you from financial loss that comes with any potential accidents. For example, having car insurance can help protect you if you're held responsible for an accident that causesdamage to another person or their car. And with enhanced coverage, it can even protect you from having to pay for your own car's damage as a result of an at-fault accident. Once a contract is made between you and your insurer, you'll be responsible for paying a premium which will keep your car insurance policy active and ready should anything happen to you and/or your car. Because an insurance policy follows the car and not the driver, you'll need insurance on your car to legally drive it in Canada. But the policy must reflect all drivers and their proper assignment. If for example, you're licensed, don't have your own car but are frequently driving someone else's car, you'll likely need to be added to that person's car insurance policy in order to be properly protected. If, on the other hand, you'veleased or financed your caror bought it outright, you'll need to purchase a car insurance policy for your own car before driving off in it. Apart from the mandatory coverage that's required by law, there are also optional coverages you can add to your policy to enhance your protection, which we'll go into more detail below.

How does car insurance work in Canada?

Because it changes from province to province, there isn’t a one size fits all answer to this question. And although car insurance is mandatory from coast to coast, it is regulated on a provincial level, not nationally. Then, car insurance in Canada is also divided into public insurance and private insurance. But of course, just to keep things interesting, some provinces run on a bit of a hybrid of both systems. Let’s jump in to see examples of these different types and how they differ.

What’s public car insurance?

Public car insurance means that the company that provides the insurance for your car (and everyone else in that province who buys car insurance) is a government-owned corporation. With the public insurance system, you may also have the option to increase your coverage with a privately-owned, publicly traded, or mutual insurance company.

What’s private car insurance?

Private car insurance means that the companies that offer insurance to you (and everyone else in the province) are privately owned, publicly traded, or mutual companies. For example, TD Insurance is a wholly owned subsidiary of TD Bank, which is a publicly traded company, and we offer many different types of car insurance coverages.

What provinces currently offer public vs private car insurance?

In British Columbia, Saskatchewan and Manitoba, the government runs the car insurance industry. However, in British Columbia only, non-public insurers can offer optional additional coverages. In all the other provinces and territories, privately run insurers provide car insurance. Except for Quebec, which uses a hybrid model of the two. In Quebec, the public insurer manages insurance for bodily injuries only, the other coverages (for example, Civil Liability, Collision and/or Comprehensive) are provided by private insurers.1

What types of car insurance are there in Canada?

As we mentioned above, there is mandatory insurance that differs from province to province and there is also enhanced coverage (also referred to as optional or add-ons). Below are some of the coverages that are offered through TD Insurance:

Mandatory Coverage:

  • Liability – If you injure someone or damage property and are sued for damages, the cost of those damages may be covered.
  • Accident Benefits – Provides benefits if you are injured in an automobile accident, regardless of who caused the accident.
  • Direct Compensation – Damages to your car are covered by your insurer if you're not at fault (not mandatory in Ontario). However, at-fault damages would be covered by optional collision coverage.
  • Uninsured Automobile Coverage – Medical costs and damage are covered if an uninsured driver is at fault.

Enhanced/Optional Coverage:

  • Specified Perils – Protects your vehicle from specified perils such as losses caused by fire, floods, hail or theft.
  • Comprehensive – Covers all other insured damage caused to your vehicle (except collision or upset).
  • Collision or Upset – Covers damage to your vehicle caused by a traffic collision with another vehicle or object. Interesting in learning more? Read our article about comprehensive vs collision insurance now.
  • All Perils – This option combines the coverages of Collision or Upset and Comprehensive.

How do I get car insurance?

For private car insurance, most insurance providers offer online quotes and that’s the perfect first step. With TD Insurance you canget a quoteonline in minutes. And then you can either purchase your insurance online or you can do it over the phone with a TD Insurance licenced advisor. It’s a quick, easy and convenient process from beginning to end. If you’re looking for more information you can also read thisintroduction on how to get car insurance.
For public car insurance, it’s best to check with the government-owned corporation to get the most accurate information on how to get the right car insurance.

How are car insurance premiums calculated?

Whether your insurance is provided by a public or private insurer, there are different factors such as the type of car you drive, your driving record, and the type of coverage you choose that all affect how much you pay. Here is some more detailed information abouthow car insurance premiums are calculated.

Are there any ways I can save on my car insurance?

Yes, of course there are lots of opportunities to save with TD Insurance. From bundling your home and car insurance together to receiving preferred rates for being an alumni or professional, there are many different ways to save. Check out thesesimple tips to help you save on car insurance.

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What is Car Insurance & How Does it Work? (2024)


What is Car Insurance & How Does it Work? ›

What is car insurance? Car insurance covers damage to your vehicle and protects you financially if you're liable for someone else's injuries or damages. Auto insurance can also pay for medical bills if you or your passengers are injured in an accident or if you're hit by a driver who is uninsured or underinsured.

What insurance is and how it works? ›

Insurance is a contract that transfers the risk of financial loss from an individual or business to an insurance company. They collect small amounts of money from clients and pool that money together to pay for losses. Insurance is divided into two major categories: Property and Casualty insurance (P&C)

What is car insurance explained? ›

Auto insurance is a contract between you and the insurance company that protects you against financial loss in the event of an accident or theft. In exchange for your paying a premium, the insurance company agrees to pay your losses as outlined in your policy.

What is insurance easy way to explain? ›

Insurance helps to protect you and your family against unexpected financial costs and resulting debts or the risk of losing your assets. Insurance helps protect you from expensive lawsuits, injuries and damages, death, and even total losses of your car or home.

How do you answer insurance questions? ›

Don't offer an ambiguous reply such as "maybe" or "I guess so" – simply refuse to answer. Similarly, if you don't know the answer to a question, state firmly, "I don't know." Avoid discussing your injuries or your medical prognosis. Both are ongoing and subject to change as time passes.

How does car insurance make money? ›

The essential insurance model involves pooling risk from individual payers and redistributing it across a larger portfolio. Most insurance companies generate revenue in two ways: Charging premiums in exchange for insurance coverage, then reinvesting those premiums into other interest-generating assets.

What is the point of insurance? ›

Insurance in general is meant to protect you financially if something bad happens that is expensive to fix or recover from. You might get insurance for your car, life, your apartment, or even your phone. When you have insurance, you pay a little bit each month.

Why is car insurance worth it? ›

A good auto insurance policy can help with vehicle towing, repairs and replacements, and covering the costs of damages to other drivers. Once you make a car insurance claim, the insurance company can help manage the process and support you through it. Peace of Mind – Everyone makes mistakes.

What is the #1 auto insurance in the US? ›

Top 10 Largest Auto Insurance Companies
Car Insurance ProviderNational Market ShareOverall Rating Out of 10.0*
1. State Farm16.84%9.4
2. Geico14.05%9.1
3. Progressive13.76%9
4. Allstate10.69%8.8
6 more rows
Apr 11, 2024

What is full insurance called? ›

Comprehensive coverage is just one type of coverage included in a “full coverage” auto insurance plan. Remember, “full coverage” isn't an actual type of coverage, but a general term used to describe a policy that combines Liability, Comprehensive, and Collision coverages.

What is insurance in one word answer? ›

Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect against the risk of a contingent or uncertain loss.

What is insurance coverage in simple words? ›

Insurance coverage is the amount of risk or liability that is covered for an individual or entity by way of insurance services.

What is insurance answers? ›

Insurance is a financial safety net, helping you and your loved ones recover after something bad happens — such as a fire, theft, lawsuit or car accident.

Which statement best describes how insurance works? ›

B. It is a protection that guarantees to pay you in the event of financial losses is correct because insurance companies aim to take back an individual to the financial position they were before the risk happened.

What questions does insurance ask? ›

Common Questions Insurance Companies Always Ask
  • Who was involved in the accident?
  • Was anyone else in the vehicle?
  • Who was in the other vehicle?
  • What led to the accident?
  • What happened, and why?
  • When did the accident occur?
  • Where did the accident occur?
  • Where were you going?

What are the top 3 types of insurance? ›

We begin with an overview of the types of insurance, from both a consumer and a business perspective. Then we examine in greater detail the three most important types of insurance: property, liability, and life.

How is insurance paid out? ›

Depending on the insurer, a life insurance payout can typically be distributed in three ways: in the form of a lump sum, via a life insurance annuity, or through a retained asset account. Check with the insurer to see which life insurance payout options they offer.

What are the different types of insurance? ›

For Consumers
  • Auto.
  • Health.
  • Home.
  • Life.
  • Long-term care.
  • Annuities.
  • Business.
  • Boat/marine.

What type of insurance should you choose? ›

Most experts agree that life, health, long-term disability, and auto insurance are the four types of insurance you must have. Employer coverage is often the best option, but if that is unavailable, obtain quotes from several providers as many provide discounts if you purchase more than one type of coverage.

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