Everything you need to know when buying car insurance

This article has been updated from a previous version. 

Auto insurance is a must-have for any driver in Canada. It financially protects you against physical damage or bodily injury in the case of a collision, or any other liability arising from incidents in a vehicle. 

But buying a car insurance policy can be confusing. A lot of insurance terminology will get thrown around when you set up an auto insurance policy, so it’s in your best interest to know what it all means and how it will affect you. 

Here’s everything you need to know about buying car insurance—from understanding coverage types like liability and collision to smart tips for saving money and choosing the right policy. 

Types of car insurance coverage  

When shopping for car insurance, there are three main forms of coverage to be aware of: liability, accident benefits, and physical damage — the latter often known as collision and comprehensive coverage.  

• Liability coverage protects you in the case of injury or damage to third parties.  
• Accident benefits provide financial support for medical expenses, rehabilitation, lost income, and more if you’re injured, regardless of who is at fault.  
• Collision and comprehensive coverage, or physical damage, covers any physical damage to your vehicle.  

“In Ontario, we operate in a no-fault system, meaning your own policy or coverage responds to all your damages regardless of fault,” explains Dave Dyer, former chief operating officer for LowestRates.ca. However, he says that there are exceptions for catastrophic loss, where you can sue another driver for damages.  

Liability and accident benefits are mandatory, while physical damage coverage is optional if you own your vehicle outright. For instance, collision coverage — which covers damage to your vehicle while it’s in motion (e.g., during a collision or accident) — is not required by law in many provinces, including Ontario.  

However, it is highly recommended to save from having to pay for costly repairs out of pocket. If you lease or finance your vehicle, collision coverage becomes mandatory as part of the lender’s requirements. 

Comprehensive coverage, on the other hand, protects your vehicle while it is stationary — such as damage caused by earthquakes, falling objects, or extreme weather.  While optional for outright vehicle owners, this coverage is also typically required by lenders for leased or financed vehicles.  

Why? Lenders want to ensure the vehicle remains in good condition, and that insurance will be responsible for shelling out for necessary repairs. 

Learn more: How much auto insurance do you need in Canada? 

Insurance deductibles and limits of liability 

A deductible is the amount you agree to pay out of pocket if you make a claim and are found partially or fully at-fault.  

“The main thing to consider regarding your deductible is what you can afford to pay out of pocket,” says Dyer. “Most people select $1,000, which is pretty much standard.”  

Opting for a higher deductible— say, $2,000— can lower the cost of your monthly premiums. That said, it’s important to weigh this decision carefully, as a higher deductible means you’ll pay more out of pocket when making a claim.  

When purchasing physical damage coverage, it’s also important to assess whether your vehicle’s value justifies the cost of the coverage. For instance, new cars can depreciate up to 30% in their first year. If you own your vehicle outright, the added premium for physical damage coverage may not be worth it, depending on the car’s current value.  

Another critical factor to keep in mind when shopping for car insurance is the limits of liability. This refers to the maximum amount your insurance will cover in the event of a catastrophic accident.    

“In the case of a catastrophic accident, the damages could be severe," Dyer cautions. "While $1-million liability is still the most common, many people are electing for $2-million liability these days. The incremental cost is quite small for the extra protection.” 

Learn more: What is an insurance endorsement or rider? 

You can— and should— shop around for the best price 

When buying car insurance, you should never accept the first rate you’re offered.  

According to Dyer, consumers have a few options when searching for car insurance. You can contact a broker or reach out to an insurance company directly. However, he notes, direct-to-consumer insurance companies will only provide a single offer, whereas brokers can present you with sever competitive options from multiple insurers. 

 If you want to save time, use an online comparison tool to quickly compare quotes from multiple providers and find the best coverage at the best price— all in one place. 

Related: Is it possible to over-insure your car and home? 

What information do you need to give to your car insurance provider? 

Once you settle on a provider and policy, your broker or insurance provider will require the following information:   

• Driver’s licence numbers for all drivers on the policy and everyone in the household. 
• Driving history. While insurers will pull your records from industry databases, they’ll still ask for basics like the date you got your license, and any tickets, accidents, or suspensions. 
• Insurance history, including whether you’ve had a policy canceled and how long you’ve been continuously insured. Longer, uninterrupted coverage often leads to better rates. 
• Vehicle details, such as the make and model, and your vehicle identification number (VIN). 
• In some provinces that allow it, you may be asked to consent to the ordering of a credit score.  
• Other personal details, such as your date of birth, sex, and marital status.  
• Any leasing or financing details. 

Whatever you do when buying auto insurance, it's important to be as truthful as possible. Insurance providers will order reports to confirm your driving history. There’s no hiding from the past, says Dyer, so make sure you declare all past accidents and tickets as best as you can recall. 

Additionally, you should always pay your premiums on time. Non-pay cancellations will result in significant increases to your annual premium. 

Read next: How insurance companies make money