Buying a car is a significant investment, but your vehicle itself is only part of the ownership equation. Just as important is understanding what can protect your ride and wallet: car insurance. With so many coverage options, understanding insurance policies can become confusing. This guide will provide clarity by laying out the most common car insurance types in straightforward terms. You’ll gain a clear idea of what each coverage is meant for. Once you know these basics well, you’ll feel confident selecting the right blend for your unique situation. Read on to learn more!
Liability insurance covers you if you cause an accident that injures someone else or damages their property. It’s required by law in every province and territory. Liability insurance has two parts: bodily injury and property damage. Bodily injury pays for others’ medical treatment, lost wages, and pain and suffering if you injure them. For example, if you crash into another car and the driver breaks their leg,
your liability insurance pays their medical bills. Property damage pays to repair or replace someone else’s property that you damage. For instance, if you back into a parked car and smash its tail light, your liability coverage pays for the repair. Liability insurance protects your finances by paying for expenses that would otherwise come directly out of your pocket.
Uninsured and Underinsured Motorist Coverage
Uninsured and underinsured motorist coverage protects you if you’re hit by a driver who doesn’t have enough insurance. Unfortunately, numerous drivers lack insurance or have extremely low coverage limits. This leaves you unprotected if they cause an accident. For example, if an uninsured driver crashes into you, their insurance won’t pay to fix your car or cover your injuries.
Underinsured motorist coverage comes into play when the insurance of the at-fault driver is depleted or doesn’t adequately cover the costs of the damages. This optional coverage pays for your vehicle repairs and medical bills up to your chosen limits. Without it, you would have to pay these expenses out of your own pocket or file a lawsuit against the underinsured driver. Though optional, it’s recommended for peace of mind.
Comprehensive insurance covers damage to your car that isn’t from a collision. Things like theft, vandalism, hail, flooding, falling objects, and animals are included. For example, comprehensive pays for the repairs if a vandal or a tree branch smashes your car window and falls on your hood during a storm. It also covers damage from fire, explosions, civil disturbances, and other disasters. Comprehensive gives peace of mind by covering non-collision damage from things out of your control.
Collision insurance covers damage to your vehicle from an accident with another car, object, or flipping over. For example, collision pays for repairs or replacement if you crash into a tree, collide with another car at an intersection, or roll your car off the road. This type of coverage is optional, but most lenders require it if you finance or lease a car.
Without collision insurance, you’d have to pay the total cost of repairs or replacement from a major accident. Collision coverage gives you protection in case the worst happens. When purchased together, collision and comprehensive are known as “full coverage.” Collision covers accident damage, while comprehensive covers non-accident damage.
Medical Payments Coverage
Medical payments coverage, also called MedPay, covers medical expenses for you and your passengers injured in an accident. It pays for treatment like hospital visits, medications, physical therapy, and other costs, regardless of who caused the accident. For example, if you’re a passenger and the driver crashes, MedPay will help pay your urgent care copay and any other medical bills not covered by health insurance. Or if you cause an accident injuring your passengers, their MedPay will cover their medical costs.
Personal Injury Protection
Personal Injury Protection (PIP), or no-fault insurance, covers medical expenses and lost wages for injuries to you and your passengers from a motor vehicle accident, regardless of who is at fault. PIP pays for treatment, rehabilitation, and lost income up to your select coverage limits. For example, if you break your leg in an accident, PIP helps pay for the hospital visit, physical therapy, and time you missed from work for recovery.
PIP may also cover other accident-related expenses like household services if you can’t perform your usual chores. PIP assures that medical and income costs will be covered after an accident. It can be used alongside health insurance and disability coverage. PIP provides an extra layer of protection, allowing you to focus on getting better rather than worrying about medical bills.
Other Types of Car Insurance Coverage
Rental Reimbursement Coverage
Rental reimbursement coverage pays for you to rent a car while your vehicle is in the shop after an accident. For example, if your car is hit and needs repairs for a week, this coverage helps pay for a rental so you can still get to work or school. Without rental coverage, you’d have to pay potentially high rental fees entirely out of pocket while your car is fixed.
Gap coverage pays the difference if your car is totaled and you owe more on your auto loan than the car’s current value. For example, if you owe $15,000 on your loan but your car is only worth $10,000 when totaled, gap insurance will pay the $5,000 difference. This protects you from having continuing loan payments on a car you no longer own.
Without gap coverage, you’d be “upside down” and have to pay the remainder of the loan out of pocket after receiving the value payment from the standard coverage. If the worst happens, gap insurance is optional but provides essential financial protection for your auto loan balance.
New Car Replacement Coverage
New car replacement coverage pays to replace your car with a new model if it’s totaled within the first couple years of ownership. For example, if your new car is destroyed in an accident after owning it for only 6 months, this coverage will pay to replace it with the same make and model brand new. This coverage protects you from a big financial hit if your nearly-new car is totaled.
It’s optional but provides valuable protection for several years after purchasing a new vehicle. New car replacement coverage assures you that the investment in your new car won’t be lost.
Towing and Labor Cost Coverage
Towing and labor cost coverage pays for roadside assistance if your vehicle breaks down. For example, if you have a dead battery or flat tire, this coverage will pay the tow truck fee to transport your car to a repair shop. It will also cover on-site labor costs like jump-starting your battery or changing a flat tire. Without it, you’d have to pay potentially high roadside assistance and labor costs entirely out of pocket.
This inexpensive optional coverage provides essential protection from unexpected breakdown expenses. Towing and labor coverage gives you peace of mind that help is only a phone call away if your car becomes disabled.
Ride-sharing coverage provides insurance protection specifically for driving for a company like Uber or Lyft. It fills gaps between personal and commercial policies while you are logged into the app and waiting for trip requests. Ride-sharing coverage pays for injuries and damage if you get into an accident during this period when your regular insurance doesn’t cover you.
This additional coverage gives you peace of mind that you are protected while making money through a ride-share service. Some insurers offer ride-sharing add-ons, or you may need a commercial policy. Check with your provider about your options if you plan to drive for a ride-sharing company.
Classic Car Insurance
Classic car insurance provides specialized protection for vehicles considered collectible antiques, vintage cars, or exotic automobiles. Coverage is based on an agreed-upon value rather than the depreciated value, reflecting the car’s rarity. For example, if you have a 1960s-era muscle car, its value would be set based on its collectibility rather than a standard car value chart.
Classic car policies have higher premiums but provide better coverage for repairing or replacing rare parts. For owners of classic automobiles, this type of coverage provides tailored protection.
As we’ve discussed, car insurance might appear complex initially, but it becomes clear when we break it down. Choosing the right policy is a balance of mandatory coverage, risk tolerance, and budget. Start with liability limits that meet your provincial requirements.
Consider adding collision or comprehensive coverage based on your car’s value and the potential repair costs you could handle in a tight situation. Consider extras like rental car coverage based on your transportation needs. While auto insurance isn’t glamorous, the right policy is essential to protect your vehicle, assets, and peace of mind. Don’t wait until it’s too late – get insured and drive knowing you’re covered.