Vehicle Insurance: What are you paying for anyway?

• Author: Halma, Erin

If you own a vehicle, you probably pay for insurance on it. But you may not know what you are actually paying for and why governments require it.

This article briefly describes why governments require vehicle insurance. It then gives an overview of the insurance systems for mandatory insurance in Alberta, British Columbia, and Saskatchewan. In all these jurisdictions, people can buy additional insurance products (such as collision, comprehensive, or extended third-party liability coverage) that supplement the mandatory insurance.

Why mandate vehicle insurance?

As vehicles made their way into everyday life, so too did vehicle accidents, which often resulted in injuries or property damage. Tort law already allowed people with injuries or property damage to sue at-fault people for certain damages suffered. However, if the at-fault person could not afford to pay for the damage they caused, the person who suffered damages would not actually be compensated for their losses.

Governments became concerned that people who suffered injury or property damage from an accident may not receive enough compensation. In response to this concern, governments made vehicle insurance mandatory. This insurance shared losses between owners of vehicles and helped make sure people could receive compensation if they were injured or their property damaged.

In most Canadian jurisdictions, there are two basic components to mandatory vehicle insurance:

1. third-party liability

2. first-party no-fault benefits

Third-party liability is what responds when someone sues you for damages. It is a pool of money that is used to pay for any damages award against you. It involves the insurer stepping in to defend the action on your behalf--hiring lawyers and determining how to run the claim. It provides you with protection from personal liability if there is a claim against you. It also protects the injured person, as it ensures there is money available to cover some or all of their damages.

First-party no-fault benefits are available when you are injured in an accident, even if you are at fault or there is no one to sue for the accident. Where there is someone to sue, these benefits are available more quickly while any litigation resolves. They are generally paid to you by your insurer, usually on an as-needed basis. These benefits provide a basic level of care to cover certain expenses. For example, these benefits may include a wage loss supplement and cover certain medical and...