How car insurance companies work

13 minute read Published on Aug 5, 2024 by BrokerLink Communications

In the market for car insurance and want to learn more about how car insurance companies work in Canada? Below, we outline what car insurance is, how much car insurance costs, and the car insurance coverages available to drivers.

Understanding how car insurance works

Car insurance works as a contract between a driver and an auto insurance company. As with most other types of insurance, a policyholder agrees to pay a certain amount of money (known as a premium) in exchange for being compensated for certain damages or losses if they happen.

The amount that the policyholder will be compensated in the event of a claim varies depending on the coverage they purchased and their deductible. Further, each driver’s premium is unique as it is based upon a number of factors, including their age, driving record, claims history, location, and more.

Without car insurance, a policyholder would be responsible for paying the cost of these damages out of pocket, which can add up quickly, especially in the event of a major collision or lawsuit. Auto insurance policies are typically paid either monthly or annually (though paying annually may translate to cheaper rates).

Is car insurance mandatory in Canada?

Yes, car insurance is mandatory in Canada, which means all drivers must purchase liability car insurance before hitting the road. No matter which province or territory you live in or what kind of car you drive, you must have a valid auto insurance policy to get behind the wheel.

Each province and territory in Canada has its own unique regulations, and drivers must ensure that their policies meet the minimum coverage requirements of the jurisdiction they live in. For example, in Ontario, all car insurance policies must include no less than $200,000 in third-party liability insurance, as well as uninsured automobile coverage and accident benefits coverage.

Failure to purchase the necessary insurance and choosing to drive anyway can result in hefty fines and the suspension of your driver’s licence.

Coverage offered by car insurance companies

The coverage offered by car insurance companies varies but should include the mandatory coverage types in your province. Many insurers also offer optional coverage types, such as accident forgiveness, collision, and comprehensive coverage. We break down a few of the most common coverages offered by car insurance companies below:

Third-party liability coverage

Third-party liability coverage protects drivers if they get into an accident for which they are at fault. For example, if you cause a collision that results in bodily injury or property damage, liability coverage can help you cover the costs of medical expenses or vehicle repairs. It can also help pay for any necessary court fees or legal counsel. Each province requires drivers to carry a certain amount of third-party coverage. For example, in Ontario and Alberta, drivers must hold a minimum of $200,000 in third-party liability coverage at all times.

Direct compensation-property damage coverage

Direct compensation-property damage coverage protects the policyholder in the event that they get into an accident that was not their fault. This type of coverage offers compensation if you suffer an injury or your car is damaged in the accident. In the case of direct compensation, the insurance company may reimburse the policyholder directly for their claim.

Accident benefits coverage

Accident benefits coverage can help cover the costs of medical expenses following a collision. This type of coverage can be claimed no matter which party was at fault for the accident, and it can help pay for the medical expenses of the driver, passenger, or any pedestrians involved in the accident. Examples of medical expenses accident benefits can cover include rehabilitation, prescription medications, lost wages, ambulance bills, and physical therapy.

Uninsured automobile coverage

Uninsured automobile coverage protects you and any passengers in your vehicle if you’re involved in an accident with an at-fault driver who is uninsured or underinsured. This mandatory coverage type may also protect against hit-and-runs.

Collision coverage

Collision coverage is optional and protects the policyholder if they get into an accident with another vehicle or object on the road, no matter who is at fault for the accident. Under the collision coverage section of your policy, you can receive compensation to help pay for any property damage that resulted from the accident, such as a damaged car in need of repair.

Comprehensive coverage

Comprehensive coverage protects drivers against a wide range of unforeseen events on the road. While standard auto insurance coverage in Canada provides a certain degree of protection against collisions, it does not protect motorists from non-collision-related circumstances. That’s where comprehensive coverage comes in. This optional coverage type can safeguard your car against insured perils like theft, vandalism, falling objects, water damage, and fire.

Accident forgiveness coverage

One final type of optional car insurance coverage popular among drivers is accident forgiveness. Accident forgiveness is additional coverage that can be added to your car insurance policy as an endorsement to protect your driving record and to help prevent your insurance premium from increasing if you have an at-fault accident claim. Note: coverage varies by province.

How much does car insurance cost in Canada?

Insurance companies consider a wide range of factors when calculating car insurance premiums. Therefore, drivers in Canada can pay vastly different rates, even if they drive the same type of vehicle or live in the same town. From a driver’s age to their driving record and claims history, many details can influence auto insurance costs in Canada. We’ve put together a list of the most common factors influencing insurance rates so drivers can better understand how their premiums are calculated below:

Age
Gender
Location
Make, model, trim, and year of your vehicle
How frequently you drive your car
Driving record
Driving history
Claims history
Coverage, limits, and deductibles
Local laws

Looking for the best car insurance? At BrokerLink, we shop the market to find the most competitive rates and the best coverage tailored to your needs. Contact us today to get a quote and drive with confidence!

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How to compare car insurance quotes from auto insurance companies

When shopping for car insurance, make sure to obtain quotes from multiple insurance companies first (or have a broker do this for you). In order to obtain an auto insurance quote, you will be asked to provide some basic information about yourself and your vehicle. The more information you provide, the more accurate your quote will be. We recommend having the following information handy:

Current policy number and renewal date
Years of prior insurance
Vehicle details, including the year, trim, make, and model of your vehicle
Vehicle Identification Number (VIN)
Driver’s licence number and dates licenced for all drivers in the household
Current coverages and deductibles for all vehicles in the household
Distance driven in kilometres to work and annually for each vehicle (you must note if your car is used for business)
Out-of-province experience letters and driver’s abstracts
Details regarding any tickets (moving violations and/or suspensions) in the last three years or accidents in the last ten years (including date, type of accident, or ticket)

Once you’ve obtained multiple quotes from different insurance companies, it’s time to compare them. Comparing quotes is the most effective way of ensuring you are purchasing the best policy and avoiding overspending.

We recommend getting quotes from at least three insurance companies or enlisting the help of a broker to do this for you and assess each option according to the following criteria:

The coverage and deductibles included with the policy: Chances are, the quote with the cheapest rate may also offer the least amount of coverage and the largest car insurance deductible. Depending on your vehicle, driving record, and driving habits, the minimum coverage may not be enough to suit your needs. Make sure to carefully consider the coverage you need and the deductible you are willing to take on.
Your payment options: Compare quotes according to the payment options. For example, do all providers give you the option of paying monthly, or are you required to pay annually? Are additional fees charged if you pay monthly rather than annually, and what are they?
Eligible discounts: You should always ask about discounts (conditions and amounts) and factor in any discounts you qualify for into the quote. Though one quote might seem like the best value, this may not be the case when you adjust for a safe driver, bundling policies, or winter tire discount.

Remember to provide each insurance company with the same details (e.g., location, age, driving history, VIN, etc.) so that you can fairly compare each quote. Once a quote has been provided, remember to double-check that your personal details, coverage needs, and driving record are all accurately reflected.

How do insurance companies handle car insurance claims?

When you file a car insurance claim, here’s how insurance companies handle it:

Report the claim

Start by reporting the accident to your insurance company as soon as possible. You can do this by phone, online, or through a mobile app. Give them all the details, like the date, time, location, and what happened. Also, mention any injuries.

Assigning a claims adjuster

The insurance company will assign a claims adjuster to your case. This person will investigate the accident, check the damage, and figure out who is at fault.

Investigation

The adjuster will look into the accident. They’ll review the police report, talk to witnesses, and look at any photos or videos of the scene. They might also inspect your car or ask you to take it to a repair shop for an estimate.

Determining fault

Using the information from the investigation, the adjuster will decide who is at fault for the accident. They follow specific rules to make this decision.

Estimating Damages

The adjuster will estimate how much it will cost to repair your car. If your car is a total loss, they’ll determine its value before the accident.

Settlement

The insurance company will offer a settlement based on the adjuster’s findings. If you agree, they’ll pay for the repairs or replace your car minus any deductible. If you disagree, you can negotiate or dispute the settlement.

Payment

Once you agree, the insurance company will pay the agreed amount to you or directly to the repair shop or the loan holder in the event of a financed or leased vehicle’s total loss.

Communication is key throughout the process. Stay in touch with your adjuster and provide any additional information they may need to expedite your claim.

How do car insurance companies determine fault in an accident?

If you’re in a car accident, no matter who you think is at fault, make sure you report it to your insurance company right away. Then, it’s time to determine the fault. This isn’t decided by just one person. The insurance adjuster, law enforcement officers, and sometimes attorneys or a jury all play a role.

Insurance companies can decide fault without input from the police, but generally, the insurance company’s adjuster reviews the accident details and the police report to decide who was at fault. This means while you might not have broken any laws, you can still be found at fault for the accident.

You can be found 0% to 100% at fault, and being more than 25% at fault may raise your rates. A driver is deemed at fault for a car accident if they are found to be over 50% liable for the accident.

Buying insurance from a car insurance company vs. a car insurance broker

Before contacting several car insurance companies directly, take the time to consider whether purchasing insurance through a company or a broker is right for you. To help you determine this, we break down the pros and cons of working with an insurance company vs. an insurance broker below:

Insurance company

An insurance company sets premiums and creates policies. They consist of insurance agents who are licensed to sell insurance policies on the company’s behalf. Insurance agents are licensed provincially and highly knowledgeable about the specific products offered by the insurance company they represent.

The main benefit of purchasing car insurance through an insurance agent is that you cut out the middleman. Since you will be purchasing the policy directly through the insurance company, you can do so quickly and easily. The drawback of purchasing insurance through a company is that you may not be getting the best price. As their interests lie with the insurance company, they may not be able to offer much advice on how you can save money.

Insurance broker

On the other hand, an insurance broker works independently of insurance companies. Instead, they work for you, the customer. Insurance brokers typically work at brokerages and have extensive knowledge of the insurance industry and the current market. They are fully licensed, and rather than specializing in one company’s product offerings as insurance agents do, brokers have a high degree of knowledge about multiple companies’ offerings. They also have established relationships with many of the top insurance providers in Canada, which allows them to find policies that suit their customers’ needs.

Ultimately, the main benefit of working with an insurance broker is that they solely represent the customer, which means your needs will be their priority. Additionally, insurance brokers shop around on behalf of their customers, which provides a hassle-free car insurance experience. They also have the ability to cater to drivers of all budgets as they aren’t limited to one company’s product offerings.

By shopping around and obtaining quotes from several companies, they can find a plan that meets your lifestyle and budget. As with buying car insurance from a company, insurance can be purchased online, over the phone, or in person through a brokerage.

It must be noted that insurance brokers cannot bind coverage, so this final step is conducted by the insurance company. However, an insurance broker can connect you with the product sold by the insurance company and guide you through the entire purchasing process. A broker can also help modify your policy with the insurer in the future and can even help you file a claim.

Questions a car insurer will ask you when buying car insurance

Just as you should be prepared to ask an insurance agent questions, you should also be prepared to answer a few questions. Some of the most common questions auto insurance companies ask prospective policyholders are as follows:

1. What is your postal code?

This is usually one of the first questions a car insurance provider will ask you. Your postal code determines your location, which has a major impact on your premium. Drivers who live in metropolitan areas tend to have higher car insurance rates than those in rural areas simply because there is more traffic, which increases one’s odds of getting into an accident. However, other factors, such as crime rate and the likelihood of weather or climate disasters, will also come into play.

2. What type of car are you insuring?

The next question an insurance provider is likely to ask you pertains to your vehicle. They will ask for the make, model, year, and vehicle identification number (VIN) of your car. This is because an insurer will take into account a vehicle’s claims history and repair/replacement costs when calculating rates.

Drivers of vehicles with higher safety rates and lower rates of theft will often benefit from lower rates. However, the value of the vehicle also matters, with more expensive cars often costing more in insurance.

3. How do you use your vehicle?

To answer this question, you will need to state the primary uses of your vehicle. For example, do you:

Use your vehicle primarily to commute to and from work or school?
Use it for business or pleasure?

If you operate a vehicle as part of your business, your insurance needs may be different than if you use the car exclusively for personal reasons. Additionally, your driving habits, such as frequently driving at night or on major highways, can also impact your premium.

4. How many kilometres do you drive each year?

To better understand your risk as a driver, an insurance company may also ask about how many kilometres you drive annually. To calculate this, try to add up your weekly mileage and multiply it by 52.

If you spend an above-average amount of time on the road, you may have a higher premium since your odds of getting into a collision go up. Conversely, if you spend a below-average amount of time behind the wheel, your rates may be lower.

5. Does your vehicle have an anti-theft device?

Another question you might get asked by an insurance agent or broker is whether your vehicle has any anti-theft devices. These devices can make your vehicle safer, which might reduce your premium or allow you to qualify for a discount.

Generally speaking, anti-theft devices can be helpful if you want to lower the cost of comprehensive coverage. The discount you are eligible for will depend on what device you have. For example, if the device can help track your car in the event that it is stolen, it might be worth a bigger discount than a basic audible alarm.

Questions to ask an auto insurance provider

Reaching out to potential auto insurance providers is a key step when buying car insurance in Canada. Anytime you contact a provider, it’s best to be prepared. Remember, they are offering you a service, so treat each meeting like an interview. Ask them various questions to see if they are a good fit for you. Here are some questions to ask:

Contact BrokerLink for more information on car insurance

Want to learn more about how car insurance companies work in Canada? BrokerLink is happy to answer any questions you might have. We have strong relationships with many top insurance providers and are well-versed in their products, which means we can also offer advice on which company is right for you.

Plus, whenever you’re ready to purchase car insurance, BrokerLink can help. We will take the time to understand your unique insurance needs before contacting insurers in Canada to obtain quotes. We also invite all drivers in Canada to take advantage of our free car insurance quotes, ready in just minutes. Get started today by giving us a call, visiting us in person, or requesting a no-obligation auto insurance quote online.