Few people take the time to truly evaluate their auto insurance needs. Most consumers realize they need to purchase a minimum amount of coverage in order to drive legally. Unfortunately, many do so without considering their personal circumstances. In many cases, they buy far too little coverage, leaving themselves exposed to enormous financial risk. Other times, they purchase too much coverage, and needlessly pay higher premiums than necessary.

Our goal below is to help you determine how much car insurance coverage you need given your circumstances. Doing so will help ensure you and your family are adequately covered without paying excessively high rates.

Compulsory Versus Optional Coverages

As you know, some types of coverages are mandatory in most places throughout Canada (there are exceptions). Unless you live in Newfoundland and Labrador, you must have Accident Benefits coverage. This covers medical costs, lost wages, and related expenses for you and your passengers that result from being involved in an accident. The minimum you’re required to carry varies by province and territory.

Another basic (i.e. mandatory) coverage is Third-Party Liability. If you are responsible for an accident during which someone is injured or their property is damaged, this type of insurance covers the legal claim.

You can also purchase a number of endorsements for your policy. These include collision and comprehensive as well as Limited Depreciation coverage. Collision pays for repairs or replacement in the event your car is damaged due to an accident. Comprehensive covers damage that results from events unrelated to an accident (e.g. vandalism).

Limited Depreciation waives depreciation if your vehicle is damaged and needs to be replaced. You will receive the amount you paid for the car as long as it is only two or three model years old (the details of this condition vary by insurer).

There are many other endorsements you can purchase that are not part of your basic policy. Your decision to purchase them should be based on how likely you believe the covered losses will occur.

Protecting Your Assets From Judgments

For compulsory coverages, each province maintains its own minimum limits. For example, British Columbia requires that drivers carry $200,000 in Third-Party Liability while Nova Scotia requires $500,000. It’s important to realize that the minimum coverage required by the law may be inadequate given your financial situation. You’ll need to review your assets to ensure they are properly protected.

For example, suppose you cause an accident during which the other driver’s car is totaled, and he or she sustains serious injuries. Costs related to surgery and rehabilitation alone add up to $300,000. Further suppose you have purchased only $200,000 in Third-Party Liability coverage. It is not enough to cover the cost of treatment and rehab – not to mention lost income, replacing the driver’s totaled vehicle, etc.

Some provinces, such as British Columbia, allow the victim to sue the at-fault driver for compensation. This places your assets (e.g. home, car, kids’ college fund, etc.) at risk of a legal judgment. In this situation, extended Third-Party Legal Liability can protect your assets by increasing your liability coverage to $1 million or more.

Review your financial situation and purchase enough insurance to protect your house, car, and other assets from an otherwise devastating judgment.

Collision And Comprehensive Insurance

These two coverages are responsible, in part, for millions of consumers paying higher insurance rates than necessary. The reason is twofold. First, many people pay for them even though they do not need them. Second, both coverages are very expensive. Together, they add up to nearly 50 percent of your entire premium.

So, how do you determine whether collision and comprehensive are warranted? Each situation is unique since it involves other factors, such as deductibles. For this reason, each must be addressed on an individual basis. That said, we can offer a general rule of thumb.

First, take a close look at your most recent car insurance statement. Your total premium should be itemized so you can identify how much you pay for each type of coverage.

Second, add up the amount you pay for collision and comprehensive. If this number exceeds 10 percent of your vehicle’s market value, consider dropping both coverages. At that point, the amount you’re spending on them is difficult to justify.

To repeat, the amount of auto insurance you purchase for compulsory coverages should be based largely on your assets. Once you have determined how much you need, take a few minutes to compare rates between several insurers to find the lowest-priced package.

Petrusia Kowal is an expert music teacher, and the type of car insurance broker Hamilton residents have come to rely on. If you need help choosing the right car insurance coverage for your needs; give Petrusia a call!