How much car insurance liability do you need in Canada, and when to drop collision

Most Canadian drivers should carry at least $1 million of third-party liability, and many choose $2 million, even where the legal minimum is $200,000 or $500,000, because the extra limit usually costs little and a serious crash can produce claims far above the minimum. Collision and comprehensive are different: they protect your own vehicle, so their value falls as the car ages. A reasonable rule is to review them once the annual cost of the coverage approaches 10% of the vehicle's value, or when you could replace the car from savings without hardship.

This guide explains both decisions with worked numbers. Figures are illustrative.

Liability: what it pays and why the minimum is not enough

Third-party liability pays for injury and damage you cause to other people, including legal defence costs, up to your limit. If a claim exceeds the limit, you can be held personally responsible for the rest.

Legal minimums by province are listed in the comparison of provincial systems. In Quebec, injuries in Quebec are covered by the SAAQ, but your private liability (chapter A) still covers property damage and injuries you cause outside Quebec. In BC and Manitoba, you can top up the liability in the basic plan through optional or extension coverage.

Worked example: the cost of going from $1 million to $2 million (illustrative)

An Ontario driver's quote shows:

• $1 million liability: $2,180 a year
• $2 million liability: $2,215 a year

The extra $1 million of protection costs $35 a year. Over ten years that is $350, against the possibility of a judgment or settlement above $1 million that could put your savings, home equity and future income at risk. For most households with assets or income to protect, the extra limit is worth it. Ask your insurer for the price at $1 million, $2 million and higher limits, and consider an umbrella liability policy if you have significant assets.

Collision, comprehensive, all perils and specified perils

In Ontario, a collision in which you are not at fault with an identified insured vehicle is paid under direct compensation (DCPD), not collision coverage, without a deductible. So collision mainly protects you when you cause a crash, hit a fixed object, or the other driver is unidentified. In Quebec the equivalent is the direct compensation agreement, and own-damage coverage is called chapter B. In the public-plan provinces, the basic plan includes own-damage coverage with a deductible; see the MPI and SGI guide.

Worked example: keep or drop collision on an older car (illustrative)

A 2013 sedan worth $6,000. Collision with a $500 deductible costs $420 a year; comprehensive with a $300 deductible costs $160 a year.

• Most collision would ever pay: $6,000 - $500 = $5,500 (a total loss).
• Ratio of premium to maximum benefit: $420 / $5,500 = 7.6%.
• If the annual chance of an at-fault total loss or major collision is below about 7.6%, dropping collision saves money on average.
• Comprehensive: maximum benefit $6,000 - $300 = $5,700; ratio $160 / $5,700 = 2.8%. Theft, glass and hail claims are common, so comprehensive often stays worth it longer.

Decision questions:

1. Could you replace the car from savings if you wrecked it tomorrow?
2. Do you still owe money on it? A lender or lessor usually requires collision and comprehensive until the loan or lease ends.
3. Would you actually claim a mid-sized repair, given the effect on your premium?

If the answers are yes, no and probably not, dropping collision is reasonable. Keep comprehensive if the car is parked outside or in an area with theft or hail.

Other coverages to consider

• Loss of use (rental) endorsement. Pays for a rental while your car is repaired after a covered loss. Worth it if you have no second vehicle.
• Non-owned automobile liability (OPCF 27, SEF 27). Covers damage to a rental or borrowed car; check whether your credit card already covers rentals before paying twice.
• Waiver of depreciation (OPCF 43, SEF 43). For new vehicles, pays the purchase price rather than depreciated value for a set period.
• Family protection (OPCF 44R, SEF 44). Tops up compensation if an at-fault driver's liability is too low. Usually inexpensive.

See discounts and endorsements for details and the deductible guide for choosing deductibles.

Frequently asked questions

Is $2 million liability necessary if I live in a no-fault province?

In BC, Manitoba and Quebec, injury lawsuits are largely removed within the province, but liability still matters for property damage, and for injuries you cause when driving elsewhere in Canada or in the United States.

Does my liability cover a rental car?

Your liability usually extends to a rental you drive, but damage to the rental itself needs non-owned automobile coverage or the rental company's waiver. Check before travelling.

Can my lender require collision coverage?

Yes. Loan and lease agreements usually require collision and comprehensive with a maximum deductible, and name the lender as loss payee.

Is all perils better than collision plus comprehensive?

All perils combines both with one deductible and may include extra perils such as theft by a household member. Compare the price and the deductible against the two separate coverages.

More guides

• Renewal checklist
• Worked renewal comparison
• ICBC optional coverage

Sources

• FSRA — Ontario mandatory and optional coverages
• Insurance Bureau of Canada — explanations of coverage types
• Autorité des marchés financiers — Quebec coverage information
• Canadian Council of Insurance Regulators — provincial regulators