auto insurance 101: what beginners need to know

Why do you need car insurance? What covers what? Can you lower your rates by sending us a batch of Butter Tarts? We'll clear up these essentials (and more) in this auto insurance 101 guide.

do you need auto insurance?

Short answer: yes. All drivers in Canada must have at least third-party liability insurance. You may need more coverage (like accident benefits coverage) depending on the car insurance requirements in your province. Of course, complying with the law is far from the only reason you need car insurance.

Think if you cause a collision with someone's expensive luxury car. Can you afford to pay the damages on your own? Or say you wake up one morning to find your car stolen. How will you get a replacement?

You never know what's around the corner, which is why auto insurance is one of the most important investments you can make. It lets you transfer the risky part of driving to someone else (ahem, that's us) for a small monthly premium. In essence, you pay a little now so you can avoid paying a lot later.

choosing the right amount of coverage

As a general rule, it's best to purchase as much auto insurance as you can comfortably afford. After all, that's the surest way to avoid being left vulnerable to unforeseen incidents. Practically speaking, though, it makes little sense to blindly add coverage without first examining your needs.

If you're like most drivers, you have a few unique lifestyle and risk factors that impact the types and amount of coverage you need, such as:

  • Your finances — if you have considerable assets or savings that need protecting, higher liability limits might be right for you.
  • Your driving style — do hairpin turns really blow your hair back? Or do you practice the "No, you first" driving philosophy? How cautious you are on the road and how much time you spend in your car can dictate how much coverage you need.
  • Your neighbourhood — major hubs like Calgary or Edmonton might present higher risk for fender benders, car theft, or vandalism than more rural settings.
  • Your covered drivers — you might be comfortable with moderate coverage if you're the only person on your policy, but what if you have an inexperienced new teen driver on your plan?

Obviously it's impossible to imagine every potential risk on your own. That's why our customer service reps are standing by to help and answer any of your questions. These friendly experts understand what daily driving concerns you face (because they face them, too!).

Give us a call at 1-888-ESURANCE (1-888-378-7262) for help tailoring a policy just for you.

how car insurance works after an incident

Like a fine timepiece, car insurance involves many parts working in harmony. To get a better understanding of how it all fits together, it might be helpful to consider a hypothetical incident.

Picture this: You miss a red light and collide with another vehicle, then proceed to slide and knock over a stop sign. You're left with a sore neck and the driver in the other vehicle gets out complaining of leg pain.

OK … you know you'll need insurance to deal with this. But how car insurance works can feel like a mystery even to driving pros. Basically, it breaks down something like this:

  • Damages to the other car: When you're deemed at-fault for the accident, your third-party liability coverage should cover the other driver's repairs. In provinces with direct compensation for property damage — DCPD (like Ontario), however, drivers deal with their own insurer for damage, even if it's caused by someone else's negligence.
  • The other driver's injuries: If you are at fault for the accident to any degree and the other party sustains injuries, they may have a right to make a claim for compensation — in these cases, your liability coverage will be triggered. Every province has specific criteria and regulations for deciding what and how payments are made to the other party. There is also medical and disability coverage available to the other party through their own policy — this is called accident benefits coverage.
  • Your injuries: No matter who is at fault, accident benefits coverage from your own policy kicks in to help cover certain injury-related expenses. And if you incur a wage loss, a portion of this may be covered too.
  • The damaged stop sign: Liability coverage also helps pay to repair this damaged property.
  • Your car's damage: Collision coverage goes toward your own ride's repairs, and in Ontario where DCPD exists (depending on the degree of fault) it may be covered by that.
  • A rental car: If you select a loss-of-use endorsement for your policy, you can get reimbursed for the cost of a rental car to use while yours is in the shop. DCPD may respond in Ontario depending on the circumstances of the loss.

We hope this helps give you a better sense of how insurance could work to cover a claim. Of course, this is just a general overview — you'll need to check your policy documents for a description of your specific coverages. In any case, when purchasing your insurance it's important to tailor a well-rounded policy so you're not left vulnerable in key areas.

Luckily, Esurance has an amazing slate of car insurance coverages to help keep drivers secure.

explaining deductibles

In addition to your monthly premium, you're also responsible for paying your deductible. This is the out-of-pocket amount you owe after an incident before your car insurance will kick in.

For example, say you have a $500 deductible. If you were in a car accident and your vehicle needed $4,000 worth of repairs, you would pay the first $500 and your insurer would pay the remaining $3,500.

Typically, the higher your deductible, the lower your premium. This doesn't mean choosing higher deductibles is always the way to go, however. Remember, if something happens, a higher deductible means your insurer pays less and you shoulder more of the financial burden.

start your free quote online

Now that you've gone through your auto insurance 101, you're ready to start your free quote. With Esurance, you can shop online (no wasted time over the phone) and customize a policy at your own pace.