What Is a Third-Party Insurance for a Car in Canada?

When it comes to car insurance, many Canadians mistakingly overlook it. And that can severely hurt your chances of speedy financial recovery after an accident. Although the average person doesn’t think about insurance daily, some policies are worth combing through, like third-party car insurance

But what is third party insurance for a car? How does it work? Is it expensive? Stick around to discover the answers to these pressing questions, and more!

What is Third-Party Insurance for a Car?

Imagine you’re driving on a fine day, without a care in the world. In the blink of an eye, you realize you’ve caused an accident. The other driver is irate and threatens you with an insurance claim. What will you do now? You don’t have money to spare on damages to another car! 

Then you remember – you have third-party auto insurance that will cover your liability when you’re at fault for an accident. What a relief! 

The typical third-party insurance for cars is mandatory by law in Canada and covers a list of predicaments you might find yourself in, such as:

  • Damage or injuries to the third party, which includes medical costs for injured pedestrians and cyclists
  • Property damage compensation, like toppling business signs and advertisements, or damaging your neighbour’s fence
  • Personal accident cover for repairs on a vehicle you’ve damaged

What about first and second-party insurance?

In contrast, first-party insurance covers damage to your own vehicle in an accident, since the first party is the owner of the car who registered the policy. While not required by law in Canada, this coverage is typically added to a third-party insurance policy

So, who’s the second party? It’s the insurance company that protects you and compensates you for the damages or losses to your vehicle. Now that you’ve brushed up on your jargon, let’s talk about how car insurance liabilities and coverage works.

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How Does Third Party Insurance Work?

If you’re at fault for an accident that leaves the other party injured, damaged, or killed, your third-party liability insurance policy will cover the losses to the property or any related repair cost. Thankfully, depending on your premium, you won’t break the bank by paying for the repercussions out of pocket and you won’t bear the legal fees if you’re sued.  

Mainly, third-party car insurance is essential because it protects you from financial ruin. Without it, you’d be responsible for paying for the other party’s repairs or medical bills, and with the average car accident settlement in Canada in the range of $350,000, costs will quickly rack up. 

However, third-party insurance doesn’t provide comprehensive insurance for a policyholder. Therefore, to ensure you’re protected all around, other mandatory features included in your plan are accident benefits and uninsured auto insurance. 

Common add-ons

As a result of some liability limits on car insurance, providers will often offer add-ons to your premium. Here are some of them:

  • Legal coverage protects you if you’re sued or must bear legal fees
  • Replacement car provides a replacement for your vehicle if it’s damaged
  • Breakdown coverage provides assistance if your vehicle breaks
  • Car accident coverage protects your car in an accident
  • Personal accident coverage protects you if you’re injured in an accident
  • Family protection coverage protects you and your family in a no-fault accident with an underinsured driver

How do you get third-party insurance? 

Since third-party auto insurance is mandatory by law in Canada, insurers include it in your regular insurance policy. However, if you don’t have any type of insurance, you’ll need to:

  1. Note the features most important to you
  2. Compare quotes online to find the best deal
  3. Choose a provider or insurance broker 
  4. Discuss payments meticulously 
  5. Sign a contract

Related article: What are Car Equity Loans?

How Much Third Party Car Insurance Do I Need?

As you can tell, liability insurances vary across Canada, so third-party insurance in Ontario and liability insurance in Alberta can differ significantly, both by price and features. 

Moreover, there is minimum coverage for each province that you must heed. Here’s what that is:

Province Minimum coverage
Alberta $200,000
British Columbia  $200,000
Manitoba $200,000
New Brunswick $200,000
Newfoundland & Labrador $200,000
Northwest Territories $200,000
Nova Scotia $500,000
Nunavut $200,000
Ontario $200,000
Prince Edward Island $200,000
Quebec $50,000
Saskatchewan $200,000
Yukon  $200,000

Remember, the prices above denote the minimum amount your policy can cover. Usually, Canadians aim a bit higher, since experts recommend about $1 to $2 million in coverage for most people. Although that might seem like too much, catastrophic damages can quickly eat up your savings if you aren’t protected. 

Whether or not you decide to increase your average from the provincially mandated minimums depends on if you:

  • Carpool frequently
  • Use your car for commercial purposes
  • Regularly drive to the USA
  • Live in an urban area

How much does it cost usually?

There is no usual cost. Generally, the price of your premium can range from $600 to $1,600 a year, depending on several factors, such as:

  • Location 
  • Driving history
  • Add-ons 
  • Vehicle cost and safety
  • Annual mileage and distance to work

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Which Type of Car Insurance Should You Choose?

Finally, let’s talk about whether or not third-party liability insurance suits you. However, you should remember that since it’s required by law, you don’t really have a choice. What you can influence is what goes into your policy. 

But why wouldn’t you want added protection? The coverage is cheaper than comprehensive insurance, it protects you if you’re at fault in an accident, and it’s generally affordable, even with optional add-ons. 

On the other hand, this type of insurance only covers damage to other people’s property, which could mean you’ll still fork out a lot of money for your own repairs or medical bills. Moreover, if you’re responsible for a major accident, the costs could quickly exceed the liability limits on your car insurance, leaving you with a hefty bill.

Regardless of the disadvantages, the only choice you need to make is whether to add more features to your policy, like collision insurance or family coverage. Once you’ve got that figured out, you can purchase your policy and enjoy stress-free driving.

Conclusion

So what is third-party insurance for a car? Aside from being the minimum legal requirement for car insurance in Canada and protecting you in an at-fault accident, it’s also the most affordable option on the market. Hence, if you’re not looking to make waves with the government, snatch up a nice policy and rest assured knowing the court won’t drain your bank account

FAQ

Is third-party insurance for cars mandatory in Canada?

Yes, all drivers in Canada are required by law to have some form of car insurance. However, the type and amount of coverage you need vary by province.

How much does third-party car insurance cost in Canada?

Costs and rates vary depending on a number of factors, such as your province, driving record, the type of vehicle, and your own wishes. Usually, average yearly premiums range from $600 to $1,600.

What kind of minimum insurance coverage is required by law in Ontario for a motor vehicle?

In Ontario, you must have third-party liability insurance coverage, uninsured automobile insurance, Statutory Accident benefits coverage, and direct compensation.

What is coverage in insurance?

Coverage is the amount of protection an insurance policy provides. It typically refers to the maximum amount a provider will pay out in the event of a claim.

Does my insurance cover rental cars in Canada?

While there might be some policies that include rental cars, it’s not the norm. Sometimes, your policy might partially cover your rental vehicle, but if not, you’ll need to purchase a separate policy or add-on.

Can you drive someone else’s car in Ontario?

Yes, you can drive someone else’s car provided you have a valid driver’s licence and explicit permission to operate the vehicle. 

How much does your car insurance go up after an accident in Ontario?

At-fault accidents might raise your insurance premiums by about 15% for up to 6 years. Conversely, no-fault accidents don’t affect your base insurance rates at all, although they do stay on your record

How much liability insurance should I have?

The amount of liability insurance you need depends on a number of factors, including the amount of coverage your province requires. Generally, most experts recommend carrying at least $500,000 in liability coverage, although many Canadians opt for about $1-$2 million.

What does liability mean?

Liability refers to the financial responsibility you have in the event that you damage another person’s vehicle or property. 

ABOUT AUTHOR

When Biljana first started off her career, she was focused on economics, which was also her area of professional study. However, in time, she started to familiarize herself with the concept of insurance, which instantly struck a chord, allowing her to constantly upgrade her knowledge and eventually become an insurance aficionado. When she's not writing, she loves to go on hikes and explore various natural surroundings.

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