What’s included in your auto insurance and what value does your premium buy you?
Insurance is a significant expense for many Albertans. One of the most common questions drivers ask is what does this premium buy me? Insurance is a contract between you and your insurance company. Your insurance company is promising to pay if you have an unexpected future event happen. Insurance helps you to avoid unexpected financial hardship by transferring risks to an insurance company with the premium you pay. If you can afford to take on some of the risk yourself, you can receive a discount by adding a deductible. This is the amount you pay to have your vehicle repaired, and in return your premium is reduced to reflect the risk you are assuming.
While the auto insurance coverages across Canada have similarities, what your policy specifically covers will vary from province to province. Some provinces have a government insurance company and others purchase their auto insurance from an insurance company competing in a private market. Other differences are care models versus tort models. Generally, government insurance companies in Canada offer a care model, in which payment for treatment for injuries and compensation for lost wages is provided by the insurance company – and the driver does not have the right to sue. In Alberta, we have benefit limits, and the ability to sue if what your insurance company has provided in not sufficient. The right to sue comes with a cost – increased premiums and delayed access to treatment or compensation.
An auto insurance policy usually has several types of protection, we call them “coverages”. There are two categories of coverages, basic and optional. Basic coverage is mandatory, it includes third-party liability, accident benefits and direct compensation for property damage (DCPD). Optional coverages are coverages you can choose to purchase such as collision, comprehensive, specified perils, all perils, and endorsements. We provide a summary of the coverages below, for more details and examples refer to the Guide to Shopping the Market.
Third-Party Liability:
This coverage is the most expensive among all the coverages for auto insurance. In 2023, the total average premium Albertans paid for their insurance is $1,669. The portion of premium for third party liability (includes bodily injury, DCPD, property damage tort) is 57%. It pays for injuries or death of any person or damage to their property.
Imagine a driver failed to stop at the stop sign and hit a Tesla with two surgeons carpooling to a conference causing bodily injury to the surgeons and damage to their vehicle. Liability insurance will help the driver to pay to fix or replace the surgeon’s car, their medical bills, and in the worst-case scenario, any litigation against the driver. Your insurance company will not only pay for the legal defense costs, settlements, and court awards, but also defend the driver in their name. The driver will not need to engage the third party or their lawyer, insurance company will represent your interests throughout the process. This coverage is crucial because legal costs can be substantial if a driver is sued for causing the accident. For this reason, many drivers opt for a higher limit to provide more comprehensive protection. The most common liability amounts in Alberta is $1 million or $2 million dollars.
- Bodily Injury – this coverage provides protection for driver if they are liable for bodily injury to the other driver or their passengers.
- Property Damage Tort – This coverage will pay to repair or replace damage to another persons property, for example if you run through a stop sign and damage a fence on personal property. Your insurance company will pay to repair the fence.
Direct Compensation for Property Damage (DCPD):
This coverage was introduced in Alberta on January 1, 2022, to make the insurance claim process easier for Alberta drivers. DCPD covers the cost of repairing or replacing your vehicle equal to the percentage you are not at fault for the accident. When you are at least partially not at fault for the accident, you will deal with your own insurance company directly instead of having to contact third party’s insurance company and waiting for them to pay. Knowing that you are dealing with your own insurance company directly makes the claim process smoother, faster, and more straightforward. It will potentially reduce the stress and paperwork after an accident.
Accident Benefits:
This coverage provides benefits to you, your family member, and other passengers in the vehicle as well as pedestrians and cyclists struck by the vehicle regardless of if you are at fault or not. In Alberta, 7% of the total premium goes towards accident benefits coverage. It also provides coverage if insured person is hit by a car that doesn’t have insurance.
If your injuries fall under the Diagnostic and Treatment Protocols Regulation (DTPR) your insurance company is required to pay up to twenty-one medical, physical therapy, chiropractic and adjunct therapy visits for treatment recommended by health care professional. If your injury is not covered by DTPR you are entitled to a reasonable medical expense up to a maximum of $50,000 per person within 2 years. These expenses include but not limited to:
- Ambulance bills
- Prescriptions
- Physiotherapy
- Massage therapy (to a maximum of $350)
- Acupuncture (to a maximum of $350)
- Chiropractic care (to a maximum of $1,000)
- Psychological counseling
- Dental work
- Occupational therapy
Accident benefits coverage also pays for death, grief counselling and funeral benefits in the event a driver is fatally injured. In this case, death benefits are payable to their family. The payment amount varies by age deceased’s age and status in household (i.e. if they have dependents). This also includes $6,150 of funeral benefit and $500 grief counselling per family.
Another benefit is total disability in case a driver is injured and can not go to work. This benefit is available for a maximum 104 weeks. The weekly benefit payable is 80% of driver’s income or $600 per week which ever is less.
Physical Damage Coverage (Collision/Comprehensive/Specified Perils and All perils):
These coverages are optional in Alberta. However, if your vehicle is financed or leased, the lender will require you to carry physical damage coverage until the vehicle is paid off. Collision accounts for roughly 17% and comprehensive accounts for 16% of the total average premium.
These coverages provide protection for your own vehicle against a wide range of risks, but it doesn’t include paying off your car loan. However, carrying physical damage coverage will ensure you are not left paying for a vehicle you can no longer drive.
Endorsements:
You can also customize your policy by purchasing endorsements. Endorsements allow you to tailor your policy to better suit your needs. Endorsements often broaden your policy coverage to include scenarios that are not covered under your standard policy, for example, providing you with rental car coverage. An endorsement could also remove coverages in exchange for a lower premium, for example glass deletion to remove coverage from windshield. It is a good idea to review your current coverage before adding on any endorsements.
