How Does Auto Insurance Coverage Work?

"Auto insurance guarantees financial protection in the event something happens to your automobile. It protects against such risks as accident damage and theft."

An auto insurance policy is the contract that binds your coverage with your insurer. The insurer collects monthly premiums from you with the promise to compensate you for your financial exposure if something happened with your car.

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What Does Car Insurance Cover?

You buy auto insurance so you can pay small, manageable monthly amounts for a risk event you may have to pay for in one large amount sometime in the future.

A standard auto insurance policy covers you for

  • car repairs for damage caused by an accident or other covered risk,
  • medical expenses for people injured in an accident you caused with your car,
  • legal fees for liability lawsuits filed for bodily injuries and property damage you caused with your vehicle

In broad terms, auto insurance protects you from being sued and from the financial cost of a car wrecked in an accident caused by an uninsured driver. Coverage kicks in when you file a claim against your policy. But the loss event has to fall within the limits of a risk covered under your policy's terms, otherwise, the claim may be rejected.

An important point to note is auto insurance policies have limits. They can only payout to a certain amount. These limits are computed from the amount you pay as a premium. So your monthly premium determines the amount of cover your auto insurance policy can get you.

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Car Insurance Policies Typically Come With Liability Coverage.

With liability coverage, your auto insurance policy will bear the financial cost for injuries to people and property damage that's directly attributed to an auto accident involving your car.

Without liability coverage, you will have to shoulder the cost of all liability claims for an auto accident you are deemed to be at fault for. Such lawsuits can wreck your financial security and leave you in debt.

In Ontario, third party liability coverage is mandatory for all drivers. Every driver must have both a valid driver's license and an auto insurance policy that carries the legally-mandated coverage for third party liability. Third-party liability coverage typically entails a combination of bodily injury and property damage liability.

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How Much Auto Insurance Do I Need?

The beauty of insurance is you can carry only the amount of coverage you feel you need or can afford. That said, the advice is to carry as much auto insurance as you need. Carrying inadequate coverage can be just as bad as not carrying any insurance.

The best way to determine the amount of cover you need is to estimate how much it would cost you to replace your car if it’s stolen or is damaged beyond repair. Add the total liability exposure you would expect from an accident that causes serious injuries, loss of life, and/or massive property damage. What coverage would be sufficient?

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What is full coverage insurance?

In common language, sufficient cover generally infers to 'full coverage'. In strict insurance terms, however, no insurer sells 'full coverage' as that implies one is covered for every imaginable risk. In fact, most standard auto insurance policies exclude coverage for car damage caused by terrorist attacks, war, hurricanes, and earthquakes.

The closest you can get to full coverage is a package of comprehensive insurance, collision insurance, and liability insurance coverage.

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Consult Able Elite Team’s auto insurance experts here.

For more guidance on the different coverages you need for your car.

Collision insurance covers vehicle damage caused by an auto accident you are responsible for. However, it does not cover damage to the other vehicles involved. On the other hand, comprehensive insurance binds coverage for car damage not resulting from an auto accident. It covers car damage from such sudden events as fire, floods, and theft.

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