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When you’re reviewing types of car insurance, you might stop and ask “what is third-party liability insurance and why do I need it? Doesn’t my basic + collision + comprehensive auto insurance package cover me for anything?”

Your basic + collision + comprehensive will cover you for anything that happens to you, your car or the other cars involved in an incident.

So, what does third-party insurance cover?

Third-party insurance covers damages incurred by anyone else that were deemed to be your fault. Depending on the angle of impact, who was sitting where and the state of their car before the accident (all factors out of your control), this could include:

  • Medical treatment
  • Physical therapy
  • Trauma counselling
  • Lost wages
  • Funeral expenses
  • Vehicle repairs
  • Personal property damage
  • Legal defence costs for any additional lawsuits

The importance of third-party insurance

While third-party coverage is used exclusively for other people’s costs, it doesn’t only apply to drivers and passengers. If the incident involves a pedestrian or a cyclist, your third-party insurance would still cover you. And if you drove through a coffee shop window, it would be used to cover the property owner’s expenses.

And because fault can be spread across multiple people in Ontario, your third-party liability insurance may still come into play if you’re only 1% at fault. Again, depending on factors out of your control, the costs of that tiny portion could be astronomical.

For that reason alone, third-party liability insurance is very much worth the cost.

And if you need more proof, consider that the average cost of a third-party liability claim in Canada is around $15.5K. But it could just as easily be 1,000x that, which happened in Ontario when a child hurt in an accident was awarded over $11M.

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How much third-party liability car insurance do I need?

The required minimum in Ontario is $200,000. But if the settlement you’re required to pay is larger than your coverage limit, it’ll come out of your pocket.

The minimum would probably cover a relatively minor accident (although it won’t feel very minor to you). Start adding in multiple drivers or passengers, cyclists who happened to be there and any additional lawsuits brought against you, and you’ll find yourself blowing past $200,000 rather quickly.

For these reasons, at least $1,000,000 of third-party liability coverage is recommended – because the alternative would be coming up with the additional $800,000 on your own.

What’s the difference between third-party liability and comprehensive insurance?

Both are necessary, but people often confuse the two. The simple answer is: comprehensive insurance covers damage to a vehicle, whereas third-party covers damage to everything but the vehicle (i.e., people and property).

If you’re lucky, your comprehensive insurance will kick in after an accident without having a third-party liability claim made against you.

A final note about sharing the road with cyclists

While 2020 Canadian bike sales figures haven’t been reported yet, in the United States, they increased 75% in 2020 compared to 2019. In the first quarter of 2021, that figure ballooned to 130%. It’s fantastic for the environment, physical fitness and mental health — but it means way more bikes on the road and far greater chance of an unfortunate collision.

So while you’re out on the road, it’s best to intentionally look out for cyclists until it becomes as habitual as checking your mirrors. Remember to:

  • Check your blind spots constantly, especially when driving in the city or near a school.
  • Start using the Dutch Reach, which is using your hand furthest from the car door to open your car door when you’re in it, so your body naturally turns and you can see cyclists coming your way.
  • Look behind and check your blind spot before you turn right. Bikers in the shoulder come up quickly.
  • Take a beat before going through a residential intersection.

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