The Different Types of Auto Insurance Explained

Two people meeting at a desk discussing car insurnace

Auto insurance is not one-size-fits-all. In Alberta, there are many different types of auto insurance that offer various degrees of coverage and each is unique! Determining which type of auto coverage you should purchase is a matter of understanding what each entails and choosing the one that best suits your needs.

To help make this process easier, we are going to give you an overview of the different types of auto insurance options available so that you can make an informed decision.

Basic Coverage

When it comes to auto insurance, there are basic coverage options you need in order to ensure that both you and your vehicle are protected. In Alberta, there are two types of coverage required by law:

Personal Liability and Property Damage (PLPD) Insurance

Commonly referred to as third-party liability insurance, this coverage is a legal safeguard that covers damages caused by your vehicle to another person or property. In Alberta, you need to have a minimum of $200,000 worth of PLPD coverage.

Accident Benefits

Accident Benefits cover passengers in a vehicle in the event of injury or death, regardless of who is at fault. This includes coverage for medical and rehabilitation costs, funeral expenses, death benefits, and income replacement. It also includes uninsured motorist coverage, which protects you in the event of an accident with an uninsured driver.

Additional Coverage

The coverage mentioned above is the bare minimum required by all drivers in Alberta. To further protect you, your vehicle, and your passengers, you have the option of purchasing additional insurance coverage.

Collision Coverage

This type of coverage pays for repairs to the policyholder’s vehicle in the event that damages are incurred in an accident with another vehicle or object. Collision coverage pays for repair or replacement regardless of whether or not you are at fault.

Specified Perils

Specified perils coverage is not as extensive as comprehensive insurance but offers more protection than collision insurance. It covers damages caused by whatever perils are specifically named in the policy that are not the result of a collision, such as fire or theft.

If the damage is caused by a peril that hasn’t been named in the policy, it will not be covered under this type of insurance.

Comprehensive Insurance

Comprehensive insurance covers damages to your vehicle that were not the result of a collision. It includes protection against instances such as fire, theft, and vandalism as well as environmental or weather-related damages. As the name suggests, comprehensive insurance offers the greatest degree of coverage of any type of auto insurance policy.

Deductibles and Liability Limits

Apart from the different types of auto insurance, you also have to consider liability limits and deductibles.

The liability limit is the maximum amount your policy will pay out for damages for at-fault accidents. You are personally responsible to cover any amounts above this limit. The higher your liability limit, the higher your insurance premium will be. You may be tempted to go for the minimum required coverage ($200,000 in Alberta) to save money but consider that the overall savings are often less than $30 per year.

A deductible, on the other hand, is related to collision and comprehensive coverage. It’s the amount you pay before your insurance policy kicks in and covers the rest. For example, having a $500 deductible means that, if $1,500 worth of damage occurs to your vehicle, you would have to pay the $500 and your insurance provider will cover the other $1,000.

Unlike liability limits, the higher your deductible, the lower your insurance premiums. Having a higher deductible means that you are willing to take on more risk – and reduce the risk to your insurance company.

To determine the right liability limit and deductible for you, contact a licensed and professional insurance broker for advice. They can best recommend a limit and deductible based on your unique situation as well as how you use your car.

How to Choose the Right Type of Car Insurance

Apart from the basic coverage you are required to have, choosing the right type of car insurance depends on your unique circumstances.

Overall, we recommend starting by looking at how much coverage you can comfortably afford. The best insurance policy will strike a balance between coverage and what you can afford. 

Following this, you can start to get more specific with your needs. Consider the age and condition of your vehicle. The payout for damage to an older vehicle may not be worth the cost of having comprehensive coverage – you could opt instead for specified perils coverage.

For example, an old car that is worth $3,000 with a deductible of $1,500 is only going to yield $1,500 if it’s completely wrecked. If you compare that to the cost of comprehensive coverage and collision coverage each month, it may not be worth paying for.

Next, look at your liability limits. If you opt for minimal coverage but exceed your coverage limit in the case of an accident, you put your savings and assets at risk. However, if you do have a comfortable amount of savings, you can consider a higher deductible to save on your insurance premiums as long as you can afford the amount out-of-pocket in the event of an accident or damage.

In the end, speaking to an expert insurance broker is the best way to determine which insurance product is right for you!

Leave it to the Experts!

Our experienced team at ARC Insurance Brokers are here to help you secure the auto insurance policy that best suits your unique needs! We take the time to get to know you and understand your situation. From there, we can tailor an insurance package that will not only ensure you are protected but suits your budget as well.

Opting for cookie-cutter insurance policies will leave you either inadequately protected or paying for more than you need. Get in touch with us today to learn more about our car insurance coverage options and a free quote.

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