Introduction to Automobile Insurance
Why automobile insurance exists
The core purpose is to protect insureds from the financial consequences of liability to others and to protect their own property, while ensuring injured third parties are compensated. Understand the three pillars: compulsory third party liability (required by law in every Canadian province), accident benefits (no-fault medical and income replacement, mandatory in most provinces), and physical damage (optional collision and comprehensive cover).
Key terminology
Candidates must distinguish insured (the named insured and anyone with consent), third party (anyone other than the insured and insurer), indemnity (restoring the insured to pre-loss financial position, never profit), and subrogation (the insurer's right to recover from the at-fault party after paying a claim). Also know actual cash value versus replacement cost, deductible, and limits of liability.
How the market is organized
Private insurers dominate in most provinces, but Manitoba, Saskatchewan and British Columbia operate public auto plans. Facility Association provides residual-market coverage for high-risk drivers. Regulators set minimum limits and approved policy forms.
Traps in questions
Watch for: (1) assuming all coverages are mandatory - only liability (and accident benefits where required) is compulsory; (2) confusing indemnity with betterment; (3) forgetting that consent-based coverage does not extend to a person who takes a vehicle without permission; (4) treating public and private systems as identical.
Rule of thumb
When unsure, ask: Who is being protected - the insured, or the injured third party? Liability coverage protects the third party first and the insured second. That framing resolves most introductory questions.