As a driver, it's important to have insurance to protect yourself and others in case of an accident. In Alberta, the legal minimum car insurance is third party liability coverage. In this article, we'll cover what auto liability insurance is, what it covers, whether it's enough, and how much liability insurance you need.
What is Auto Liability Insurance?
Auto liability insurance is a type of car insurance that covers the damages you may cause to others if you're at fault in an accident. Liability insurance does not cover your own damages or injuries in the event of an accident - for that, you'll need collision and/or comprehensive coverage.
What Does Liability Insurance Cover?
Auto liability insurance covers property damage and bodily injury to other parties, hence the name being third party liability. Property damage includes damage to other vehicles or property, such as a fence or building, while bodily injury includes medical expenses, lost wages, and pain and suffering. Liability insurance also covers legal fees and court costs if you're sued over an accident.
Is Liability Insurance Enough?
In most cases, liability insurance alone will likely leave you high and dry in the event of collision. Liability insurance is the least expensive type of car insurance but it also leaves you with the most exposure. That’s not to say that there aren’t scenarios where carrying only liability would be appropriate.
If you or your family have multiple vehicles that are safe to drive, insured, and registered, then their may be certain vehicles with greater coverage than others. If you have two or more vehicles in a household with two drivers where one vehicle is newer and the other is older with higher mileage, then carrying only liability on the older vehicle is quite reasonable.
If you have a vehicle that is 17 years old or older, it is fairly common to drop your collision and comprehensive insurance. Most clients will weigh their options for deductibles, monthly premiums, and the actual replacement price of your vehicle before making that decision.
Note, that in the event of a hit run, only collision coverage will offer any coverage. Liability would not cover any of your costs of a rental vehicle or damage to your vehicle.
How Much Liability Insurance Do I Need?
It is recommended that you carry $2 million in liability on your auto insurance policy.
In Alberta, the legislated minimum liability insurance is $200,000 worth of coverage. That being said, only carrying $200,000 in 3rd party liability is a very bad idea. In the event of a lawsuit against you over a car accident, your insurance would cover the first $200,000 worth of damages and you would be held financially responsible for the remaining balance.
To put this into perspective, many insurance companies have a $1 million minimum coverage in liability coverage. In 2019 Armour Insurance raised our office minimum to $2 million minimum in liability coverage because 25 Albertan’s had claims over $1 million in 2018. This was meant that many ordinary people were on the hook for 100’s of thousands in additional damages. This financially devastated many.
Part of the reason Alberta has had so many claims over $1 million is the personal injury law in Alberta. Alberta is one of the only provinces that does not legislate the maximum payout on personal injury claims. In loss of life cases, lawyers will often sue the individual involved for lifetime potential earnings of that individual. As you might imagine, this can add up quickly.
The cost difference between $1 million and $2 million in liability coverage is usually between $5-$20/month. Lowering your liability coverage can lower your monthly premium a very small amount, but it could leave you on the hook for 100’s of thousands of dollars.
$2 million dollars is the current maximum liability an individual can get on an auto insurance policy. You can increase your personal liability coverage up to $5 million on top of your auto liability insurance with an umbrella insurance policy.
How Much Does Liability Insurance Cost?
In Alberta, auto liability insurance can be calculated with either a grid rate or an insurance providers rates. Grid rates are a bit complicated but there is a full article explaining how they work here. On average, auto liability insurance in Alberta can range from $1,200/year - $2,000/year depending on a few factors. These factors include but are not limited to:
- Number of at fault claims
- Number of tickets
- Where you live
- Amount of liability coverage
Conclusion
In conclusion, auto liability insurance is an important coverage to have as a driver. It protects you from financial losses if you cause damage or injury to others in an accident. While it's required in most states, it may not be enough to fully protect you in a serious accident. Consider adding additional coverage to your policy, and make sure you have enough liability insurance to cover your assets.
