Car Insurance
Whenever you be behind the wheel of a car it is possible that you may cause damage to other people’s property, or injure – or even kill – yourself, other drivers, passengers or pedestrians.
Mandatory Insurance Coverage
generality people do not have the money to pay for the losses (property damage, injury, death) they might cause while driving, so governments require vehicle owners to carry a certain amount of insurance to cover any losses they might cause others to suffer (Liability).
Some governments, included those of every province and territory in Canada, also require owners to carry coverage for their own medical expenses and loss of income resulting from driving-related injuries (Accident Benefits/Bodily Injury or AB/BI).
Optional Insurance Coverage
You can also voluntarily purchase additional insurance for your car, include:
Coverage for damage to your car (Collision)
Protection against theft, vandalism and other perils (Comprehensive)
How Insurance Works
While it may seem complex, insurance is really quite simple: The payments (or premiums) of the many pay for the losses of a little. Your premiums go into a large pool, if you will, at your insurance firm. The claims of the little are paid from that pool. Because there are a lot of people contributing to the pool than there are making claims, there is always sufficient to pay the claims – even large single claims like when someone is permanently disabled as a result of a car collision, or a lot of smaller claims like those resulting from a natural disaster. (The 1998 ice storm that infect parts of Ontario, Quebec and New Brunswick caused in an estimated 700,000 claims for damage totalling $1.4 billion.)
Annual replenishing
Your insurance is an yearly contract, so the pool operates for only one year. Your premiums and the premiums of others are based on how much money the insurance companies think they will need to pay the coming year’s claims. Your premiums dont build up over the years – unlike the premiums for
some types of life insurance.
some types of life insurance.
How premiums are calculated
Within reasonable limits, some of which are prescribed by law, your premium is calculated to reverberate the probability that you will make a claim – that is, that you will draw funds from the insurance pool. Those who are improbable to draw from the pool pay less than those who are more likely to draw from it.
Insurers take many factors into consideration to determine the likelihood that you will make a claim. A common mistake is that a policyholder who has never made a claim have to pay less, little or nothing for insurance. While it is true that previous claims history is significant, a more reliable indicator of how likely a person or business is to make a claim is the statistical group to which he/she/it belongs.
Your Insurance Dollar
Here is a break of where your insurance premium dollars go.
For every dollar of premiums gathered from policyholders, 53.1¢ go back to policyholders in the form of claims, 15.9¢ go back to communities in the form of various government taxes on insurance, 20.5¢ go to industry operating and regulatory costs and 10.5¢ go to industry profit.
These percentages are based on a seven year national average from 2004 to 2010.
Insurance pays for …
Insurance pays for only those types of losses described in your contract. It is very significant that you read your policy and/or talk to your insurance representative about what you are covered for and what you are not. will not pay for every problem that you might encounter, nor is it a maintenance contract. Insurance is generally intended – and priced accordingly – to help policyholders cope with the financial consequences of unpredictable events that are "sudden and accidental." If, you live on a floodplain by a river, flooding of your ownership in the spring is not sudden or accidental; it is inescapable and, therefore, uninsurable.
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