Glossary Of Insurance Concepts
Legal liability: “Legal Liability” in this brochure means liability at law for the consequences of some negligent act (as opposed to liability for breach of contract, for example).
Negligence: To be negligent is to fail to do what a reasonable and prudent person would do (or to do what such a person would not do); this can result in property damage, injury or death.
First party: The person in whose name the policy is issued is, technically, the first party to the contract. He or she is also the policyholder. The term “named insured” is commonly used.
Second party: Although you will not see this term in your policy, the insurance company that issues the policy is considered to be the second party of the two parties needed to form a contract.
Third party: Anyone who is not a party to the contract is a third party. Unlike “first party” and “second party,” this term commonly appears in insurance contracts.
Absolute liability: This provides financial protection for innocent victims of a wrongdoer, even if the wrongdoer has violated the terms of the insurance policy. An all-too-common example is a pedestrian injured by an insured vehicle owned and operated by a driver whose license is suspended. The insurer would be under strict (or “absolute”) obligation to pay the pedestrian’s damages. The insurer would not, however, be obliged to pay for damage to the car. Furthermore, the policyholder would have to reimburse the insurer for its payment to the pedestrian. Fault charts and fault determination rules: In Ontario, charts or rules are used to determine fault or responsibility for “Direct Compensation — Property Damage” claims, not for injury claims.
“No fault”: This can be a confusing term. It describes coverage, which pays for some or all of the insured person’s loss regardless of who caused it. Nevertheless, it really does matter who caused the accident; if you are at fault, your future premiums may increase.
Deductible: The deductible is the portion of the insured loss that you pay; the amount appears on your policy. A common collision deductible is $300. This means that you would pay $300 of any repair bill and your insurance company would pay the balance. Any damage that costs less than $300 would, therefore, be your own responsibility. Because cars are susceptible to frequent minor damage, it is generally more cost-effective for policyholders to “self-insure” in this way for smaller mishaps; this helps to keep premiums affordable. There is no deductible in the case of fire or for theft of the entire automobile. Deductibles may also apply to other types of physical damage coverages.
Fraud: If you try to gain by deliberately lying about a claim to your insurer, you forfeit your right to payment for the whole claim. Fraud increases everyone’s insurance costs and isn’t tolerated. To keep costs down for honest policyholders, insurers prosecute those who make fraudulent claims.
Glossary of Automobile Insurance Coverages
Accident benefits: This coverage provides compensation, regardless of fault, if you, your passengers, or pedestrians suffer injury or death in an automobile collision. Accident benefits coverage is compulsory in all provinces except Newfoundland and Labrador. (In Quebec, this is provided by government; see below.)
Third party liability insurance: Third party liability insurance covers you if your vehicle injures someone else or damages his or her property… and you are held legally liable. Should a claim against you be more than your level of coverage, you can be held personally responsible for the balance. For this reason, most drivers purchase more than the minimum coverage required by law: $200,000 in Ontario.
Uninsured automobile protection: Uninsured automobile protection is universal in Canada.
Bodily injury: This coverage provides up to $200,000 if you are injured or killed through the fault of a motorist who has no insurance, or by an unidentified vehicle. You receive payment under this protection through the Uninsured Automobile coverage in your policy — unless the Canadian province, territory or U.S. state where you were injured has a special fund from which to claim. You will be reimbursed for the money you would otherwise be entitled to receive from the uninsured/unidentified motorist.
Damage to your vehicle: You are covered for damage to and loss of use of your auto or its contents, or to both, that you or other insured persons have a legal right to recover from the identified owner or driver of an uninsured auto in an accident involving an auto. Subject to a $100 deductible, the damage will be paid up to $25,000.
“Direct compensation — property damage”: In Ontario, your own insurer compensates you for the share of the damage caused to your vehicle (including contents) and for your loss of use of your car, for which another driver would be legally responsible. You deal with your own, not the other person’s, insurer; this speeds up the payment process. If another identified motorist is responsible for the collision, you can collect from your own insurer regardless of whether or not you have purchased physical damage coverage on your own car. There are rules, however, for Direct Compensation to apply. The collision must occur in your home province; there must be at least one other identified vehicle involved in the crash causing the loss, and that other vehicle must also be insured by an insurer licensed in your province. If these conditions can’t be fulfilled, then you’ll have to rely on your collision insurance (if you have it), whether or not you are at fault.
The following are some endorsements that are not automatically included in an auto policy but may be added at your request.
Loss of use: This coverage pays a specified daily amount subject to an overall limit for rental of a vehicle while yours is being repaired. This can be used for car rental, taxis or public transportation. If you have All Perils, Comprehensive, or Specified Perils coverage, your policy automatically gives a certain amount of Loss of Use coverage if your vehicle is stolen.
Family Protection Endorsement: This endorsement indemnifies eligible claimants who have a claim against another motorist for injuries to or the death of the insured, his or her spouse and certain family members as described in the endorsement if the other motorist has no insurance or has insufficient insurance to satisfy the claim. The maximum payable under this coverage is the amount by which the liability limit of the insured’s policy exceeds the policy limits for the inadequately insured motorist.
Waiver of Depreciation: This endorsement provides coverage for the original purchaser of a new auto against the cost of depreciation on total losses occurring with the first 24 – 30 months (depending upon the issuing company) or the end of the subsequent renewal term. It does not apply to partial losses where used parts may be installed. It is not available on commercial use vehicles or demonstrator vehicles.
Liability for Damage to Non-Owned Auto’s and Providing Coverages When Insured Persons Drive Others Auto’s: This extends physical damage coverage to the insured individual, his or her spouse, and all drivers listed on the policy. Physical damage coverage must be on your vehicle to qualify. This would provide coverage to rental vehicles or when you drive a vehicle owned by someone else.
Limitation for Automobile Electronic Accessories and Equipment: This restricts coverage for non-factory installed sound and other electronic communication equipment to a maximum of $1500.