What exactly does liability insurance cover and how much do I really need for my vehicle? Can I skip it or get the bare minimum? How much money could that save? – Jon, Mississauga

In Ontario, you must have at least $200,000 in liability coverage – but you likely need more, insurance experts said.

“$200,000 is a nonsensical number in my mind,” said Adam Mitchell, chief executive officer of Whitby, Ont.-based Mitchell & Whale Insurance Brokers Ltd., which operates as Mitch Insurance. “Hands down, the minimum [we recommend] is two million.”

There are three main types of car insurance coverage: liability, collision and comprehensive. Liability insurance covers injuries or property damage you cause in a crash where you’re at fault. While liability coverage is mandatory everywhere in Canada, the other two are optional in most provinces.

In most provinces, including Ontario, you need a minimum of $200,000 in liability coverage. In Nova Scotia and Manitoba, you need at least $500,000. In Quebec, the minimum is $50,000.

While insurance companies are required to sell you just the minimum if you request it, you should get the most that you can afford, said Rob de Pruis, national director of consumer and industry relations with the Insurance Bureau of Canada (IBC).

That’s because you’ll be personally responsible for any damages or injuries above that amount, de Pruis said in an email.

“A higher limit provides you with more financial protection in the event of loss or damage,” he said, adding that most companies now offer $2-million.

You might need more liability coverage than you think because costs continue to go up, Mitchell said.

“The cheeky line that resonates with people is that a million bucks is not what it used to be,” he said. “If you go to your financial planner and say [you’ve] got a million bucks, they might not be telling you that you can retire.”

How it works

Here’s where things start to get complicated. In the provinces that have no-fault insurance for vehicle damage, your liability coverage may not kick in after an at-fault collision where nobody is hurt – for example, if you hit an SUV and everyone walks away.

But it could if someone is hurt, you hit something other than a car or if the other driver has no insurance, de Pruis said.

For instance, if a driver was injured in that SUV, they get an $800,000 settlement, and you only have $200,000 in liability coverage, you’d be on the hook for $600,000.

Depending on the crash, you could end up being liable for a lot more, he said.

“If you accidentally drive into a crowded restaurant by pressing the gas instead of the brake, there could be injuries to the people in the restaurant, the building owner would have building damage and the restaurant would have loss of income as a result of the incident,” de Pruis said. “They all would be making a claim against you for the injuries and damages.”

If you’re sued for injuries or damages, your insurance company would cover you up to your maximum – and handle the lawsuit for you.

“The only time you would need to hire your own lawyer is if the lawsuit exceeds your auto liability policy limit,” he said.

Most provinces allow you to sue another driver for pain and suffering and economic losses on top of the accident benefits in your insurance policy.

Right now, only three provinces – British Columbia, Quebec and Manitoba – generally don’t allow you to sue.

Starting next year, Alberta will also eliminate the ability to sue for collision injuries in most situations.

But that doesn’t mean that, if you’re an Alberta driver, for instance, you can get away with just the minimum amount of liability coverage.

“There are expected to be some tort exceptions, meaning you can still sue in certain circumstances,” he said.

Savings not worth it?

So how much can you save by getting less liability coverage?

We looked at quotes on rates.ca, a rate comparison site, for three fictional male drivers with clean driving records for a 2021 Toyota Corolla.

If they got $1-million liability instead of $2-million, for instance, a 20-year-old driver saved $318 a year ($26.50 a month), a 40-year-old driver saved $93 a year ($7.75 a month) and a 60-year-old driver saved $50 a year ($4.17 a month).

If you decide to get even less liability coverage, make sure you understand the risks, Mitchell said.

“If you’re going to make decisions against our better judgment and recommendations, you’re going to sign a plain language form,” he said. “It [basically says], we don’t recommend this, but it’s your choice.”

Have a driving question? Send it to globedrive@globeandmail.com and put ‘Driving Concerns’ in your subject line. E-mails without the correct subject line may not be answered. Canada’s a big place, so let us know where you are so we can find the answer for your city and province.