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Nov 1, 2022

Portfolio Confidential

by Barbara Stewart

Q: I read that some people suffer injuries due to car accidents and don’t have enough insurance to compensate them for their losses. How much car insurance is the right amount?

A: I had also heard some horror stories about being underinsured and the severe implications, and I reached out to Josh Nisker, Partner at Beyond Law LLP. I know many readers normally think insurance is a boring topic (myself included), but I found Josh’s answers fascinating!

How much car insurance is the right amount?

Josh: The short answer is: as much as you can reasonably afford (and you can probably afford quite a bit). The longer answer requires an understanding of how auto insurance works in Ontario and elsewhere.

Auto insurance is mandatory in Ontario, and the minimum third-party liability limit is $200,000. The cheapest policy you can buy in Ontario will protect you up to $200,000 if you injure somebody else with your car. If the injured person’s claim exceeds that amount, then you will be called upon to personally pay any damages over and above the $200,000 in coverage.

The majority of drivers in Ontario carry third-party liability limits of $1 million, and so they are protected up to $1 million in the event they injure somebody else in a car accident. In addition, most auto policies contain an endorsement called a “Family Protection Endorsement” (or an OPCF-44R). The Family Protection Endorsement serves to protect you and your family in the event you are injured by an uninsured, underinsured, or unidentified driver (e.g., a hit-and-run), and it will protect you up to your own insurance limits if called upon. If you look at your auto insurance policy, you will likely see that you have this endorsement, though you have probably never noticed it nor given much thought as to what it does.

The Family Protection Endorsement works like this: If you (or your spouse or child) are seriously injured in a car accident, be it as a driver, a cyclist, or a pedestrian, you would then sue the at-fault driver for your injuries and losses. If you are seriously injured and unable to work or live independently, your damages could be significant and very well could exceed the $1 million that most people carry on their auto policies. If the driver that injured you had only $1 million in coverage, and you too have only $1 million in coverage, then your claim will practically be “capped” at $1 million (anything above that would have to be sought against the driver personally). However, if you had $2 million in coverage, even if the other driver only has $1 million, then you would be protected up to that higher amount by virtue of your Family Protection Endorsement. You would collect the first $1 million from the at-fault driver’s insurance company and the second $1 million from your own insurance company for a total of $2 million.

Can you provide a real-life example of how this works?

Josh: I represented a lovely gentleman who suffered catastrophic injuries in a car accident when another driver ran a red light and t-boned his car. He was a business owner and made a very good living, but the accident had devastating effects on his quality of life. He cannot work anymore and cannot live independently in his home. He depends upon his wife and personal support worker to assist him with day-to-day tasks. He has also had to undertake significant and costly home modifications to make his house safe and liveable.

My client initially brought a lawsuit against the at-fault driver and his own insurance company pursuant to the Family Protection Endorsement on his policy. Unfortunately, my client’s own insurance limits were grossly insufficient to compensate him for his losses (and, in particular, his loss of income). Moreover, his broker had never explained the importance of having higher limits, nor did they recommend higher limits than what he had in place. We brought another lawsuit against the broker who placed my client’s excess liability coverage on the basis that he was inadequately insured at the time of the car accident and, had he been adequately insured, he would have had access to greater family protection coverage from his own insurer. That claim was recently settled.

How can we obtain higher auto insurance limits?

Josh: An enhanced third-party liability limit, which can either be purchased directly as part of your auto policy or through an excess liability policy (as part of a homeowner’s policy or a personal umbrella policy), is a great and cost-effective way to protect you and your loved ones in the event the unimaginable happens. Not only does it protect you in the event you seriously injure someone else, but also if you or your family are injured. The additional premium cost to increase your coverage from $1 million to $2 million or even $5 million is very small and likely costs about $10 a month, which is a small price to pay for peace of mind.

Another important feature of family protection coverage is that it protects you and your family anywhere in North America, even if you are not in your own car.

Another real-life example, please?

Josh: Another client of mine, a young lady just a few years out of university, suffered skull fractures and a traumatic brain injury when she was visiting Chicago for a work trip. She was in a taxi returning to her hotel with a friend when another driver ran a red light and crashed into the side of their cab. She was treated in two hospitals in Illinois and then returned home to Toronto for further treatment. Her ambulance and hospital bills for just two days of care exceeded US$15,000. The driver who struck her did not have insurance, and her taxi only had US$25,000 in coverage, which would have barely covered her hospital bills (let alone her other damages). We, therefore, brought a claim in Ontario against her parents’ auto insurer pursuant to their Family Protection Endorsement, and we were able to secure a settlement well above what was available in Illinois.

What else is available that we might not know about?

Josh: Another important feature of auto policies is called “accident benefits”. Most people do not know this, but your auto policy will cover you to some degree for lost wages and medical expenses regardless of whether you are at fault for the accident and regardless of whether you bring a lawsuit. Standard policies protect the policyholder and their family to a maximum of $400 a week for income replacement and $65,000 over five years for medical expenses unless the person suffers a catastrophic impairment. However, you can purchase higher coverages for an additional premium. In my years of practice and having represented hundreds of injured people, I can count on one hand the number of clients who had purchased optional accident benefits. Everyone else has had “standard” coverage, which in many cases was not sufficient to cover them for their injuries.

The bottom line?

Josh: Too many people suffer injuries and don’t have adequate insurance to compensate them for their losses, whether it is family protection coverage or accident benefits coverage. I have therefore made it my personal mission to inform as many people as possible (or as many people that will listen) about the importance of purchasing enhanced auto insurance limits.

Recently, a friend of mine told me he increased his limit from $1 million to $5 million because of my constant pestering, and he was surprised to discover just how little it cost to protect him and his family. His broker had never discussed higher limits with him despite years of service. The reason for this, in my opinion, of course, is that the premium for enhanced liability and family protection coverage is so small (likely in the order of $100 to $200 annually), and the commission to be earned on it is even smaller. As a result, the benefit of discussing and recommending this coverage to any given client is so small that it is likely not worth the broker’s time. 

Of course, like in any profession, there are good brokers and bad brokers; but I have seen so many people, especially professionals like doctors, lawyers, and business owners, driving around every day underinsured, and it is cause for concern. $1 million is not very much money to protect you against a lifetime of injuries and losses, especially if you cannot work. After all, we all purchase insurance with the hope that we never have to use it.

I recommend that anyone reading this check your auto policy and then call your broker to discuss your options. They would much rather hear from you than from me!

Barbara Stewart, CFA.

Do you have questions about your own investment portfolio? I have recently set up The Rich Thinking® Financial Advice Hotline. This will be a win/win: you get a free 30-minute confidential Zoom chat offering an independent, unbiased perspective on your financial situation with no sales pitch! In exchange, I get to use the anonymized data that will come from these conversations to make my Rich Thinking research even better. Email me tobook your Zoom discussion: