Cars drive through downtown Toronto. Starting July 1, Ontario drivers will have to be actively opt into paying for most accident benefit coverages.Laura Proctor/The Globe and Mail
If you’re an Ontario driver shopping for car insurance, you’ll soon encounter a word you need to get familiar with: “optionality.”
Ontario’s auto insurance system will be overhauled starting July 1, when the province will make nearly all accident benefit coverages optional for those purchasing new policies. Benefits that were once automatically included in every policy – income replacement if you can’t work after a crash, caregiver support if you can no longer look after your children or aging parents, housekeeping assistance while you recover – will now need to be actively chosen and paid for.
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While this offers the potential to save money, it also introduces new risks when it comes time to renew or purchase car insurance.
“Where the challenges come out is the potential for people to take away coverages that they actually have in their policies today,” says Elliott Silverstein, director of government relations for CAA Insurance. “They might do this with the intention of either trying to save money or having the perception they don’t need [the coverage].”
If you’re a renewing customer, your policy will renew automatically with your current coverage and limits, unless you agree with your insurer in writing to decline the benefits or make changes to them.
But for anyone buying a new policy after July 1, only the mandatory minimums will be included by default. You will need to decide at the time of purchase which additional optional benefits you want to add to your coverage.
The question many drivers will face at renewal – or already face, if their broker has started those conversations – is whether to drop some of these newly optional coverages to save money. Many household budgets are currently stretched thin, making the temptation real.
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Under Ontario’s current system, if you cannot work because of an accident, you receive a portion of your gross weekly income. In the new model, if you choose a basic policy and decline income replacement, you may have zero income support from your auto insurer.
A claimant who opts out of the Income Replacement Benefit and then suffers a serious injury can lose thousands of dollars in wage replacement over the life of the claim. A serious accident that keeps someone off work for months – or permanently – can generate benefit claims worth hundreds of thousands of dollars.
The same applies to caregiver benefits and housekeeping coverage. Most do not spend much time thinking about who would care for their children or elderly parents if we were suddenly incapacitated. These benefits exist precisely because accidents are sudden and their aftershocks are long.
Analysis: Ontario is making some auto insurance optional. The savings may be small – and temporary
I had one of our insurance brokers at Surex Insurance run some test quotes to find out how much these optional benefits might cost the average person. These quotes were for drivers ranging in age from 35 to 70. The drivers were based in cities such as Windsor, Sudbury and Vaughan. In most cases, including all the optional benefits averaged out to about 6 to 7 per cent of the total premium.
Of course, every quote will be highly individual. But to provide an example, if you are a 35-year-old driver paying $1,900 a year to insure your car, including the new optional benefits could cost you about $123 more annually. That breaks down to just $10.25 a month.
That said, the reforms are not without logic for certain households, and there are genuine scenarios where removing some optional benefits makes sense.
For instance, if your employer provides a strong group disability plan that replaces a substantial portion of your income in the event of injury or illness, it may overlap with the auto policy’s income replacement benefit.
Meanwhile, if you’re retired and no longer earn employment income, the income replacement benefit is of limited value. The non-earner benefit, which provides support for students and unemployed individuals whose daily activities are severely disrupted, may be more relevant instead.
What’s key is to review if any of these situations apply to you with your broker ahead of your next renewal, and be mindful that in the future, you may go from someone who doesn’t need a specific coverage, to one that does.
It’s important “to make sure that you are constantly reviewing your insurance policy,” Mr. Silverstein said.
The new rules are also a good reminder that you should compare insurance rates every time it’s up for renewal. If you find your policy to be too expensive, instead of dropping coverages, remember that insurance pricing differs greatly between companies.
“Before somebody takes off their coverage, the recommendation would be to shop around,” Mr. Silverstein said. “You may be able to retain the full suite of coverages that you enjoy today with a different provider by getting a quote.”
For most drivers, the right answer is to keep what you have. Saving a few dollars a month is not worth the risk.
“You never really appreciate what the value is until you have to use it,” Mr. Silverstein said.
John Shmuel is the content director at Surex, an insurance brokerage based in Magrath, Alta. He is also a writer and financial commentator focusing on insurance.
