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Introduction

Whenever you get behind the wheel of a car, you are capable of causing damage to other people’s property, and injuring or killing yourself, other drivers, passengers and pedestrians. Because most people don’t have the money to pay for the losses they might cause while driving, governments throughout the developed world require drivers to carry a certain amount of insurance (“Liability”) to cover any losses (property damage, injury, death) they might cause others to experience. Some governments, including those of every province and territory in Canada, also require drivers to carry coverage for their own medical expenses and loss of income resulting from driving-related injuries (“Accident Benefits (AB) or Bodily Injury (BI)”).
There is other insurance that you can purchase voluntarily for your car, including coverage for damage to your car (“Collision”) and 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 few. Your premiums go into a large pool, if you will, at your insurance company. The claims of the few are paid from that pool. Because there are more people contributing to the pool than there are making claims, there is always enough to pay the claims – even large single claims like when someone is permanently disabled as a result of a car collision, or many smaller claims like those resulting from a natural disaster. (The 1998 ice storm that hit parts of Ontario, Quebec and New Brunswick resulted in an estimated 700,000 claims for damage totalling $1.4 billion.) However, large disasters (such as the ice storm) do come close to emptying the pool.

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