What is one-way auto insurance?

You may have heard the term "one-way auto insurance" come up in print or conversation before and been confused. Perhaps you passed over it, or just assumed that it had something to do with driving on one-way streets (spoiler alert: it doesn't).

Regardless, it's time to set the record straight. Let's talk about one-way auto insurance.

What it is

Auto insurance coverage is mandatory for all drivers across Canada. The extent to which it is diversified, however, can vary greatly.

One-way auto insurance is a coverage policy that falls on the minimalist side of the spectrum. It satisfies the basic requirements that a driver must have, but also carries some risk in what it omits.

The major omission is this: in the event of an accident where a driver with a one-way policy is at fault, he or she will not be covered for personal vehicle damages—only those sustained by the other driver(s). That's because at-fault driver collision coverage—and even coverage for fluky perils like fire, theft, lightning, etc.—aren't mandatory for a standard policy.

What is mandatory in Ontario and several other provinces are coverages for third-party liability, statuatory accident benefits, and direct compensation-property damage. The first is what keeps you protected if you are responsible for injuring others or harming their property; the second compensates you for costs related to whatever personal injuries you have sustained, including attendant care and income replacement; and the third allows you to be compensated directly through your insurance company following an incident where someone else was at fault (as opposed to the at-fault driver's insurer).

Who it's for

Anyone considering one-way auto insurance should know full well what they are thinking of getting into. There is a clear and significant risk in choosing to forego coverage for one's own vehicle in the event of a self-caused accident.

So why would anyone do it?

Well, where there's risk, there's also usually reward. Just ask the scores of athletes who have passed up a lowball extension in a contract year so they could prove themselves and get more on the open market, knowing full well they could get injured and risk walking away with nothing; or the entrepreneurs who held off on selling their startups to a larger company so that they could continue developing it independently, even if it might mean they end up failing. Some people are just more comfortable than others in leaving themselves exposed when there's an opportunity for a greater payout down the line.

In the case of one-way insurance, that 'payout' is the absence of sunk costs that would have otherwise been put into coverage that goes unused—assuming, of course, that it never actually needs to be used. If it does, well, that's a very different story.

Another incentive for choosing one-way insurance has to do with the quality of the car, rather than the premium price. If a driver's car is worth very little in the first place, then he or she could be justified in not wanting to spend extra on insuring it.  

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