I was asked recently by a mom of three young children if she should have Tort or NoFault auto insurance coverage. We discussed the pros and cons of both and she decided to stick with Nofault for herself . Then we started talking about her three kids who are all under the age of 16. She had no idea that her kids could elect Tort insurance and it was up to her to make that election on their behalf. If your family is involved in an auto accident, your children may be affected, or in the worst case, injured. We have to consider their options too. So we talked about the Pros and Cons of a child having Tort versus NoFault:
Before the kids turn 18, regardless of whether or not they're driving, the choice between Tort and Nofault is up to the parent or guardian. If you choose not to do anything, they will have Nofault insurance by default. Nofault insurance is the default insurance by way of provincial law. Comparing Tort and Nofault for kids isn’t all that different than comparing Tort to Nofault for adults, and it boils down to cash flow and fault.
As I have discussed in previous posts, the best thing about Nofault insurance is its ability to pay an income while you can't work, even if the accident is your own fault. In theory, the promise of NoFault is that as long as you are disabled, and can’t work, NoFault will pay you 90% of the wages that you were earning before the accident. (Up to the $92,000 limit depending on the year) So with NoFault, SGI will take care of you, even if the collision is your fault.
When it comes to evaluating the option between Tort and Nofault for kids, we know two things for sure: 1) Because they are passengers until they get their liscence, the accident won’t be their fault; and 2) Since they are likely not working for wages, Nofault won’t give them cash flow immediately, and they likely don’t need it anyway.
Going back to a previous post, I recommended that if you are a bad driver and are sure to be the cause of an accident, Tort isn’t right for you. Since a child will never be driving and the accident will either be caused by you, the driving parent, or perhaps the other car’s driver, Tort is the right choice for the child. When your child gets their driver’s licence and will likely cause an accident or two, you might want them to switch them back to Nofault.
As for the cash flow, children are typically students, they don't earn a wage to replace and don’t need a source of cash flow. A child who is a student is not even eligible for the typical ‘income replacement benefit’, and instead is eligible for a ‘loss of studies’ benefit followed by an income benefit. The child only becomes eligible for the income benefit after the projected end date of the schooling they are taking at the time of the accident and they are disabled.
On the flip side, a Tort action would allow a child to sue for pain and suffering, and any other losses. Since children are not dependent on the cash flow, a child can afford to wait for full reimbursement for their losses, which can sometimes take years. Injured or disabled children may someday require permanent care and compensated income loss at a later date. The Tort process can take a long time, but thankfully, children could sue for all their losses, subject to the limits of insurance the wrongdoer has.
As you can see, for most children, Tort will give them a better financial outcome and they have until two years after their 18th birthday to start their lawsuit.
A word of caution; on your child’s behalf, you should buy a package policy with the family protection rider. A lifetime of income losses and care can amount to millions. Protect them!
And in case you are wondering, my kids don't drive yet and I have elected Tort on their behalf..... But to celebrate when they get their driver’s licence, I intend to switch them back to Nofault.
