Insurance: you make payments every month, but hope it’s something you never have to use. To minimize the cost, many Canadians undervalue what they need, or put off purchasing insurance altogether — a potentially costly oversight. Ultimately, however, all types of insurance mean peace of mind and security. A survey from June 2021 even found that 63% of respondents believe insurance coverage is a way to take control over an unpredictable situation.
It can be a bit confusing navigating insurance types, policies, and costs. This guide outlines the basics you need to know so you can get the best coverage that works for you.
Table of contents
- What is insurance?
- Do I need insurance?
- How do I get insurance?
- What are the most important types of insurance to have?
- Mandatory insurance
- Additional types of insurance
What is insurance?
Insurance is an agreement, that should you need it, your insurer will cover the costs associated with illness, damage, or losses. In exchange, you pay an annual premium, often paid out over 12 months.
Do I need insurance?
There are some scenarios where it’s beneficial to have insurance, many where it’s vital, and some instances where it’s mandatory. Ultimately, you pay an insurance premium as a way of managing risk.
You can’t control what happens in your life, but you can certainly help protect yourself. The type of insurance you need will depend on your current lifestyle. This could include where you live, where you work, and what you own. You should have insurance to protect all your assets (including your life).
How do I get insurance?
It can be hard to know which type of insurance you need. It’s best to enlist a professional to help you figure it out.
A financial advisor’s role is to take a holistic view of your finances, your lifestyle, and your goals. From there, an advisor will recommend how to best manage and plan. Because of their generalized focus, they do know about insurance products and can make recommendations for policies and coverage that make the most sense for you.
An insurance broker’s role is to work with you to review your current situation and determine which types and levels of insurance will best meet your needs.
An insurance agent works for a specific company. They are well-informed of all products and services their company offers. An agent will be able to guide you towards the specific offerings that will best benefit you and your insurance needs.
No matter which professional you turn to, make sure you feel comfortable enough to ask questions. It’s important to work with a professional that will not only answer these in a comprehensive way but will also make sure you fully understand your policy.
And to ensure you know how to fully read insurance documentation — and therefore have a better handle on your policy — the Insurance Bureau of Canada has a great policy checklist to help.
What are the most important types of insurance to have?
We get it. It’s not necessarily intuitive to know what type of life insurance to buy.
There are many different types of insurance you should consider if you’re a working adult with any family or assets. Here are the most important types of insurance you should invest in.
In Canada, your provincial government pays for many major medical expenses, but not all. Prescription coverage, as well as dental, eye care, and even most mental health-related expenses are unfortunately not included.
Many employers offer health benefits to help fill in the gaps. Some benefit plans require employees to pay a premium, while in others, the employer covers the full cost. In either case, it’s best to have an independent professional — or, ideally, the person in charge of benefits at your company — review your coverage, making sure your family is protected.
Self-employed? You can get independent coverage. This even works if your employer-provided benefits aren’t adequate.
Home insurance isn’t legally required if you fully own your home. To qualify for a mortgage, however, home buyers are required to have home insurance.
One of the biggest mistakes homeowners make is letting that insurance lapse and then needing a charity website to help friends and family raise money when they lose everything in a fire. Home insurance is vital to protecting your home and all of the valuables within it from damage or theft. There is a lot to know about what types of things home insurance covers. It all depends on the policy you choose.
Here are the types of insurance that fall under the home insurance banner.
Comprehensive home insurance
Comprehensive insurance covers loss of property or contents. You will pay more for this type of insurance but you’ll be grateful you have it in the event of a loss.
Somewhere between comprehensive and basic insurance falls broad insurance. With this type of policy, both your property and its contents (the contents you’ve identified) are covered. This type of insurance is a hybrid.
Basic or named perils
Some people can’t afford or don’t want comprehensive insurance. With this type of insurance, you pick and choose what things (property or contents) you want to have covered by insurance.
This type of insurance covers someone injuring themselves on your property. For example, if someone outside of your household trips on something left on your stairs. This insurance will cover any losses they incur as a result of their insurance claim.
While not technically part of the home insurance family, mortgage insurance helps empower potential homebuyers to purchase a home with as little as a five percent down payment. This type of insurance protects both the lender and the investor if the buyer defaults.
If you don’t have a large down payment, mortgage insurance tells your lending institution that they have your back should you not be able to pay your mortgage. The lender, therefore, will be more willing to consider lending you money for the purchase of your home.
When you purchase a home, its title is transferred to your name. Having a title means you have legal ownership of the property. Title insurance protects homeowners and their lenders from any challenges to that title. That includes such as pre-existing defects or liens on the property.
Some rental companies (and maybe even some independent landlords) will insist on contents insurance but many will not. Also called tenant insurance, renter’s insurance tends to be very affordable.
What does tenant insurance cover? Depending on the coverage you select, it covers anything from contents to personal liability, replacement costs, and living expenses should you need to vacate the premises in the event of a claim.
Related Reading: How Much Do Home Renovations Cost? A Complete Guide
The second you start building a family, you should consider getting life insurance. And not just when or if you have kids. You want to protect yourself and your spouse should something happen to either one of you. Consider the financial burden of planning a funeral and burial or time off work needed to emotionally recover from a tragedy. And then there is the ongoing cost of living without the benefit of the income the other spouse provided.
Ultimately, life insurance is the best way of making sure a tragic loss isn’t compounded by crippling financial responsibilities.
What are the main types of life insurance?
There are two primary types of life insurance in Canada: term life insurance and permanent life (sometimes called participating life or whole life) insurance.
Term life insurance is an insurance product that covers you for a set amount of time — typically 10-20 years. If you pass away during that term, the policy will make a payment to your beneficiary, also called a death benefit. During the period of your term, your payment rate remains the same. When the term expires, you need to renew for another term, at which point your rate and coverage can, and likely will, change.
It might appear to make sense to lock in for as long as possible, but remember, your needs change as you age. Term insurance is great if you’re raising small children or your mortgage is almost paid off. Once these shorter-term additions to your insurance needs are no longer an issue, permanent insurance might be the better choice.
With permanent life insurance, your policy remains in effect in perpetuity, as long as you continue to pay your premiums. These policies tend to be more expensive but they come with big benefits, including tax-deferred payments. This means nice savings for you (think long-term, towards retirement) and a nice payout to your beneficiary no matter when you pass away. Secondly, some provide cash value options — funds you can borrow if needed, while you’re alive.
Related Reading: Estate Planning Checklist for Canadians
You’re required to have car insurance if you drive a vehicle in Canada. For those living in BC and Manitoba, car insurance is through government-owned corporations. Insurance is also done through the government in Saskatchewan, but extra coverage can be bought via private companies. The government of Quebec handles minimum limits for bodily injury, while private insurers provide coverage for property damage. In the remaining provinces/territories, auto insurance operates through private companies.
Car insurance premiums vary widely based on how long you’ve been driving, what you drive, where you typically drive, what you use your car for, and your driving history. You can often pair your car insurance with home insurance at the same insurer to lower your premium.
Broadly speaking, no matter which province you live in, there are specific types of coverage that are usually required: liability coverage, accident benefit/bodily injury insurance, and uninsured motorist or automobile coverage.
Liability insurance has nothing to do with protecting your vehicle. Instead, liability insurance offers protection if you are legally liable for causing injury or damaging a person’s property/car while operating a motor vehicle.
Accident benefit/bodily injury insurance
This type of insurance will cover your medical expenses and loss of income in the event of an accident.
Uninsured motorist or automobile coverage
This coverage is protection against uninsured or unidentified drivers. It provides benefits to you or your family if you are injured or killed by one of these, and will also help pay for vehicle damage by an uninsured driver.
The important thing to remember with respect to car insurance is that every province is different. Additional insurance might be required, so research the specifics of your province.
Optional car insurance
While it’s not mandatory if you own your car, collision insurance is highly recommended. It covers the cost of repairing or replacing your vehicle as a result of a collision. If you lease or finance, you will likely require collision insurance.
Comprehensive car insurance
Not sure what falls under comprehensive auto insurance? The other types of insurance cover damage as the result of an accident. Comprehensive covers a wider breadth of damage, including damage as the result of fire, vandalism or theft.
Additional types of insurance
It’s an oft-repeated line, but anything can happen in life. Here are additional types of insurance that, while not mandatory, can provide an extra degree of protection.
Disability insurance will cover you in the event you are unable to work due to illness or accident. The coverage ranges, but typically between 60% and 85% of your total income will be replaced for a specified term.
This coverage typically lasts up to six months and is sometimes, but not always, covered through your employer.
This type of insurance usually kicks in when short-term disability, or your EI or work sick leave benefits have been exhausted. LTD plans differ but most will pay for two years once you have left work. After two years, it will only continue to pay if you can prove you are unable to work at any job.
Critical illness insurance
This is an insurance product that can be difficult to qualify for and can be pretty pricey. You are guaranteed to eventually pass away, but you are not guaranteed to get sick or injured. And if you get sick, or a loved one gets sick and can’t work, you will need money to offset that financial loss and whatever associated costs come with caring for and managing the ill loved one (childcare, respite care, medical expenses, etc.). Critical illness insurance helps to offset those costs.
Critical illness pays out in a lump sum to be used as needed, to offset the cost of missing work due to an ongoing illness.
An important note on this type of insurance – you can and should apply for it for young children, as they can sadly get sick, too. But, if they fail to qualify for whatever reason, they cannot reapply until they’re 18.
In Canada, we’re able to access the same medical coverage we have in our home province, across the country. There are also certain medical costs that can be claimed once you’ve returned to Canada after travelling abroad.
However, many medical costs aren’t covered when you travel. Even when they are, you’re required to pay upfront. If you have insurance, insurance will pay. If you don’t have insurance, you’ll have to foot the bill. And nothing puts more of a damper on a vacation than having to pay thousands for a broken limb.
Many credit card companies include travel insurance but be sure you know exactly what kind of coverage you have before you leave the country.
Insurance isn’t about paranoia. It’s about protection. It’s long-term financial security so that, when you need it most, there’s money to help you, so that one tragedy doesn’t turn into an economic disaster for you or your loved ones.
What you need now will likely not be what you need in the future. What makes sense for one person, even if their circumstances seem similar, might not be the best option for you. It is very important to understand your own short- and long-term needs and goals and expectations for your insurance product before deciding what policy to invest in.
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