Types Of Insurance: A Complete Guide For Canadians

You pay for insurance, but it’s something you hope you never have to use. There are many types of insurance available, for times of trouble or disaster. You need to have that peace of mind but it comes at a price.

insurance guide

To minimize the cost, many people undervalue what they need, or put off purchasing insurance altogether. That’s all fine and dandy, until disaster strikes and you need it.

Insurance isn’t a black hole. It’s peace of mind and security.

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 to manage 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’s hard to know which type of insurance you need. It’s best to enlist a professional to help you figure it out.

Financial advisor

A financial advisor’s role is to take a holistic view of your finances, your lifestyle, and your goals and 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.

Insurance broker

An insurance broker’s role is to work with you to review your life situation and determine which types and levels of insurance will best meet your needs.

Insurance agent

An insurance agent works for a specific company and should know all about the products and services that their company offers. They will be able to guide you towards the services and products that will best benefit you and your insurance needs.

What are the most important types of insurance to have?

There are many different types of insurance you should consider if you’re a working adult with any family or assets. It’s not necessarily intuitive to know what type of life insurance to buy. Here are the most important types of insurance you should invest in.

Health insurance

Since we live in Canada, the government pays for most of our major medical expenses, but not all. Some employers offer health benefits to help cover the medical expenses that the government does not. 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 a professional review your benefits and make sure your family is covered.

If you’re self-employed or your employer-provided benefits aren’t adequate, you can get independent coverage.

Car insurance

To drive a vehicle in Canada, you’re required to have car insurance. 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.

There are two main types of car insurance that you are required to have, no matter which province you live in: liability insurance and accident benefits. In some provinces, additional insurance is required as well. Make sure you have proper coverage based on where you live.

Mandatory insurance

Liability insurance

Liability insurance has nothing to do with protecting your vehicle. Instead, liability insurance covers any damage your vehicle causes to another person or their 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.

Optional insurance

Collision insurance

While it’s not mandatory, collision insurance is highly recommended. It covers the cost of repairing or replacing your vehicle as a result of a collision.

Comprehensive 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.

How to choose auto insurance is not universal.  Different vehicles and different life situations will dictate what types of optional insurance you might want or need.

Home insurance

To qualify for a mortgage, homebuyers 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. For example, are fences covered by home insurance? Well, it depends on the policy you choose.

Comprehensive insurance

Comprehensive insurance will cover any loss of property and any contents that were lost. You will pay more for this type of insurance but you’ll be grateful you have it in the event of a loss.

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.

Broad insurance

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) will be covered. This type of insurance is a hybrid.

Personal liability

This type of insurance covers someone injuring themselves on your property. For example, if someone who is not a member 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.

Mortgage insurance

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, this type of 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.

Title insurance

When you purchase a home, the 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.

Rental insurance

Some rental companies will insist on contents insurance but many will not, and many renters don’t even give it a second thought to ensure their belongings are protected. Renter’s insurance tends to be very affordable. Rental insurance is also called tenant insurance.

What does rental insurance cover?

Depending on the coverage you select, rental insurance 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.

Life insurance

The second you start to build a family, you should consider getting life insurance. And not just when or if you have kids. You want to protect you 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, what is life insurance? Life insurance is the best way to make sure a tragic loss isn’t compounded by crippling financial responsibilities.

What are the two main types of life insurance?

Disability insurance

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 per cent and 85 per cent of your total income will be replaced for a specified term.

Short-term disability

This coverage typically lasts up to six months and is sometimes, but not always, covered through your employer.

Long-term disability

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.

Travel insurance

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, and 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. Good luck with that $6,000 medical bill for a broken finger.

Many credit card companies include travel insurance but it’s important to make sure you know exactly what kind of coverage you have before you leave the country.

What type of insurance is best?

When buying insurance, you’ll be offered a choice between term and permanent insurance. It’s important to understand the difference in order to choose the option for you and your future.

Term insurance

Term life insurance is an insurance product that covers you for a set amount of time. 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 works well 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.

Permanent life insurance

With a permanent life insurance policy, 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 option — funds you can borrow if needed, while you’re alive.

When it comes to term and permanent life insurance, there is a lot to know. It’s best to speak to a specialist who can help drill down to the specific nuances of each option to determine what makes the most sense for your circumstances.

What types of insurance do I need?

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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