If you live in Canada, you must have come across or even purchased different types of insurance. Some of these insurance policies are mandatory, while others are optional. Insurance is there to help you prepare for unexpected events. However, knowing which insurance is the best for your situation and how much you need can be challenging. Before you choose, understanding how insurance works, what policies you can get, and if they’re right for you is essential.

Understanding Insurance: What exactly is it?

Insurance is a safety net that helps you when something unexpected occurs in your life, such as floods, accidents, or even a sudden death. Although these events might rarely occur, dealing with them can cost a lot.

This is why insurance policies exist. You make small payments every month or year, called premiums. In return, your insurance company promises to pay you a large sum if you ever need to make a claim.

Naturally, the goal is to never have to make a claim. However, you’ll appreciate your younger self’s foresight in getting insurance if you do. It can shield you and your family from financial struggles. You might not need every type of insurance, but it’s good to know the options to pick what suits you best. Let’s begin by exploring the most common types of insurance in Canada:

Motor vehicle insurance

This type of insurance, if you own a car in Canada, having auto insurance is mandatory. It’s crucial because it pays for repairs if your vehicle is damaged in a crash. Plus, it shields you from liability claims, such as personal injuries and vehicle damages.

The cost of your auto insurance is determined by factors like your car type, driving record, and age. Additionally, the annual premiums can differ significantly between insurance companies. Hence, comparing prices when it’s time to renew your policy is a good idea.

Health insurance

While Canadians have access to free healthcare, it doesn’t cover everything. For this kind of insurance, you’ll require additional health insurance to pay for things like dental care, eye checkups, prescription drugs, and certain medical services.

Usually, most employers provide some form of extra health insurance. But if your benefits aren’t enough or you don’t have any, you can buy your own health insurance. When comparing plans, make sure to check the maximum payouts to understand what exactly your coverage includes.

Travel Insurance

It’s common to overlook the fact that your provincial health insurance might not work outside the country. Even if you have health benefits from your job, your coverage could be restricted when you’re overseas. Travel insurance takes care of almost any situation you might encounter, but it’s essential to know that there are two main types: travel medical and premium travel insurance.

Travel medical insurance handles your medical needs when you’re abroad, including doctor and hospital visits. It typically covers ambulance services, private nurses, hospital stays, and even emergency dental care.

Premium travel insurance goes beyond travel medical coverage. It includes additions like protection for rental car incidents, motel or hotel theft, lost luggage, and trip cancellations. Your premium travel insurance’s specific cost and coverage will vary based on your chosen policy.

Moreover, numerous travel credit cards offer travel insurance, potentially providing coverage if you meet their requirements. If you lack such credit cards and desire coverage for multiple trips, opting for a multi-trip plan is often the most cost-effective option, usually priced lower than purchasing two individual policies.

Home and Mortgage Insurance

Home insurance is essential for homeowners or renters seeking a mortgage, as it provides various protections. If you’re renting, you’ll typically require content insurance, also called renters or property insurance. This type of insurance safeguards the belongings inside your home from loss, damage, or theft.

For homeowners, content insurance is necessary, along with extra coverage for events like sewage backups, floods, and tornadoes. While it might seem like a lot, unexpected events can occur, and being ready is crucial. For instance, a condo hit by sewage flooding could result in $50,000 worth of damage; insurance would typically handle most of these costs.

Most home insurance policies come with liability coverage. If someone slips on the ice in your driveway or on water inside your home and decides to sue you, having the appropriate liability coverage protects you from legal claims. Like content insurance, this coverage often goes as much as covering you when on travel.

Mortgage and home insurance are often mixed up, but they serve different purposes. Mortgage insurance is specifically designed to cover mortgages.

If you’re buying a home with a down payment of less than 20%, you must obtain mortgage loan insurance. This is required because it’s considered a high-ratio mortgage, and lenders want protection if you can’t make payments. The cost depends on your down payment size and home purchase price. Payment options vary by provider. The Canada Mortgage and Housing Corporation (CMHC) is a primary mortgage loan insurance provider, offering the choice to pay the premium as a lump sum or add it to your regular mortgage payments.

Life insurance

This type of insurance isn’t mandatory but essential if someone relies on your income. The tax-free lump sum payout can cover expenses like education fees, mortgages, and funeral costs. Choosing the right type and amount of life insurance can be challenging. Term life insurance is often preferred because you can select the payout and duration. For instance, you might opt for a $1,000,000 policy over 25 years. If you were to pass away during this period, your beneficiaries would receive the benefit.

The amount of coverage you choose is your decision, but it’s essential to consider the following factors:

• Education cost for children
• Remaining mortgage balance
• Time off work to mourn
• Funeral costs

If you opt for more coverage, your monthly premiums will increase. Insurance tends to be less expensive if you purchase it while you’re young and in good health. However, buying a policy might not be necessary if you don’t currently have dependents or financial obligations. When it comes to the term, many individuals select a period that lasts until their beneficiaries no longer require financial support. For instance, until your children are financially independent or until your mortgages are fully paid off.

You might also consider permanent life insurance, which covers your entire life. It can serve as a tax shelter and accrues cash value over time. Moreover, if you cancel your policy, you could receive a portion of your premiums back. However, keep in mind that the monthly premiums for permanent life insurance are typically much higher than those for term life insurance.

Even though term life insurance is usually sufficient for most Canadians, permanent life insurance is also worth implementing. It’s important to have your broker clarify the distinctions and the pros and cons of each.

Critical illness insurance

Critical illness insurance is a voluntary policy that provides a one-time lump-sum payment if you’re diagnosed with a life-altering illness, such as:

• Stroke
• Heart disease
• Cancer

You have complete freedom in how you use the payout. Some might use it as income during their time off work, while others may allocate it towards home renovations for accessibility. Like life insurance, you can select different coverage levels for various terms, but critical illness insurance has an age cutoff of 65.

Disability insurance

Disability insurance is often overlooked, yet it’s incredibly valuable. This type of insurance ensures your income is replaced if you cannot work temporarily or become permanently disabled due to injury or illness.

Usually, disability insurance can replace 60-85% of your usual income. Short-term disability often pays at the higher end for approximately 90 days. If you cannot work beyond that period, long-term disability coverage, which pays around 60%, would come into effect. While some employers provide this as a standard benefit, obtaining disability insurance is a wise choice if it’s not offered or you’re self-employed.

The definition of disability can vary among insurers, so verifying what qualifies before buying your policy is essential. Plans also specify what constitutes an occupation — and what doesn’t. For instance, an “any occupation” policy only provides benefits if you cannot perform any job. Conversely, a “regular or own occupation” plan grants benefits if you cannot fulfill the duties of your regular job when you become disabled.

Only Acquire What is Necessary

As you now know, there’s a wide array of insurance policies available, but it’s important to only invest in what’s essential for you. If your employer already covers you, review your existing policies and assess your payout. If it’s insufficient, consider requesting an increase in coverage or acquiring additional policies.

Understanding the various insurance policies can be complex, so consulting an insurance broker like PB Bankers is often valuable. They can guide you towards the options best suited to your needs. Though paying premiums for something you may never need may seem frustrating, insurance provides valuable protection for your loved ones and offers peace of mind for yourself.