Insurance: Taking the Risk Out of Living

by Dale Sproule

When you buy insurance, you are buying protection. Insurance reimburses you if your home or business is destroyed by a disaster such as fire. It covers the cost of auto accidents. And life insurance gives money to your family, so they can survive if you die or are kept out of the workforce by long or short-term disability. According to Statistics Canada, insurance is the fifth-largest expense for the average Canadian family.

Homeowners and Renter's Insurance

Without insurance, mortgage companies would not lend you money to buy a house. Most homeowners insurance policies include coverage for the structure of your home and for your personal belongings, as well as offering liability protection and covering your living expenses when you are unable to live in your home because of a fire or other disaster covered by your policy.

Structural coverage pays to repair or rebuild your home (or detached structures like garages and gazebos) if it is damaged or destroyed by any of the disasters listed in your policy. It usually covers fire and storm damage (including falling objects like trees) but does not cover damage caused by floods, earthquakes or acts of war. Your coverage should be sufficient to rebuild your home.

Personal Belongings covers the costs of replacing your furniture, clothes, sports equipment and other personal items in case of theft or destruction by and insured disaster like fire. The best way to determine if this is enough coverage is to conduct a home inventory.

This part of your policy includes off-premises coverage. This means that your belongings are covered anywhere in the world, unless you have decided against off-premises coverage.

There are usually dollar limits on coverage of expensive items like jewelry and furs unless you have added coverage to insure those items for their appraised value. Coverage includes "accidental disappearance," meaning coverage if you simply lose that item. And there is no deductible.

You should include the name and address of the appraiser on all appraisals. Your inventory should include serial numbers of small appliances and other theft-prone items. Keep receipts along with the description of the item. You should keep a detailed record of antiques, jewellery, silver, sporting goods, major appliances, and collector's items. Keep your inventory up-to-date. Don't forget to update it when you make new purchases. Your completed inventory should be kept in a safe deposit box or another location outside of your home.

Liability protection covers you against lawsuits for bodily injury suffered by someone else while they are on your property. It also covers bodily injury or property damage that you, your family members or pets cause to other people while off your property. The liability portion of your policy pays for both the cost of defending you in court and any court awards-up to the limit of your policy. You are also covered not just in your home, but anywhere in the world.

It does not, however, pay the medical bills for your own family or your pets.

Additional living expenses pays the extra costs when you can't live in your home due to damage from a fire, storm or other insured disaster. It covers hotel bills, restaurant meals and other living expenses incurred while your home is being rebuilt. If you rent out part of your house, this coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed.

Renter's insurance is similar to homeowner's insurance, but usually just offers the personal belongings and liability coverage.

Taking the Risk Out of Dying - Life Insurance

Most adults have dependents - a spouse or children who need your income to survive.

The most common purpose of life insurance is to give them money to live on if you die. Insurance to replace your income can be especially useful if you have no government or employer-sponsored benefit plan or if the benefits from those plans will be reduced after your death. Life insurance can also pay off a mortgage loan and other personal and business debts or to create a rent fund. It can create a fund for your children's education or create a family emergency fund or a fund for a family member with special needs.

If you have no life insurance or do not have sufficient savings, your family will have to pay for your funeral and burial costs, probate and other estate administration costs, debts and medical expenses not covered by health insurance. This can be a huge burden on a grieving family that is already in a tough financial situation.

In many countries, buying life insurance or annuities is considered a good form of investment. Very few families in Canada purchase Life Insurance for this purpose, because there are many other forms of investment which reap higher interest and are more easily accessed. But some types of life insurance do indeed have a cash value that can be borrowed or withdrawn on the owner's request. Since most people make paying their life insurance policy premiums a high priority, buying a cash-value type policy can create a kind of "forced" savings plan. Furthermore, the interest credited is tax deferred (and tax exempt if the money is paid as a death claim). Your life insurance policy can also be used as collateral when you are borrowing money.

In Canada, you can buy insurance directly from an insurance company, from an insurance agent representing a single insurer or through an insurance broker, who can offer a choice of coverages and prices from various insurance companies, and whose foremost duty is to his/her client.

If you have a chronic condition such as diabetes, you'll find that some insurance agencies won't insure you at all, others will charge you higher premiums and some will charge you rates only slight higher than people with no special medical condition. But it's quite possible that the same insurance company wouldn't insure you or would charge much more if you have a heart condition or Crohn's disease. Different companies have different specialties. That's where an insurance broker comes in.

Insurance brokers are independent insurance agents who can arrange policies with many different insurance companies. This way, they can make sure you are getting the appropriate coverage at the best possible rate. The main advantage of going directly to an insurance company is having the opportunity to package your insurance. As Sandy Duncan of State Farm points out, "If you get your life insurance from the same company that insures your home and you car, you can get better discounts on all your policies."

Honk if You Pay Too Much Auto Insurance

Automobile insurance is definitely one of the largest ongoing expenses of driving a car in Canada. As a newcomer, you could end up paying $5,000 per year for auto insurance. Some of the more established insurance companies discourage newcomers with high rates and long waiting times, but others, like State Farm, offer lower rates than companies that advertise good rates for newcomers. If you shop around, it is possible to get that annual cost down to less than $2,000. There are sometimes discounts available, such as retiree and student discounts, driver education discounts (for passing approved driver training courses). You can even receive a discount for arming your vehicle with an approved anti-theft device. And you can get discounts if you package your insurance by buying home, life and auto insurance from the same company. But any way you slice it, automobile insurance is a huge expense, but premiums must be high enough to cover the huge annual cost of auto insurance claims. For car owners, automobile insurance is a legal requirement. You can't drive a car that's not insured - period. If you do, you will held legally responsible for all damages caused in an accident. Your driver's licence will usually be suspended until you arrange to repay the amount paid on your behalf by the government or by the uninsured automobile coverage of the claimant's policy. This can amount to millions of dollars. On top of that, the police will charge you for failing to have insurance and you will be severely fined. State Farm office manager, Arsho Erebatian warns, "Major convictions like impaired driving can send raise your rates for 5 or 6 years." And zero tolerance for drivers with G-2 licences (which most of you will have for your first 20 months of driving in Ontario) means that driving after a single drink can get you an impaired driving charge. "It's important to be aware of the risks and consequences," says Erebatian.

Basic auto insurance provides coverage for:
accident benefits - This pays for treatment of injuries or funeral costs for the driver and passengers in your own vehicle or pedestrians who are injured or killed in an automobile accident. It can also replace your income; but make sure to select the right options if you have a higher income to replace.
third party legal liability - This coverage pays for injuries that the policyholder or designated driver cause to another person or damages to someone else's property (vehicles, buildings, lamp posts, telephone poles or other structures). This coverage protects you from lawsuits that could cost you your home and all of your savings.
collision coverage - Optional (you are not required to buy it) coverage sold with a 'deductible' of $300 to $1,000. It covers damage to your own vehicle in a collision or other accident above the amount of the deductible. If you have a deductible of $300 and the cost of repairs is $2,000, your insurance would pay for $1,700. The higher your deductible, the lower your premium. If you drive an older vehicle, you may decide not to purchase this coverage at all because the cost of including it on the policy can be higher than the value of the vehicle itself.
comprehensive coverage - Reimburses you for theft or damage such as fire, falling objects or vandalism. This is optional coverage and also has a deductible. underinsured and uninsured motorists protection - will reimburse you, a family member or a designated driver if you are hit by a driver who has no insurance or not enough insurance. A Canadian Inter-Province Motor Vehicle Liability Insurance Card ("pink card") is considered proof of insurance anywhere in Canada. You must keep this with you at all times and show it to police officers when they ask for it. Because of the risk of car theft, you're not supposed to leave your pink card in your vehicle - but most people do because it means one less thing you have to carry around with you everywhere. Similar insurance is available for other vehicles including boats and motorcycles.

CNM