There’s no denying the importance of insurance, and yet, it can be difficult to discern what types of insurance you need. Some types are legally required, such as car insurance if you own a car. Other types might be contractually obligated, like home insurance if you take out a mortgage. However, there are many other types of insurance that are not mandatory, leaving you to wonder whether you need it or not. In addition, even if you are required to purchase a certain type of insurance, you will likely still have options as to what types of coverage, limits, and deductibles you want. Below, we explain three types of insurance that all residents of Canada should have: life insurance, car insurance, and home insurance.
Life insurance
Life insurance is a type of insurance that covers policyholders in the event of their death. Most specifically, when you enter into a life insurance agreement with an insurance company, you pay a premium in exchange for a tax-free payout being paid to a beneficiary of your choosing upon your death. This tax-free payout is also known as a death benefit. As the policyholder, it is up to you to decide how much money the beneficiary receives, who the beneficiary is, and the length of the policy term.
The general purpose of life insurance is to help a loved one cope financially after you die. That said, the beneficiary can choose to spend the money they eventually receive from the insurance company how they wish. In most cases, a portion of this payout is spent on costs relating to the policyholder’s death, such as funeral fees or paying off any outstanding debts. However, once this is covered, the beneficiary may choose to spend the remaining funds on all kinds of costs, ranging from mortgage dues and student loans to childcare costs. To give you a better idea of what makes life insurance so important, we outline the types of expenses that life insurance payments are often spent on:
- Everyday expenses so the beneficiary can maintain a similar standard of living, e.g. it can pay for groceries, bills, rent, etc.
- Outstanding debt, e.g. mortgages, lines of credit, credit card bills, business loans, student loans, etc.
- Childcare costs, such as a child’s future education.
- Donations to a charity of their choice.
- Funeral arrangements or burial costs.
It is important to note that if you fail to name a beneficiary, then the insurance payout will be paid to your estate upon your death. In addition, this money will be taxed. That is why it is so important to name a beneficiary.
Types of life insurance to consider
When choosing a life insurance policy, which can be purchased through many insurance companies in Canada, you will need to decide on what type of policy is right for you. There are several types of life insurance policies to choose from, including but not limited to:
Term life insurance
Term life insurance is the most common type of life insurance policy. With a term policy, if you die, the insurance company will issue the payout, so long as you die within the specified policy term. Term life insurance policies typically have terms of 10, 20, or 30 years.
Whole life insurance
Whole life insurance, which is also known as permanent life insurance, will cover you for your entire life, which means you do not need to set a specific policy term. Whole life insurance policies have cash value associated with them and some even pay dividends based on the insurance company’s profits.
Limited-pay whole life insurance
Like whole life insurance plans, limited-pay whole life insurance policies also cover policyholders for the entirety of their lives. That said, limited-pay life insurance plans have condensed payment plans, and therefore policyholders must choose a term. For example, if you select a 30-year term, you will make insurance payments for 30 years, and if you are still alive after that point, then your life insurance coverage is guaranteed for the remainder of your life without you having to make any more payments. These types of policies are generally more expensive than others.
Universal life insurance
Universal life insurance works similarly to whole life insurance, except as the policyholder, you get to decide where your cash value is invested. This type of life insurance plan is ideally suited to people who are good with finances and want a hand in the way that their money is invested.
Term to 100 life insurance
Term to 100 life insurance is a form of whole life insurance that protects policyholders until they die. However, there is no cash value or investment component, which makes these plans cheaper than other types of whole life insurance plans. In addition, if you live to be 100 years of age, you no longer have to make insurance payments.
Annual renewable term life insurance
Lastly, an annual renewable term life insurance policy is unique as it is a short-term life insurance policy. These plans typically have one year terms and are designed to cover people in specific situations, such as if they lost their job or have short-term debt.
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Auto insurance
Auto insurance is the next type of insurance policy that you need. If you drive a car anywhere in Canada, then you are legally required to purchase a car insurance policy. Car insurance policies can be purchased from insurance companies or insurance brokers and vary in cost depending on what type of car you drive, your claims history, your driving habits, and many other factors:
Mandatory auto insurance coverage
In order to legally drive in your province, you must purchase a basic policy that complies with the minimum coverage requirements where you live. That said, many drivers choose to purchase policies that go beyond the basic requirements for the extra protection they provide. Below, we outline the four types of car insurance coverage that are mandatory in Ontario:
Third party liability coverage
Third party liability car insurance will pay for the cost of an at-fault accident if you are held liable after getting into a collision. No matter what type of collision it was and whether it resulted in property damage, bodily injury, or both, you can file a liability claim with your provider. After filing a claim, you will receive a payout to cover the cost of medical expenses, repair bills, and legal fees, including both defence and settlement fees. All Ontario drivers must have no less than $200,000 in third party liability coverage.
Accident benefits coverage
Accident benefits coverage will pay for you to receive medical or rehabilitative care following a car accident. If you, a pedestrian, or a passenger are injured in the collision, you can file an accident benefits claim. Any medical fees not covered by health insurance will be covered by your car insurance policy. Lost wages and funeral fees can also be covered.
Direct compensation coverage
Direct compensation coverage is a type of property damage coverage that will pay to repair your car if it is damaged in an accident. As long as you are not at fault for the collision, then you can receive a payout from your insurance company under the direct compensation portion of your policy. If you are found to be liable, then you would not be eligible for this type of coverage. Instead, you would need to file a collision claim.
Uninsured automobile coverage
Uninsured automobile coverage can pay for the cost of a collision if you get into an accident with an at-fault driver who does not have car insurance or who does not have sufficient insurance amounts to cover the cost of the accident. Uninsured motorist coverage can also pay for hit and run accidents.
Extra auto insurance coverage
Although you are not legally required to purchase the coverages listed below, many drivers still decide that they need additional coverage due to the extra protection it offers. Below are a few examples of popular types of optional car insurance coverage:
Collision coverage
Collision car coverage is another type of property damage coverage, but it is more extensive than direct compensation coverage. It will cover you whether you are found to be liable for the accident or not, as well as if the accident involved another vehicle, an animal, or a grounded object on the road. If you lease or finance your car, you may be contractually obligated to add collision coverage to your auto insurance policy.
Comprehensive coverage
Comprehensive car coverage is another optional coverage that many drivers choose to add to their policies. Comprehensive insurance offers financial protection against non-collision-related events, including but not limited to theft, vandalism, falling and flying objects, explosions and riots, fire, and weather-related events. In essence, if your car was stolen or damaged in a hailstorm, you could file a comprehensive claim and receive a payout to cover the cost of repairing or replacing it.
Accident forgiveness coverage
One more type of optional car insurance coverage popular among drivers is accident forgiveness. Accident forgiveness is additional coverage that can be added to your car insurance policy as an endorsement, to protect your driving record and to help prevent your insurance premium from increasing if you have an at-fault accident claim. Note: coverage and eligibility varies by province.
Loss of use coverage
Loss of use coverage will pay for you to take alternate modes of transportation if your car is damaged and is temporarily unusable. While it is being repaired, you can be reimbursed for the cost of renting a car, calling Ubers, or taking public transit, under the loss of use coverage portion of your policy.
If you need help purchasing a car insurance policy, reach out to BrokerLink today. One of our licensed insurance advisors can give you a free car insurance quote, as well as offer tips on ways that you can save money on your auto insurance plan. For example, by buying multiple auto insurance policies, you can receive a discount on both policies.
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Home insurance
Home insurance is the next type of insurance that most residents of Canada need. Whether you own your home or rent it, there is a type of home insurance that can protect you.
Homeowners insurance is the most popular form of property insurance and it is designed to protect homeowners from damage and liability claims. Basic homeowners insurance policies usually include dwelling coverage, personal contents coverage, and personal liability coverage. With these coverages, you will be protected if the physical structure of your home or the belongings inside your home are damaged or if a third party files a claim against you. Other types of home insurance coverage can also be purchased to protect you against flooding, home business-related losses, or the breakdown of appliances and other equipment inside your home.
Another popular type of home insurance is tenant insurance. Tenant insurance is specially designed for those who rent their homes and is usually cheaper to purchase than homeowners insurance. This is because it includes less coverage. Since tenants aren’t homeowners, they are not responsible for physical damage to their rented space. Therefore, tenant insurance policies do not contain dwelling coverage. Instead, they contain content(s) coverage and liability coverage, among others.
Please note that both homeowners and renters insurance can be purchased by policyholders who live in any type of home, from an apartment or condo to a duplex, townhome, cottage, or single-family home:
Basic home insurance coverage
To give you an idea of how home insurance can protect you and why you need it, keep reading for a list of coverages that basic home insurance typically includes:
Dwelling coverage
Dwelling coverage will pay for your home to be repaired or rebuilt if it suffers physical damage due to an insured peril. For example, if the windows, foundation, roof, doors, or walls are damaged due to any of the following, you can file a dwelling coverage claim.
- Fire
- Lightning
- Smoke
- Theft
- Wind
- Car / aircraft impact
- Explosion
- Falling objects
Content(s) coverage
Contents coverage, which is also known as personal valuables or personal property coverage, is the type of coverage that will pay to replace or repair the belongings inside your home if they are damaged. Contents coverage will cover everything from furniture and clothing to sporting equipment, electronics, artwork, and more. Please note that not all contents coverage policies cover high-value items, like jewellery, vintage wine, antique furniture, or musical instruments. You may need to buy high value home insurance or purchase an extra rider for such items to be covered.
Personal liability coverage
Personal liability coverage will pay for third party claims brought against you if a guest visits your home and injures themselves or damages their personal property. Since legal claims can be expensive, it’s important to have this type of coverage. Personal liability coverage on your home insurance plan can pay for legal fees, medical expenses, and repair bills.
Other structures coverage
Other structures coverage is like dwelling coverage except it specifically covers damage to detached structures on your property. If you have a detached garage, shed, gazebo, or fence that you want insured, you may need to add other structures coverage to your homeowners insurance plan.
Enhanced property insurance coverage
If you want to add extra coverage to your home insurance plan - which many policyholders do - continue reading to discover a few of the most popular types of enhanced coverage:
Home business coverage
Home business coverage is for those who work from home or run a business out of their home. Basic property insurance doesn’t cover business-related losses. It only covers personal use and losses related to your home. Therefore, if you want to be covered against damage or losses stemming from business use, you will need to add home-based business coverage to your home insurance plan. You can also purchase a separate commercial insurance policy. With commercial coverage, you will be protected if a thief steals expensive business equipment, if inventory is damaged, or if a client visits your home and injures themselves while on the premises.
Equipment breakdown coverage
Equipment breakdown coverage can pay for the cost of repairing or replacing a broken piece of household equipment. As long as the equipment broke down due to an internal failure, such as a mechanical or electrical failure, you can file an equipment breakdown claim with your insurance company. The types of household equipment that may be covered include dishwashers, refrigerators, dryers, furnaces, ovens, washing machines, and air conditioners. Please note that equipment breakdown insurance does not cover general wear and tear or intentional damage.
Sewer backup coverage
Sewer backup coverage is a type of flood insurance for homes. Since most basic home insurance policies do not cover water damage, adding one or multiple types of flooding insurance to your plan is important. With sewer backup coverage, you will be compensated if wastewater or sewage gets blocked and comes out of the drains or faucets of your home.
Overland water coverage
Overland water coverage is another type of flood insurance that many Canadian residents need. It covers water damage to your property that is caused by flooding due to a nearby lake or river, overflow, heavy rain, or rapid snow melt. Therefore, if you live near a body of water in Canada or in a part of the country that experiences heavy rainfall or snowfall, adding overland water coverage to your home insurance policy might be wise.
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Bonus: Health insurance
One last type of insurance that you may need is health insurance. While basic healthcare is something that all Canadians have access to, not all medical expenses are covered. That is where having a health insurance policy comes in. When you have a health insurance plan, you can be covered for a wide range of medical and rehabilitative expenses, such as prescription medications and physical therapy, as well as dental and vision coverage. Given the high cost of receiving medical care, having health insurance can go a long way and give policyholders peace of mind. Some health insurance plans may also extend to include life or disability health insurance, giving you peace of mind in the event that something were to happen to you.
Contact BrokerLink to learn more about what types of insurance you need
To find out more about what types of insurance you need as a resident of Canada, reach out to BrokerLink today. We can explain what types of insurance are government-mandated, such as car insurance, as well as what types of insurance may be contractually obligated, such as home insurance. In addition, we can offer an objective opinion on what types of coverage will benefit you the most.
Plus, as a full-service insurance broker, one of our licensed insurance advisors can shop around on your behalf to find the best possible policy for your needs and budget. We will also offer all sorts of tips to help you save money on your policy.
Reach out to BrokerLink today to get started and request a free insurance quote.
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