What is Insurance?
Insurance gives people peace of mind by protecting against a significant monetary loss and financial hardship, through the sharing of a risk with someone else – usually an insurance company, which is sometimes partnered with a financial institution such as a bank or credit union.
Here are some of the more popular types of insurance:
Credit Protection Insurance, also known as Creditor’s Group Insurance, is used to pay out an outstanding mortgage or loan balance (up to the maximum specified in the certificate of insurance), or to make/postpone other forms of debt payment on the customer’s behalf in the event of death, disability, job loss or critical illness. It can be obtained for a variety of debt obligations including mortgages, personal loans, lines of credit and credit cards.
Travel Insurance is designed to protect you and your family from a variety of unexpected expenses related to your travel outside of your home province, and is available in two broad categories: Travel Medical Insurance; and Trip Cancellation and Interruption Insurance. These two types of travel insurance can be purchased separately or together as a bundle.
Mortgage Default Insurance allows borrowers to obtain a mortgage on a property with a lower down payment – as low as 5% of the purchase price for properties with values lower than $500,000 — than would be required for a conventional mortgage. This type of insurance is required on all mortgages with down payments of less than 20% of the purchase price, which are known as high ratio mortgages. Conventional mortgages, which require a minimum down payment of 20%, do not require Mortgage Default Insurance.
This insurance provides a “safety net” for federally regulated financial institutions, such as banks, that lend money on the security of residential real estate, and increases the number of Canadians who may be able to qualify for a mortgage. Premiums for Mortgage Default Insurance are based on the amount of the mortgage and can be added to the mortgage amount and repaid over the full duration of the mortgage.
Life Insurance pays out a sum of money to a designated person or persons (a wife, children, friend, etc.) should the insured die prematurely. It is designed to provide financial protection to loved ones who rely on the insured for income, or for whom the insured wishes to leave a financial legacy. The person(s) named as a beneficiary(ies) receive(s) the proceeds and is/are protected from some or all of the financial impact of the death of the insured.
There are three popular types of Life Insurance:
- Term Insurance provides life insurance coverage for a specific period of time and it can be renewed at various intervals at higher rates as you age. It is a temporary insurance designed to provide a cash death benefit to your beneficiary(ies).
- Whole Life Insurance provides lifetime coverage – with the added benefit that the policy will accumulate some cash value over time in addition to the death benefit payout.
- Universal Life Insurance is a flexible type of permanent life insurance that combines protection for your beneficiary(ies) with savings and income generation within the policy. You choose a guaranteed death benefit that will be paid to your beneficiary(ies) and the payments you make above the cost of insurance can be invested within the policy to earn tax-deferred income.
Home and Tenant Insurance can provide valuable financial protection against incidents that can cause damage to the property you own and/or live in —including fire, lightning strike, wind and hail, explosions, falling objects, vandalism, theft and other risks or “perils.” This insurance typically covers both property damage and liability exposure, including medical payments in case someone gets hurts on your premises.
Whether you own or rent, your lender or landlord may require home or tenant insurance to cover these types of risk. For high-value jewellery, furniture or art, separate coverage for an additional cost may also be available.
Car insurance provides financial protection to drivers should they be involved in an accident, or have their vehicle stolen or damaged. This type of insurance typically covers three types of perils:
- Property coverage that pays for damage to, or the theft, of your vehicle.
- Liability coverage that pays for your legal responsibility to others in your vehicle or in other vehicles involved in the same accident, for bodily injury or property damage.
- Medical coverage for you above what provincial medical plans or workers’ compensation plans will cover for your costs associated with the treatment of injuries, rehabilitation, and lost wages due to your accident.
In Canada, provinces require that drivers have a minimum level of automobile insurance in order to legally drive a vehicle.