Types of 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.
Here’s an example of how Credit Protection Insurance works:
Anne-Sophie and Mathieu, who have two children, have been approved for a $250,000 mortgage to purchase a home. Anne-Sophie is the primary income earner, and the family’s ability to make their mortgage payments is largely dependent on her income.
Peace of mind and predictability of expenses are important for Anne-Sophie and Mathieu, so they purchase Mortgage Life Insurance for Anne-Sophie, which will pay out the balance of their mortgage (up to the maximum specified in the certificate of insurance) in the event of her death. They like the fact that their premiums will not change over the life of their mortgage, which means that they are not exposed to higher costs for this coverage as Anne-Sophie ages or possibly develops health issues.
They also like the fact that the proceeds of her mortgage life insurance will go directly to pay out the mortgage balance rather than possibly being used to pay other debts. It’s important to Anne-Sophie that her family will be able to continue living in their family home, without financial duress.
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.
Here are two examples of how Travel Insurance works:
Rob and his wife Leslie are planning a Caribbean cruise vacation from Miami, and they’re wondering if they should buy Trip Cancellation Insurance. The trip will be expensive, and they will have to pre-pay for a number of things in advance, most of which will be non-refundable — such as airfare and the cost of the cruise.
They are worried that should they have to cancel their trip before they leave, they would completely lose the money that they have pre-paid for the non-refundable parts of their trip. And it could take years before they could save that much money again to take the same trip.
Leslie suggests they purchase Trip Cancellation Insurance. She finds a policy she likes because it will reimburse her and Rob for the full amount of pre-paid, non-refundable travel expenses that they have insured, should they have to cancel their trip before departure for an unforeseen event covered under the policy.
A week before they are scheduled to leave on their trip, Rob breaks his leg in a skiing accident. His doctor deems him unfit to travel. So they make a claim under their Trip Cancellation Insurance and receive a full reimbursement of their pre-paid travel expenses.
Linda and Vince are thinking of purchasing Trip Interruption Insurance for their upcoming European holiday.
Trip Interruption Insurance is similar to Trip Cancellation Insurance, but the former covers insured travellers for unforeseen events that occur after a trip has begun, rather than before it starts. If they have to return home for a covered reason, Trip Interruption Insurance will reimburse Linda and Vince for the lost portion of their trip, as well as for any additional expenses for a last-minute flight home.
Since Trip Interruption Insurance can be purchased along with Trip Cancellation Insurance, Linda and Vince decide to get both at the same time so that they will be protected should an unforeseen covered event cause them to have to cancel their trip or end it prematurely.
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.
