Insurance is an assured and secure way to protect yourself and your family against risk. As a newcomer, based on the experiences in your home country, you may have a fair idea of certain types of insurance. Familiarizing yourself with insurance options in Canada is an essential part of financial literacy and settling in. Gaining a working knowledge of insurance can help you make smarter financial decisions, reduce insurance costs and aid in financial planning, which is key to a stable and secure future for you and your family in Canada.
What is insurance and how does it help?
The Financial Consumer Agency of Canada (FCAC) defines insurance as “…a contract, called a policy, between you and an insurance provider, under which you can be compensated for certain losses.”
In other words, insurance ensures that you have financial support and peace of mind during unforeseen or unexpected circumstances. It helps reduce the risk of having to pay out of pocket for any mishaps.
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Understanding how insurance works
According to the Insurance Bureau of Canada (IBC), there are four steps in the insurance process:
- Customer selects an insurance product (home, car, health, etc.) along with coverage limits and deductibles. Different types of insurance policies cover different types of risk.
- Customer pays the premium on a monthly, quarterly or annual basis to the insurer. The insurance company estimates the premium to accept the risk of covering your home, business, car or health and collects premiums from all customers into one large pool. Your insurance is an annual contract, so the pool operates for only one year at a time.
- In case of a mishap, the customer makes a claim with the insurer.
- Insurance company covers the losses. The insurance company uses the pool of many premiums to pay for the losses of the few who make claims in that year. Insurance pays for only the insured losses described in your contract.
| Recommended reading:
For more tips on how to decide if you need insurance, understanding how insurance is regulated and gaining an in-depth understanding of your insurance policy, read this article by the FCAC. |
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What are insurance premiums?
An Insurance premium is a fee you pay at a pre-defined duration (monthly, quarterly, or annually) to get insurance coverage. The premium is based on the probability that you’ll make a claim. So, for certain types of insurance such as long-term care insurance, the premium can change over a period of time.
How is your insurance premium related to your credit rating?
Credit scores and credit ratings can affect your insurance premium; they are inversely proportional. For instance, when purchasing home or car insurance, the lower your credit rating, the higher the premium and vice versa.
Some provinces have regulations that limit the use of credit reports and credit scores while determining insurance premiums for certain types of insurance. These provinces are:
- Alberta: Car insurance
- Ontario: Car insurance
- Newfoundland and Labrador: Home and car insurance
To confirm if your insurance company is allowed to collect and use your credit information when determining your coverage and premiums, FCAC recommends contacting your provincial or territorial insurance regulator.
| Recommended reading:
The Arrive Guide on Credit and Credit Scores in Canada can help you understand credit and credit scores and provide tips on how to maintain a good credit rating. |
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What is risk?
FCAC defines risk as the likelihood that an insured event will happen while your policy is in effect. For example, if you have a history of medical issues, you may have to pay higher life insurance premiums than someone who has few.
What are deductibles?
According to FCAC, a deductible is the amount of your claim that you agree to pay before your insurance company pays the rest. Similar to credit ratings, deductibles and premiums are inversely proportional. In simple words, the higher your deductible, the less you pay in premiums.
For example, if you make a claim for $3,000 but have a deductible of $700, the insurance provider will only cover $2,300 (= 3,000 – 700) of your claim.
What are exclusions?
Exclusions are things, events, or situations that your insurance policy doesn’t cover.
For example, certain health insurance policies may exclude existing or critical medical conditions. Certain policies for tenant insurance may exclude claims for water damage.
Therefore, it’s important to read the fine print and check the exclusions before you buy any insurance.
What are riders or endorsements?
Riders or endorsements are like add-ons to an insurance policy; you can pay an additional cost to cover a specific risk that your basic policy doesn’t cover.
| Wondering how much does insurance cost?
See Cost of insurance in Canada: What you should know as a newcomer for detailed estimates of health insurance, car insurance, life insurance, tenant insurance, and homeowners insurance. |
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Types of insurance
There are different types of insurance to not only cover valuable assets but also aspects of life and health that pose a risk of any kind. Here are some of the types of insurance you should know about:
1. Life insurance: Term life insurance and permanent life insurance
Life insurance can help provide financial support to your family and loved ones after your death. Money obtained from a life insurance policy is a tax-free, lump sum amount.
There are two main types of life insurance:
| Term life insurance | Permanent life insurance | |
|---|---|---|
| Coverage | A fixed period of time, such as a term of 10 or 20 years OR until you reach a set age, such as 65 years old. | Lifetime; no limitations. |
| Cost | Less expensive than permanent life insurance. Premiums may increase when you renew the policy. | More expensive than term life insurance. |
| Cash value | Not included — cannot borrow against your policy and you won’t get any cash value back if you cancel your policy. | Included — you can take out a loan or use your policy as collateral for a loan.
If you borrow using your cash value and don’t repay the loan, it may reduce the money your beneficiary receives or that you may get back if you cancel. |
| Types of insurance | Couples’ term life insurance — can be joint (less expensive) or individual (more expensive) | Whole life insurance (provides guaranteed minimum cash value) and universal life insurance (tied to an investment account, provides variable cash value). |
Naming a beneficiary for your insurance policy:
A beneficiary is a person you name to receive payment (or benefit) from your insurance policy when you die. You can name your spouse, another family member, friend or charitable organization as beneficiary. If you name more than one person, the insurance provider will distribute the amount as per the ascertained proportions.
Learn more about naming beneficiaries in this article by CFCA.
2. Health insurance: Provincial/territorial health plans and private/supplementary health insurance
Typically, government-funded provincial and territorial health insurance will cover most of your basic healthcare-related needs. However, it’s important to note that certain services such as prescription medicines, physiotherapy, special nursing services, dental treatment, ambulance services, prescription eyeglasses, wheelchairs and other durable equipment, critical illness or severe injury and any medical expenses incurred while travelling may not be covered by provincial health insurance. There are private or supplementary health insurance plans available from various providers that you can purchase to cover these specific services.
Many employers provide additional health insurance as part of employee benefits. Coverage for eye care or dental care is usually part of such insurance. Therefore, before purchasing additional private insurance, do check the insurance plans provided by your employer.
Health insurance coverage information:
According to FCAC, health insurance policies will typically cover you if the policy is in your name. Your spouse or partner and children under 19 years of age may also be eligible for coverage under your insurance policy. Children over 19 may be eligible for coverage under your policy if they are still in school or if they are disabled.
| Important!
For newcomers in Canada, certain provinces have a waiting period of up to three months for being eligible for government health insurance. For instance, in Ontario, there is a wait time of 90 days for newcomers to be eligible for provincial health insurance. However, if you are moving to Alberta, there is no wait time to receive the benefits of provincial health insurance and you’re covered from the day you land. You can check the ministry of health in your province or territory to know how long you’ll need to wait. Meanwhile, it is advisable to buy private or supplementary health insurance plans from a Canadian insurance company to cover yourself and your family for your initial months in Canada. |
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3. Travel insurance
Travel insurance plans may include various aspects of risk involved while travelling such as health, flight cancellation, trip interruption, lost luggage and document replacement. For those driving, it may include driver and vehicle coverage as well.
Canadian government-funded, provincial and territorial insurance, as well as any private or supplementary insurance plans that you may have additionally purchased in Canada, may not cover you while travelling outside the country. Medical expenses overseas might be expensive and require immediate cash payment. In such situations, travel insurance can be very useful.
Whichever variation of a travel insurance plan you opt for, it is recommended to ensure it covers the following three situations:
- Medical evacuation to Canada or to the nearest place with appropriate medical care.
- Pre-existing medical conditions, tests, and treatments.
- Repatriation in case of death to cover the preparation and return of your remains to Canada.
FCAC provides more details on selecting a travel insurance plan that works for you; do give it a read.
4. Car/auto insurance
Car or auto insurance is essential if you own a car or any other vehicle. It protects you from having to pay to repair your vehicle if it’s damaged or in an accident or if your vehicle causes an injury to another person.
| Note:
As per FCAC guideline, if you decide to lend your car to someone who isn’t listed on your insurance policy and they have an accident, your own insurance record may be affected and your premiums may increase. |
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Car insurance coverage information:
Your car insurance may typically cover the driver, all passengers, and other people who are involved. In some provinces, injured passengers or other people involved in the accident who have their own insurance policy must make a claim under their policy first.
To know more details on car/auto insurance coverage, exclusions, premium calculations and car insurance settlement options, read this article published by FCAC.
5. House insurance: Home insurance, condominium insurance, tenant/renter’s insurance, home-based business insurance, unexpected events and disasters
Whether renting or buying a home, getting insurance is essential. Here’s what each one of them broadly covers:
| Coverage | Home Insurance (Owner) |
Condo Insurance (Owner) |
Tenant Insurance (Renter) |
|---|---|---|---|
| Property protection | Inside and outside | Inside only + storage locker | Inside and outside |
| Theft | Covered | Covered | Covered |
| Visitor injury | Covered | Covered | Covered |
| Additional living expenses | Covered | Covered, up to a certain amount | Covered, up to a certain amount |
Home-based business insurance:
If you run a business from home, note that your home/condo/tenant insurance may provide limited coverage for claims related to your business. It is worthwhile to review your home insurance policy to confirm the coverage, if any, for a home-based business.
Unexpected and predictable events:
- Unexpected events such as fire, windstorms, tornadoes, ice, hail, hurricanes, vandalism and thefts are usually covered by insurance companies. However, for natural calamities like earthquakes, landslides, floods and sewer backup you may be required to purchase additional coverage.
- Predictable events related to the maintenance of your home aren’t typically covered by insurance providers.
| Recommended Reading:
Get more information on tenant insurance and renting a place as a newcomer in our blog, 7 ways to plan your finances and arrive prepared in Canada. Advice and guidelines provided by FCAC to help you better understand premium calculation and claims settlement process and insurance for unexpected events. |
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6. Credit and loan insurance
Credit or loan insurance provides coverage that may help you pay off your loan or cover your loan or credit card payments in the event of job loss, critical illness, accident or death. It is usually offered while your mortgage, line of credit, credit card or loan is being approved. You can also sign up for it at a later time.
There are three main types of credit or loan insurance:
- Life insurance to pay off credit or loans — covers the remaining amount of your loan in the event of your death.
- Critical illness insurance on credit or loans — helps pay off the remaining balance on your credit or loan if you’re diagnosed with one of the critical illnesses specified in your insurance policy.
- Disability insurance on credit or loans — helps ensure continuity of payments on your loan or credit card for a certain period of time if you become ill or have an accident that leaves you unable to work and earn an income. It generally doesn’t pay off the full outstanding balance of your loan.
For a deep-dive into credit and loan insurance, understanding the associated costs, eligibility, and the process of making a claim, see this article by the FCAC.
7. Disability insurance: Short-term and long-term disability insurance
Disability insurance can help protect you and your family from an unexpected illness or accident that leaves you unable to work and earn an income for the short-term (up to six months) or long-term (up to two years or more, depending on job status). It replaces between 60% and 85% of your regular income, up to a maximum amount, for a specified time.
Other disability benefits:
- The Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP) also offer benefits to add to your income when you’re unable to work, provided you have been contributing to it.
- Generally, if you contribute to the entire amount of the disability premium by yourself, your disability benefits will be tax-free, bringing your income while on disability closer to your current take-home pay.
- On the other hand, if your employer pays all or part of the disability premium, your disability benefits will be subject to income taxes.
Learn more about disability benefits on the FCAC website.
8. Critical illness insurance
Critical illness insurance covers illnesses such as cancer, Alzheimer’s disease, a heart attack, or a stroke and usually pays a one-time lump-sum payment if you’re diagnosed with a life-threatening illness.
The lump-sum payment may cover expenses such as daycare or renovations to make your home more accessible. The amount received as a benefit depends on the amount of coverage you opted for.
9. Long term care insurance
Long term care insurance is designed to provide coverage if you become unable to care for yourself for 90 days or more at any point in your life and need assistance to manage daily living activities. It can cover some of the costs of a care facility or a caregiver in your own home following an accident or illness.
Many long term care providers receive public funding. However, you may be required to pay extra co-payments or fees for additional services that aren’t covered under the long term plan.
To qualify for benefits, most plans state you must be incapable of performing two or more activities of daily living by yourself, such as bathing, dressing or eating. Benefits may either be paid as a lump-sum reimbursement amount for eligible expenses up to a certain date or in the form of fixed monthly payments. There is also a wait time of 30 to 90 days after becoming disabled to get the benefits.
The Canadian Life and Health Insurance Association provides information on the different types and costs of long term care.
Get to know insurance providers in Canada
Selecting an insurance provider that provides the best coverage at an affordable and reasonable rate requires research and may seem challenging. Most insurance companies will provide a range of insurance plans that cover various aspects of assets, life, and health.
There are many insurance rate comparison sites to help you with your research: LowestRates, InsuranceHotline, ratehub and RateSupermarket are just a few of them. It is recommended to browse, shop around, and check all your options before you purchase an insurance policy.
Knowledge is key to getting relevant insurance
Getting insurance is a good way to ensure you are covered and prepared for unforeseen circumstances. From renting or buying a home or car to expenses incurred on healthcare, insurance is an integral part of everyone’s life in Canada. The more familiar you are with the available options, the more financially beneficial decisions you will be able to make for yourself and your loved ones.
