What is Insurance?
Insurance is a way of reducing your potential financial loss or hardship. It can help cover the cost of unexpected events such as theft, illness or property damage. Insurance can also provide your loved ones with a financial payment upon your death.
How does insurance work?
You pay a fee called a premium, and in exchange, the insurance company agrees to pay you a certain amount of money if the event you are insuring against is covered and happens during the term of the policy.
The details of insurance protection, such as exactly which events are covered and for how much, are defined in your insurance policy. The insurance policy is a contract between you and the insurance company.
Why would I need insurance?
Insurance can protect you and your loved ones from financial loss if something unexpected happens.
- Auto insurance could pay the cost of repairs to your vehicle if you have an accident.
- Life insurance could provide your family with money to support themselves when you die.
- Home or tenant insurance could pay for the cost to repair your home if there is a fire in your house, condominium or apartment.
The decision to get insurance will depend on your circumstances and your stage in life. For example, you may want to consider getting life insurance if you have a partner or if you decide to start a family. However, if you are a single person with no dependents, you may not need life insurance. Similarly, your provincial or territorial health plan may be enough to cover your basic medical needs, but if you travel outside of Canada frequently, may want to get travel health insurance.
There are many insurance products available to cover different types of risks. Auto insurance is mandatory if you own a vehicle. Most other types of insurance are optional. However, if you think that you cannot afford the potential financial loss or damage, then you should consider buying insurance.
Credit or Debt Insurance
Life, health, home and auto insurance are the most common types of insurance products, but there also insurance products available to cover you if you become unable to pay your insurance premiums for reasons such as illness, accident or death.
Mortgage disability insurance makes mortgage payments to your lender for a specified time if you cannot work due to a severe injury or illness.
Mortgage default insurance protects the mortgage lender if you cannot make your mortgage payments. Mortgage default insurance is required by law if your down payment is less than 20 percent of the purchase price of the home.
Mortgage default insurance protects the lender. It does not protect you as a homeowner. If you do not make your mortgage payments, your lender can take ownership of your property.
Credit protection insurance makes the minimum monthly payments on a credit card, loan, line of credit or other debt for a specified time if you cannot work due to severe injury or illness.
You will still be responsible for paying the balance when you recover or after the coverage period ends.
Mortgage life insurance pays the remaining balance on your mortgage to the lender in the event of your death.
As you pay down your mortgage over time, the amount that the insurer will pay you if you die (i.e. the outstanding mortgage balance) is reduced. However, the payments generally remain the same. Be aware that mortgage life insurance may be subject to claim investigation and often has very strict exclusions relating to pre-existing conditions. Read your policy carefully and make sure you understand what is covered.
Credit balance insurance pays the remaining credit card balance, bank, line of credit or other debt in full, to the lenderat the time of your death. Be aware that credit balance insurance may be subject to claim investigation and often has very strict exclusions relating to pre-existing conditions. Read your policy carefully and make sure you understand what is covered.
If you are considering buying mortgage life insurance or credit balance insurance, compare the coverage offered with other options, such as a term life insurance policy.
SOURCE : Agence de la consommation en matière financière du Canada /www.acfc-fcac.gc.ca