Understanding Insurance Basics

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.

For example:

• 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, you 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.

This publication will provide you with a brief description of some of the most common types of insurance, what is involved in getting insurance, and what to do if you need to make a complaint.