Insurance 101
™
Basics of Insurance
Understanding insurance.
Sharing risk, pooling funds.
Insurance helps you:
Insurance is a way of managing these risks. When you
buy insurance, you enter into a contract transferring risk
to the insurance company in exchange for a fee, called a
premium. In effect, you substitute a regular, known cost
(premium) in place of large but uncertain future cost (loss).
It doesn’t change the probability of loss, but it removes
the uncertainty around it.
> Own a home, because mortgage lenders need to
know their collateral is protected;
> Drive vehicles, because few people could afford
the repairs, health care costs and legal expenses
associated with collisions and injuries;
> Maintain your current standard of living if you become
disabled or have a critical illness;
> Adequately cover the costs of prescription drugs,
dental care, vision care and other health-related items;
> Provide for your family in the event of a death;
> Manage the risk of owning a small business or family
farm; and
> Enjoy worry-free vacations.
It’s everywhere, but you rarely think about it. It protects
you, but you cannot see or touch it. You pay for it,
but hope you never have to use it.
No one can predict whose car will be hit in a parking lot,
whose home will be damaged during a storm, or which
business will be vandalized. No one can predict who will
need expensive dental work or who may be diagnosed
with a critical illness. But these things happen every
day, and they can be very costly.
At its most basic, insurance is just a group of people who
place money into a common fund. When someone in the
group suffers a loss – say their car gets stolen – they can
use that “just in case” fund to replace the car. The lucky
ones will never have to use the fund – but the unlucky ones
will be glad it’s there. If one person consistently dips into
the fund, it’s fair for the other participants to require him
to pay a little more because he represents a higher risk.
Similarly, in a year where many people have losses,
or if the losses are particularly large, everyone will have
a slightly higher premium the next year to ensure the
pool is full.
Of course, you need someone to collect the money, pay it
out when there’s a claim and invest the money securely so
it can grow but still be accessible. That “someone” is your
insurance company. The federal government regulates your
insurance company to ensure there is a minimum depth to
the pool (Minimum Capital Test) so there are adequate funds
to meet all potential claims. The government also has very
strict requirements on how the funds can be invested so
that your premium dollars are not at risk.
Home Auto* Life Investments Group Business Farm Travel
*Auto not underwritten by The Co-operators in BC and MB. Extension policy offered in SK.
ADVP001 (08/08)
Insure your property.
Insure your vehicle.
Buying insurance can’t protect you for every possible
type of loss. So read your policy to know what is covered,
what isn’t and which coverages have limits. That way
there are no surprises.
In Canada, it is the law to insure every car on the road.
The provincial government writes the insurance contract
so rules, coverages and amounts vary significantly from
one province to another. They also regulate and approve
rates. Insurance companies wishing to adjust rates must
submit an application and provide justification to the
government, which makes the final decision on all
rate changes.
There are two main types of property insurance policies.
“Named Perils” policies cover you only for types of loss that
are listed in the policy. “All-risk” or “comprehensive” policies
cover losses that are not specifically excluded in the policy.
Determine whether your policy provides “Actual Cash Value”
or “Replacement Cost” for property damaged, stolen or
destroyed in a covered loss. Actual Cash Value means
your item will be replaced with an item of “like kind and
quality” (the same age and condition) or you will receive
the corresponding cash payment. Under Replacement Cost
policies, payments do not factor in the value it’s lost over
time. In other words, if your ten-year-old TV gets stolen
and you have an Actual Cash Value policy, you will be
compensated with the value of a ten-year-old TV; if you
have a Replacement Cost policy, it will be replaced with
a new TV or the equivalent payment.
It’s important that you read your policy and understand
what’s covered and for how much. Ensure you have the
protection you need. For example, you may want additional
coverage if you own valuable items (such as jewellery or
collectibles) or have a home-based business.
There are three main parts to your auto insurance policy –
they are designed to cover damage to your vehicle or other
items (hydro poles, buildings, etc.); health care costs, out-of
pocket expenses and lost income; and liability coverage to
pay for your legal defence and court awards if you are
responsible for injuring another person.
Insurance – it shouldn’t have to be a riddle.
Property and auto insurance are only two types of
policies. Life, travel, farm, commercial, health, critical
illness, and other coverages are also available. Take the
time to review your policies and contact a professional to
clear up questions or get advice. A little knowledge can
make a big difference when it comes to buying the right
insurance protection for you and your family.
This information is brought to you by The Co-operators, a group of Canadian companies that provide insurance protection and financial services
to Canadians. The Co-operators is a 100 per cent Canadian-owned co-operative whose members are co-operatives, credit union centrals and
like-minded organizations. For more information, visit www.cooperators.ca.
Home Auto* Life Investments Group Business Farm Travel
*Auto not underwritten by The Co-operators in BC and MB. Extension policy offered in SK.
ADVP001 (07/08)