Insurance

Insurance is almost a necessity of life these days, and if you’re one of the 28 million Canadians who holds at least one insurance product, you may already be relying on insurance to safeguard your financial health against incident. But despite a massive 93% of Canadians over the age of 15 having insurance, many don’t know how it works.

So here we’re going to take an in-depth look at the insurance industry and how you can use it to protect yourself – starting with some of the companies that are active in this sector. Below is a table with some of the country’s most reputable insurance providers; click on any of their names to see more information about them.

Top Insurance Companies and Insurance Brokers

Company
Product Type
Coverage Amount
Reviews
Availability
Business Insurance Online, Home & Auto Insurance
Pricing varies by coverage needs
Alberta, British Columbia and Ontario
Business Insurance, Commercial Insurance
Pricing varies by coverage needs
British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador.
Life Insurance
$100,000 - $10,000,000
Ontario, BC, Alberta, Manitoba, New Brunswick, Nova Scotia
Life Insurance, Whole Life Insurance, Critical Illness, Mortgage Protection, Disability Insurance
$25,000 - $5,000,000
Ontario Only

What is Insurance?


Insurance relies on a relatively basic premise: an individual (the insured or policyholder) pays a set fee (a premium) on a regular basis (usually monthly, quarterly or annually) to a company (the insurer), on the understanding that if certain events happen, the insurer will cover the related costs. This in effect means that the insured individual exchanges a smaller, known monthly cost for potentially large one-off expenses in the future.

Most insurance policies have a deductible - a small initial portion of the covered costs that you must cover personally, before the insurance company pays out the rest. The exact terms and conditions of insurance are covered under the insurance contract (the policy), and there are many different types of insurance, relating to all aspects of life.

 

This simple notion has spawned an enormous financial market. There are over 150 insurance companies in Canada, all of whom offer multiple products, and Canadians spent over $50 billion last year alone on insurance premiums.

Source data: CLHIA 2016

How do Insurance Companies Work?


From an individual’s perspective, insurance is pretty straightforward: you pay a set fee, and if something bad happens, you submit a claim to your insurance company to cover the costs. So if you have car insurance and get into an accident, you claim the cost of the car repairs from your insurer - and they pay.

Clearly, for any insurance company to be able to cover the unexpected costs of all of its customers, it relies on more than simply banking the premiums it charges. Insurance companies diversify their risk - meaning that they pool the risk of claims from different customers together, and then redistribute this risk. They also invest the money they make from premiums to earn interest, as well as participate in other risk mitigation and investment practices. The business strategies of insurance companies are now so complex and interwoven with the rest of the financial sector that regulation is a major challenge.

The Canadian Insurance Market


In Canada, the insurance sector is regulated by the Office of the Superintendent of Financial Institutions (OSFI). This arm of the federal government oversees the financial soundness and stability of insurance companies. In addition, each province has a Superintendent who licenses insurance companies and regulates their products and conduct. The legislation these supervisory bodies adhere to is in place to protect consumers from fraud, illegitimate insurance activities, and unstable insurers.

Canada has one of the most stable financial sectors in the world, and boasts three of the world’s largest insurance companies. Canadians spend an average of $3100 a year on insurance premiums.

Source: Statistica.com. Data as of 2018.

Types of Insurance


There are many different types of insurance. This includes:

Home Insurance

Home insurance covers the cost of damage to your property in the event of an incident, such as a tree branch falling onto your roof, a burst pipe, a fire, and so on. This insurance usually covers four major types of expense: interior damage, exterior damage, damage or loss of contents, and injury occurring on the property. Most policies have an upper cap on how much can be claimed (called the liability limit).

It’s important to note that many standard home insurance policies exclude what are known as “acts of God” - which includes floods, earthquakes, and other major natural disasters. In Canada, many mortgage companies require a borrower to have a minimum level of home insurance before they qualify for a mortgage.

Auto Insurance

Auto insurance covers the cost of damages to your car; this can extend to include motorbikes, trailers, and other forms of transport and vehicle attachments. There are three ascending levels of car insurance:

  • Liability insurance (often called third party liability). This is the lowest level, and covers costs of another person’s medical expenses, lost wages and car repairs if you are found legally responsible for an accident in which they are injured. This level of insurance is mandatory across Canada for all drivers.

 

  • Collision insurance. This covers the cost of vehicle repairs, no matter who was at fault for an accident. This often comes bundled with liability insurance.

 

  • Comprehensive insurance. This highest level of insurance covers all of the above, plus replacement costs if your car is stolen, or if it suffers other damage (for example, from adverse weather).
Source data: Sonnet

The ins and outs of auto insurance does vary by province, so always check the local regulations to ensure you’re within the law. Some provinces (like B.C.) have government-issued auto insurance to allow all drivers affordable access to mandatory insurance.

Life Insurance

Life insurance relies on the insured paying a monthly premium, and the insurance company paying out a lump sum in the event that the covered person dies. This can be very helpful if a breadwinner dies unexpectedly, or even just to ensure enough funds to cover medical expenses and funeral costs. The amount received from the insurance company after the death is known as the death benefit, and anyone you set up as a beneficiary will receive a portion of the payment. Death benefits are not taxed and can be a vital source of income for bereaved families.

Life insurance relies on the insured paying a monthly premium, and the insurance company paying out a lump sum in the event that the covered person dies. This can be very helpful if a breadwinner dies unexpectedly, or even just to ensure enough funds to cover medical expenses and funeral costs. The amount received from the insurance company after the death is known as the death benefit, and anyone you set up as a beneficiary will receive a portion of the payment. Death benefits are not taxed and can be a vital source of income for bereaved families.

There are four types of life insurance:

1. Term life insurance, which provides protection for a set period of time, like 10 or 20 years.

2. Permanent life insurance, where a life insurance policy and an investment are rolled into one, and cash accumulates in the insurance policy over time.

3. No-medical life insurance, which provides a lower level of coverage but has no medical pre-screening requirements.

4. Group life insurance, offered as an employee benefit by employers, valid while the individual works at that company.

Health Insurance

All Canadians have a standard level of health insurance offered by their province of residence, but this insurance usually does not extend to costs such as prescription medication, therapeutic services, dental care, vision care, and so on. Extended healthcare insurance offers coverage for these extras, and is frequently offered by employers as part of their benefits package. 24 million Canadians have supplementary health insurance, and 30% of the nation’s spending on drugs is covered by extended healthcare coverage. There are varying levels available, and each provider has different exclusions, caps and other fine print.

Travel Insurance

Travel insurance comes in several different forms, relating to all potential unexpected costs that can happen while you’re away from home. This includes:

  • Emergency medical costs
  • Lost baggage
  • Trip cancellation or interruption
  • Travel accidents

Although the size of the travel insurance market pales in comparison to the big four listed above, it is nevertheless an important aspect of insurance, with relatively small costs offsetting extremely high risks - for example, the average cost of a day in hospital in the U.S. is $10,000.

Other Insurance

There are other types of insurance in addition to those listed above, relating to other aspects of life. These include:

  • Pet insurance
  • Marine insurance
  • Long term disability insurance
  • Renter’s insurance
  • Specialized insurance

Picking the Right Insurance for You


Choosing an insurance policy can be hard, especially as many providers may, on the surface, seem very similar. So start with the basics: what do you want to insure? What eventuality do you wish to cover? Then, find providers that offer products which cover your needs. Many of these products will offer different levels of coverage, so it’s important to understand how much coverage you need, and how much you’re willing to spend.

Once you have found a policy that suits your needs, you can easily get a quote for coverage from different insurance providers, and compare the quotes to find the best deal for you. The cost of an insurance policy will vary according to what’s being insured (it’s value, age, condition), how much coverage is needed, your location, any possible risks, personal factors such as health (if applicable) and potentially other considerations. The coverage limit can also vary, as can the deductible. Typically, the higher the deductible, the lower the premiums. Some policies exclude specific eventualities, so it’s always important to read the small print before proceeding with any policy.

Frequently Asked Questions About Insurance


How does insurance work?

Insurance works by an individual paying a small fee regularly to an insurance company, on the understanding that if certain events happen and expenses are incurred, the insurance company will cover the related costs.

Why get insurance?

Insurance is an important way to safeguard your finances against unanticipated, large expenses that are a result of an accident of some kind. It’s very hard to plan for accidents, and most people would be unable to save enough money to cover the costs incurred by an auto accident, or a home fire, or a significant health crisis. So insurance offers a way to cover these costs for a small ongoing fee.

What is life insurance?

Life insurance is a product that pays out a lump sum upon the policyholder’s death, to help the bereaved family alleviate any financial stresses.

How much is life insurance?

Life insurance costs depend on your age, your health, and the type of product purchased. Some products start as low as $13 a month, but the riskier the policy, the higher the premiums.

What is car insurance?

Car insurance covers the cost of repairs to your car after an accident; in Canada all drivers must have third party liability insurance, which at a minimum guarantees coverage of an injured person’s expenses in the event you get into an at-fault accident with someone else.

How much is car insurance?

Car insurance costs depend on the type and age of the car being insured, its condition, where it’s parked, your location, what it’s used for, and other factors related to the risks the car faces. Costs also vary quite widely by province; the average monthly premium in Quebec is just $60, while in B.C. it is $153.

What is home insurance?

Home insurance covers the cost of repairs to your home in the event of an accident; this includes interior and exterior damage, as well as loss or damage to the contents of your home.

How much is home insurance?

Home insurance costs depend on the value of the home you’re insuring, its age and location, the value of your contents, nearby amenities (such as fire hydrants), and other factors relating to its use and potential risks. The average monthly premium in Canada for home insurance is $85.

Who should use insurance?

Anyone can use insurance, regardless of their financial situation, as long as they have something they wish to insure - typically property, vehicles, belongings, income or personal liability. Few people can afford to pay out-of-pocket in the event of an accident or illness, so insurance is a smart investment for most.

How do insurance companies make money?

Insurance companies make money in a few different ways, including via the premiums they charge their customers. They also invest to earn interest and engage in other financial strategies.

How do I get insurance in Canada?

There are over 150 insurance companies in Canada, offering all types of insurance, so finding a provider and policy for you shouldn’t be too tough. Most insurance companies will require you to complete some basic paperwork to apply for coverage, and some (for example, property insurance) will also require supporting documentation to verify the asset being insured. The use of technology means that this can now often be done entirely online.

How do I choose the right insurance company?

Choosing the right insurance company starts with understanding your needs. What do you need to insure? How much coverage do you need? How much can you afford to pay in premiums? Once you understand these factors, you can find a provider with a product that suits your circumstances. You can then investigate quotes and find the most competitive deal for you.

Written By Smarter Loans Staff


The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada's highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the "GPS of Fintech Lending" by the Toronto Star in 2019.