In short, insurance is protection you pay for to provide coverage in the event of financial loss. There is a wide range of insurance coverage out there. Usually, insurance policies cover loss, damage, or injury. For this reason, being insured is a critical component of personal finances. Without adequate insurance, you may be running a greater risk of loss. Continue reading to learn more!
What is insurance?
Insurance is protection from financial loss. For instance, loss of life, loss of home, or job loss. There are a wide array of insurance companies, but you can also obtain coverage from your bank or credit union. Insurers provide coverage to insured persons or entities in exchange for a fee, which is usually called a premium. Getting insurance is a form of risk management. More specifically, it’s for uncertainty and high-risk situations.
How being insured properly is important to your financial health
It takes a long time to establish a lifestyle. As an example, it can take years to secure your dream home and find a job to support the mortgage. It can be unnerving to think that all of that can be taken from you at any moment. A wildfire might destroy your home or you might end up unable to work as a result of physical injury. So how do you prepare yourself for this kind of risk? The answer is, of course, insurance!
Insurance offers a real solution to these big kinds of risks that can threaten your lifestyle and livelihood. Without adequate insurance, you are at greater risk of financial loss. When a sudden financial loss like that occurs, it often creates a domino effect. It’s the most common way people end up getting swept up in a debt spiral. It can be challenging to get back on your feet, especially without the support of an insurance payout. For this reason, sufficient insurance coverage is important for your financial health.
Avoiding being over or underinsured
Insurance applies to events that may or may not happen in the future. As a result, securing the right level of insurance coverage can be a balancing act of sorts. What do you need? What can you do without? Ultimately, choosing the right insurance policy is a personal endeavour. However, here are some tips to consider:
Insurance goals
What do you want to insure? What do you not want to insure? In the worst-case scenario, what would be your ideal solution from the insurance? These are all great questions to ask yourself before going through the application process. They’ll help you figure out your insurance goals.
Read the fine print
Before you agree to an insurance policy, be sure to read the fine print in the contract. Don’t be shy to ask for more information! Think about what you’re trying to protect and ensure the policy matches up. If you feel the policy could provide more or less coverage, go back to the insurance company before signing.
Up-to-date amounts
As time goes onward, the value of your insured assets can fluctuate. Premiums and payouts are based on the asset’s value in the insurance plan. Take a moment every year or so to review the amounts and adjust as needed.
Avoid overlaps in policies
If you have multiple policies, sometimes the insurance companies offer discounts or bundle deals. This could mean ending up with overlaps or dual coverage. Optimize your insurance and premiums by avoiding this where you can.
Tips for maintaining good coverage
Like other aspects of your personal finances, insurance needs to be maintained and reviewed regularly. It’s a good idea to review your coverage routinely, ideally once a year, or more if you can. Since insurance affects things that might happen in the future, it’s a good idea to re-evaluate your coverage.
In addition to annual reviews, you should also review your insurance anytime there’s a significant change in your life. For instance, if you get a new home or get married. You will be particularly vulnerable after a substantial purchase, so be sure to review insurance coverage at that time!
Types of insurance
Insurance comes in a lot of shapes and sizes. Below are the main types of insurance:
Home insurance
This kind of insurance covers building homes, renovations, damage to a property, replacement of living expenses, and liability. You might think this only applies to homeowners, but renters can benefit from tenant insurance which insures the contents of a home.
Car insurance
If you ever get into an accident or cause injury to someone while driving, car insurance can help you out. In Canada, there is a baseline level of car insurance every driver must have by law, in addition to a valid driver’s license. However, you can add additional insurance, such as for car theft, damage, and more.
Life insurance
Do you provide for your family and children? If something were to happen to you, it may negatively impact your loved ones financially. Life insurance provides a payout to beneficiaries of your choosing should you get injured or die and cannot earn an income anymore.
Health insurance
Most are familiar with health insurance through their employer benefits care plan. This kind of insurance covers the cost of health services, like dental benefits or eye tests. Normally, the day-to-day health care costs aren’t significant, but if you ever need serious surgery or incur a big medical bill, health insurance can save you a ton of money.
Critical Illness insurance
Critical illness insurance is supplemental health insurance. It offers greater coverage should you suffer from an illness that can drastically impact your financial standing such as a heart attack, stroke or cancer.
Business insurance
Businesses assume a lot of risks, such as the potential for lawsuits or causing harm to a customer. For this reason, businesses tend to utilize a number of insurance policies to protect themselves. Cybersecurity and liability insurance are commonplace policies that most businesses have. The nature of their operations will determine what other coverage a business will need.
Deposit insurance
Nearly every Canadian has a bank account. If you deposit and keep money with a bank, deposit insurance is important. Fortunately, most banks are insured by the Canada Deposit Insurance Corporation. If your bank isn’t covered by CDIC, you may want to switch banks.
Conclusion
Insurance coverage is an important aspect of personal finances that shouldn’t be overlooked. Without it, you may experience significant loss and hardship. Do yourself and your loved ones a favour. Take time to review your current insurance policies and fill in the gaps where needed.
Are you experiencing financial hardship because of something unexpected happening to you? Consolidated Credit can help. Reach out for a consultation today!
