6.1.1 What is insurance?

Insurance is a contract, called a policy, between you and an insurance provider, under which you can be compensated for certain losses. You pay a fee called a premium. In exchange, the insurance company agrees to pay you a certain amount of money if the event you are insured against happens during the term of the policy.

Your premiums are pooled with those of other policyholders at your insurance company. The money in the pool is then used to pay policyholders’ claims.

Many insurance policies include a deductible. That is a portion of the claim that you pay up front, before the insurer pays the rest. If you pay a higher deductible, your premiums may be lower.

Other insurance policies do not have a deductible, but have an initial waiting period during which you cover the financial costs before the coverage begins.

Some types of insurance are mandatory—for example, all provinces and territories in Canada require basic insurance if you own a vehicle. Others types are optional—for example, you can choose to buy additional types of vehicle insurance beyond the basic required level.

When you buy life or health insurance, you usually sign a contract before you have had a chance to carefully read the policy. You then have a 10-day grace period in which to make sure it meets your needs and to cancel it if you feel it does not. Any premiums you have paid will be refunded.


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