How insurance works

Insurance protects you and your loved ones from financial risks. It helps cover costs if something unexpected happens to:

you or your family
your vehicle
your home
your belongings
your job

There are many insurance products that cover different types of risks.

Determining your insurance needs

When trying to determine your insurance needs, consider your circumstances and your stage in life. For example, you may want to consider getting insurance if you’re:

moving in with your partner
starting a family
buying a home or renting a home or an apartment
starting a business
buying a new car
taking a loan or getting a credit card

Understanding your insurance policy

An insurance policy is a legal contract between you (the insured) and the insurance company (the insurer).

An insurance policy specifies:

which risks your insurance company covers
under what circumstances the insurer will make a payment to you
how much money, or what type of benefit, you'll get if you make a claim

Usually, the policyholder is the person who owns the insurance policy. In some cases, the policyholder isn't the insured, but rather a family member or loved one.

The amount of money or benefit you'll get if you make a claim depends on:

the amount of damage or loss to your car or home
what is established in your policy (for life or health insurance)

Make sure you understand what your insurance policy covers and doesn't cover. Ask questions about anything you don't understand.

Learn how to make an insurance claim.

Premiums

To get insurance, you pay a fee called a premium. Usually, you pay the premium monthly or yearly. The amount you pay as a premium may change over time for some types of insurance.

Insurance companies base the amount you'll pay as a premium on the amount they think they’ll need to pay if you make a claim. They may charge higher premiums if they think you are more likely to make a claim.

Usually, the amount you pay as a premium depends on factors such as:

the type of insurance
your age
your gender
your medical history, for life and health insurance
the value of the goods insured, for home insurance
the type of car you drive, for car insurance
the amount of coverage you need
your deductible
your claim history
the amount you owe, for credit insurance

When you pay premiums, your insurance company agrees to pay a certain amount of money for any loss or damages that your policy covers.

Insurance risk

Risk is the likelihood that an insured event will happen while your policy is in effect.

For example, you may pay higher life insurance premiums if you have a history of medical issues. This also applies to your car insurance premiums if you’ve had several car accidents.

Impact of your credit report and score

When you get car or home insurance, an insurance company may charge higher premiums based on your credit score.

Some provinces have regulations that ban the use of credit reports and scores to determine insurance premiums. To confirm if your province has those regulations, contact your provincial or territorial insurance regulator.

The Insurance Bureau of Canada (IBC) represents most home and car insurance companies in Canada. They provide guidelines to protect consumers when insurers choose to use your credit information.

The Code of Conduct for insurer’s Use of Credit Information guarantees companies do the following:

comply with provincial laws
ensure credit information used is current and accurate
request your consent before collecting and using your credit information
advise you of your right to opt out of releasing credit information
advise you of the consequences of opting out of releasing credit information. For example, you may not qualify for the insurer’s best rate or discounts you could have with a good credit report
use other non-credit information to determine your policy
keep your credit information confidential

Learn more about the Code of Conduct for Insurers’ Use of Credit Information.

Deductibles

Health, dental, home and car insurance policies may require that you pay a deductible. A deductible is the amount of your claim that you must pay before your insurance company pays the rest. The higher your deductible, the less you may pay in premiums.

For example, let’s say you make a claim for $2,000, but you have a $500 deductible. Your insurance will only cover $1,500 of your claim.

Exclusions

Exclusions are things that your insurance policy doesn't cover. Examples of exclusions include:

a health insurance policy may exclude certain medical conditions you had before you applied
a travel insurance policy may exclude claims made if you travel to a high risk country
a home insurance policy may exclude claims for some types of water damage
a credit card balance insurance policy may exclude claims for some types of illnesses

Endorsements

An endorsement, also known as a rider, is the ability to buy extra insurance at an additional cost. It covers risks that your basic policy doesn't cover. Ask your insurer what your policy covers and doesn't cover. It will help you determine what risks you might need extra coverage for.

Insurance regulation

Insurance companies are regulated at the federal level and provincial and territorial level.

Federal insurance regulations

Most insurance companies are federally regulated. The government ensures that all federally regulated insurance companies are financially sound.

Find a list of federally regulated insurance companies.

Federally regulated insurance companies must have a process in place to handle consumer complaints. They must be a member of a neutral third-party dispute resolution organization.

If you hold a policy with a federally regulated insurance company, they must give you information on:

how to make a complaint
how long the process will take
the next steps if they haven’t resolved your complaint

Learn how to file a complaint about your insurance company.

Provincial and territorial insurance regulators

Each province has its own insurance regulator. All insurance companies must follow the rules and regulations of the province or territory where they carry on business.

Provincial and territorial insurance regulators enforce consumer protection laws. They also oversee the licensing and conduct of insurance agents and brokers in their province or territory.

Your provincial or territorial regulator can help you:

confirm that the insurance company, agent or broker you're dealing with is licensed or registered
help you resolve a complaint
protect you in case your insurance company goes bankrupt

Find your provincial or territorial insurance regulator.

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