Personal insurance can protect you from the financial consequences of unexpected events such as illness, injury, or death.
The costs you pay for insurance are based in part on your age and health at the time you apply. It’s ideal to buy personal insurance while you’re healthy – before issues that can limit your coverage arise. In effect, you lock-in your insurability for that coverage.
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What is personal insurance?
Personal insurance protects you and your loved ones from the financial consequences of unexpected events connected to your life and health. This can include disability, illness or death.
Personal insurance is different from property insurance. Personal insurance provides financial coverage for your most important asset — you. Other insurance, such as for your car, your home, or your valuables covers your property. It protects you against loss or damage and if you’re found liable for someone else’s injuries.
What you pay for insurance is based in part on your age and health when you apply. It’s a good idea to consider applying for insurance now if you’re in good health. If you wait until health issues arise, the coverage you want could be restricted or declined — and it will almost certainly be more expensive.
There are various types of personal insurance. Start by understanding the types of coverage that are available — and the role each can play in protecting you.
When deciding what type of coverage you may need, consider questions such as:
- What would the financial impact be if you died, became disabled, suffered a critical illness, or needed permanent, long-term care?
- What insurance coverage could lessen this impact?
What are the types of personal insurance?
There are five basic types of personal insurance, and each serves a different purpose.
|Insurance product||How it works||Benefits to you|
|1. Life insurance||Pays a tax-free, lump-sum amount to your named beneficiaries upon your death||Ensures your named beneficiaries can pay off your debts and maintain their standard of living after you die|
|2. Disability insurance||Provides a monthly payment that replaces part of your lost income if you’re unable to work because of illness or injury||Allows you to maintain your standard of living if you are disabled and unable to work|
|3. Critical illness insurance||Pays a lump-sum amount on the first diagnosis of a serious medical condition (e.g., cancer, heart attack) covered by your policy||Allows you to cover additional costs associated with an illness, or use the payment for any other purpose during or after recovery|
|4. Long-term care insurance||Provides cash payments if you require care in your home or in a private or government facility||Allows you to cover some or all the costs of long-term care instead of using your savings|
|5. Health insurance||Covers a portion of health care costs not covered by your provincial health insurance||Gives you and your family affordable access to the health care you may need — at home or out-of-country|
Disability insurance replaces lost income — you need to be employed to buy it.
How do you buy personal insurance?
There are a few ways you can buy insurance in Canada:
- In person from a licensed insurance agent or broker.
- Online or by phone from a broker or insurance company.
- A financial advisor who is licensed to sell insurance.
When shopping around for personal insurance, it can be easy to focus on the cost of the policy. While cost is always a concern, also consider that insurance advice is often just as important as the cost, if not more so.
Some investment firms may also have a licensed broker on staff who can provide you with personal insurance advice and coverage.
Find an advisor or agent that you trust, and then get their advice on what types of insurance you need — and how much to buy. Be open about how much you can afford. In most cases, the cost of the advice is built into the commission they earn on the sale of insurance to you.
There are a few differences between insurance agents and insurance brokers:
- Some life insurance agents work for just one insurance company.
- Other life insurance agents work for insurance brokers who can quote prices and tell you about products from several insurance companies.
- All licensed agents are trained to assess your insurance needs and must follow a code of ethics that puts your insurance needs first.
In Ontario, personal insurance agents are licensed by the Financial Services Regulatory Authority of Ontario (formerly called the Financial Services Commission of Ontario). Most other provinces have a similar licensing body. You can confirm your agent’s licensing by doing a search.
What questions should you ask before buying an insurance policy?
Before you buy insurance, you can confirm if the policy is a good fit for you by asking questions, including:
- How will this policy meet your needs? Find out what it covers and what it leaves out.
- What does it cost? How much are the premiums and how often do you pay them. Are you getting the best rate the insurance company offers? If not, ask why.
- Will the cost of your premiums change? Some don’t change, but others change each year or every few years. Your premiums may also change if your health changes.
- How long does the policy last? Some insurance renews each year. Depending on the policy, life insurance can last for a set number of years or for life.
- Does the policy let you build savings? If it does, your advisor may show you examples of how your money could grow over time. Ask how they worked out their examples. Ask to see how these examples will alter if interest rates changed, or if your investments don’t perform as well as expected.
Will you need a medical exam to apply for personal insurance?
You may be asked to have a medical exam when you apply for insurance, but not in all cases. It depends on your age, your health, the coverage amount, and type of insurance you’re buying.
An exam can involve:
- Providing a urine sample.
- Providing a blood sample.
- Having blood pressure measured.
- Taking an electrocardiogram test.
- Undergoing a more extensive exam if the insurance company needs more information.
There are also types of personal insurance that do not require a medical exam. Even if a medical exam isn’t required to apply for personal insurance, usually you will need to complete an application with questions about your health. For example, whether you are a smoker or non-smoker, and whether you have any health conditions.
If you say on the application that you have (or had) a health condition, it doesn’t necessarily mean you’ll be declined for coverage. But it may change how much you pay for the coverage.
Be sure to answer all health questions completely and honestly. When you sign your application, you give the insurance company the right to look into your medical history. If you lie or omit key medical information on your application — and this is discovered when you make a claim for payment — your claim may be denied on that basis.
Personal insurance protects you and your loved ones from the financial consequences of unexpected events connected to your health such as disability, illness, or death.
- You can buy personal insurance from an insurance broker or agent.
- Before buying a policy, consider the costs, how long you will be covered for, and whether the premiums will change.
- Your cost of insurance is based in part on your age and health at the time you apply.
- It’s a good idea to assess your insurance needs and lock in coverage before health issues arise.
- Many policies do not require a medical exam, but some do.
- It’s important to honestly answer any questions related to your health.