What is insurance? Sounds like a simple question – and it is!
All types of insurance have a basic premise in common – they all provide financial compensation in the event of serious or catastrophic loss. Insurance falls into 3 main categories – insuring people, insuring property and insuring against liability claims.
Insurance is not a new concept – it goes back to ancient Greek and Roman times. In the 1400s, insurance came to Europe in the form of "tontines" – this was an assessment process amongst people in a village or area when one of their members was sick, injured or died.
It started to expand beyond that in the latter part of the 1800s with the advent of insurance on people, buildings and cargo shipped around the world. This took place first in England and Europe before expanding to North America, Asia and the rest of the world as nations continued to grow and develop. Lloyds of London is probably the single most well-known insurance group in the world.
Insuring people – and their lives and lifestyle. We all face risks every day – loss of life, disability resulting from illness or accident, significant costs as a result of a life-threatening illness or accident and the risk of needing financial assistance for personal or healthcare in our later years. People also face needs for other types of personal insurance such as medical and dental coverage – for themselves and their families. "People" insurance (more commonly referred to as life insurance) is sold only through licensed advisors – sometimes called agents or brokers. They are licensed by their respective Insurance Councils – one in each Province and Territory. They have to pass extensive exams and are required to complete many hours of continuing education each year to ensure their knowledge remains current.
Some types available are whole life, term, universal life, disability income and critical illness insurance, long-term care, medical and dental coverage, travel insurance, family insurance and accident insurance. For most of these types of insurance, your current health is the major factor used to determine your eligibility for coverage along with personal habits such as use of tobacco or nicotine products, driving habits, recreational activities, use of alcohol and other drugs and personal circumstances. Your age is a primary rate determinant as you would expect – along with your sex – the younger you are when you purchasecoverage, the less it will cost. Your occupation may also impact the cost of these insurance products.
Each type of insurance serves a different purpose – one is not better than another, they do different things and solve different problems. A well-trained and experienced advisor is the key to getting the correct product or products for your unique situation. You can check on your Provincial Insurance Council website to find a list of licensed advisors – you can also search for advisors via services such as ADVOCIS – The Financial Advisors Association of Canada at www.advocis.ca or the Independent Insurance Brokers of Canada at www.ifbc.ca. There are other associations as well that you can locate through your chosen search engine.
Insuring property against loss due to accidents, fire, theft, acts of God, flooding – often called general insurance, is sold by General Insurance agents or brokers. They also have to pass an extensive series of exams and are separately licensed specifically for these types of insurance by their respective Provincial or Territorial Insurance Councils. Continuing education is also required of these professionals. The insurance they sell covers items such as motor vehicles, boats, homes, condominiums, townhouses, cottages, contents, computers, jewelry, pieces of art, clothing, furniture, business buildings, equipment, supplies etc.
Terms such a Broad Form, Comprehensive coverage, auto insurance, tenant's and homeowners' insurance are common.
If you are a person with lots of "toys" – electronic or otherwise, it is important to provide your general insurance agent with full details, including their value. If this information is not kept current, you risk having little or no insurance in the event of a claim. This same caution applies to valuable jewelry, pieces of art or other collectibles – and any improvements or upgrades you perform to your residence or business over time.
Where you live, your personal habits (such as smoking), fire and alarm detection systems, value of the premises and contents, number and age of residents, number of employees, etc., are all very important factors in determining your eligibility for coverage and its cost.
Insurance against liability claims is really a sub-set of General Insurance – claims made by injured parties from events such as car accidents, falling in a home or place of business, the sale of defective products and other items such as food or medication, etc. Other risks include professional liability for occupations such as lawyers, doctors, dentists, accountants, financial advisors, insurance agents and brokers. Market size, amounts of coverage required, type of product or service provided are all key factors used to determine cost.
Insurance companies are either federally or provincially chartered and the respective governments set standards for how they must operate, including ensuring that large financial reserves are always available to meet their claims responsibilities.
To locate a qualified general insurance broker or agent, you can search through the website of the Insurance Brokers Association of Canada – www.ibac.ca – or use your favourite search engine.
Alphabet Soup – the entire financial services industry loves initials – and they can be confusing. Here are some of the designations you would look for in a professional advisor.
CLU – Chartered Life Underwriter
CIP – Chartered Insurance Professional