Get in the Know: Learning the Facts about Insurance
Insurance is a big word that means a lot of different things to different people. It’s one of those necessary expenditures that we make on a monthly basis that can sometimes feel totally overwhelming.
I must admit that I don’t know a lot about insurance. I know I have various types of insurance and that I’ve had to make use of my policies on a few occasions but other than that I pay my fees and carry on with life.
When I was given the opportunity to work with the Insurance Bureau of Canada on dispelling the myths around insurance, I was intrigued. Whether you realize it or not, you do have a general impression of insurance; the cost, the coverage and the necessity of the product.
And if you’re at all like me, you haven’t stopped to take the time to learn the facts. That is why I was motivated to write and share this information with you today.
DISPELLING THE MYTHS
I was asked to answer the following questions in my own, honest opinion. I was then provided with a link to getintheknow.ibc.ca (Insurance Bureau of Canada) that shared the factual answers. It was interesting to see how my impression of insurance compared to the facts and I think you’ll be surprised too!
Q1: Are Ontarioans paying more for auto-insurance, but getting less coverage?
I’m not sure; that’s my initial opinion but when I think more about it, I realize that I have the impression that I pay too much for my auto insurance each month.
I’ve had my driver’s license for almost 20 years and in that time, I haven’t had even a speeding ticket. That was until I had a car accident that was my fault (no injury claims) and things changed.
I’ve paid a reasonable rate for 20 years and during that time I did not cost my insurance company anything. My impression is that this is a pure profit for them.
Then my ‘at-fault’ accident happened and my rates have gone up. They way I see it, the 20 years I have already paid into should cover the cost of my accident and my rates should not go up. But sadly they have.
We agree that Ontario auto insurance premiums are too high. There have also been some changes to coverage. Why is this? Let’s consider that between 2004 and 2010, the cost of accident benefit payouts in Ontario rose about 180%, mainly because the costs of assessing, not treating, an injury, rose 235% during the same period. During the same six years, premiums rose, on average, only 5.6%. Yet despite the huge increase in accident benefit injury claims, Ontario roads are safer with a 12% reduction in severe collisions that require hospitalization.
So where is all the claims money going? Sadly, there are many medical rehabilitation clinics, lawyers and paralegals, tow truck operators and body shops that make their money from Ontario’s generous auto insurance system. They believe that if the money is there, they should use it regardless of specific needs.
To stop insurance rates from increasing, reforms were made to the cap on minor injuries and the definition of catastrophic impairment. Simply put, you’re paying more for insurance and getting specifically defined coverage.
I had never thought of linking the cost of medical care with the cost of insurance. Seems pretty obvious to me now, but before learning this information I placed all the responsibility on the insurance companies. Similar to that with the other parties involved in insurance claims; body shops, lawyers etc.
So while I’m not thrilled that my rates have gone up, it helps to know why they’ve gone up and that things are being done to stop rates from climbing even higher.
Q2: Is the money I pay for insurance set aside just for me to cover any claims I may have in the future?
No. Similar to my previous answer, I believe like any other business, the money I pay each month for the product is profit for my insurance company. I believe that any claim I may make is just the cost of doing business for them.
For example, when I buy groceries, I know that the grocer I shop from has paid less for the product than what they are charging me and this is how they make money. Am I willing to go out to the fields to plant, grow and harvest the vegetables I buy off the shelf? Not usually, therefore I’m willing to pay the increase that allows them to make a profit and allows me to have food on my table.
Simply put – No. There is no such insurance “account” building up with your name on it. But, don’t worry, you’re still covered.
Every year, your insurance dollars go into a pool along with the dollars from other policyholders. Out of that pool, insurers pay the claims of the few people who suffer an insured loss – an auto collision, a fire, wind damage — in that year.
So the payments of many cover the losses of a few. That’s called “spreading the risk.”
I was happy to learn about ‘spreading the risk’. This makes sense to me and helped me to understand a little more about how insurance companies work.
Q3: Is flood damage caused by a spring thaw covered by your home insurance?
I would assume yes. Isn’t that what I pay for each month? Again, I stress that I am a little naive when it comes to insurance but here is what I do know:
A few years ago when we owned a house in the suburbs, there was a wicked storm that some say was considered a F0 storm (the lowest on the Fujita Tornado Scale). Our roof, metal siding and eavestroughs were badly dented from the hail and high winds. Our car (that was parked in the driveway) received major denting from the heavy hail as well. I believe this is considered ‘an act of God’ and we were compensated by our insurance company for the damages with no increase to our policy.
Drawing upon my experience, which seems similar to a spring thaw, I assume that this event (flooding) would be covered.
Generally,overland flooding is not covered. This kind of flooding can be caused by a spring thaw. Here water overflowing from rivers, streams or other bodies of water flows onto dry land and causes damage to homes.
Flood coverage isn’t available because only a small percentage of the population is at risk. Since the purpose of insurance is to spread risk among many policyholders, this type of insurance for those at risk would be unaffordable.
However, water-related damage and insurance claims are rising across Canada due to the increase in severe weather. Damage from heavy rainfalls can be extensive to your home and result in the loss of irreplaceable keepsakes.
It’s more important than ever for you to learn how you can protect your property and stay dry when the heavy rains come.
Wow. I guess I was wrong with my first impression. Overland flooding is very low risk and after learning about spreading the risk, this makes sense to me now.
Before learning about spreading the risk think it would have caused me confusion as to why this event wouldn’t be covered. Fewer people would buy into this type of coverage; therefore there are fewer dollars to pay for claims. You would end up spending more on the risk than you would on the damage.
I really enjoyed learning more about insurance, and I was pleasantly surprised with some of the facts and I think you will be too.
Now it’s your turn. Answer the following question for yourself and then click on the link to compare your answer to the fact provided by the IBC. Come back to let me know what you learned, what surprised you etc.
Q: Gas or electric? Is the cost of home insurance affected by the type of appliances you have?
Think about your answer before clicking on the link below. Then after learning the fact, share your reaction in the comment section below this post.
For more information please visit http://getintheknow.ibc.ca/explain.php
Although this post has generously been sponsored by the Insurance Bureau of Canada, the opinions and language are all my own, and in no way do they reflect the Insurance Bureau of Canada.