How Insurance Works
While it may seem complex, insurance is really quite simple: The payments of the many pay for the losses of a few. Your premiums go into a large pool, if you will, at your insurance company. The claims of the few are paid from that pool. Because there are more people contributing to the pool than there are making claims, there is always enough to pay the claims – even large single claims like when someone is permanently disabled as a result of a car collision, or many smaller claims like those resulting from a natural disaster. (The 1998 ice storm that hit parts of Ontario, Quebec and New Brunswick resulted in an estimated 700,000 claims for damage totalling $1.4 billion.)
Your insurance is an annual contract, so the pool operates for only one year at a time. Your premiums and the premiums of others are based on how much money the insurance companies think they will need to pay the coming year’s claims. Your premiums do not build up over the years – unlike the premiums for some types of life insurance.
How premiums are calculated
Within reasonable limits, some of which are prescribed by law, your premium is calculated to reflect the probability that you will make a claim – that is, that you will draw funds from the insurance pool. Those who are unlikely to draw from the pool pay less than those who are more likely to draw from it.
Insurers take many factors into consideration to determine the likelihood that you will make a claim. A common misconception is that a policyholder who has never made a claim should pay less, little or nothing for insurance. While it is true that past claims history is important, a more reliable indicator of how likely a person or business is to make a claim is the statistical group to which he/she/it belongs.
Your Insurance Dollar
Here is a breakdown of where your insurance premium dollars go.
For every dollar of premiums gathered from policyholders, 53.1¢ go back to policyholders in the form of claims, 15.9¢ go back to communities in the form of various government taxes on insurance, 20.5¢ go to industry operating and regulatory costs and 10.5¢ go to industry profit.
These percentages are based on a 7-year national average from 2004 to 2010.
Insurance pays for …
Insurance pays for only those types of losses described in your contract. It is very important that you read your policy and/or talk to your insurance representative about what you are covered for and what you’re not. Insurance will not pay for every problem that you may encounter, nor is it a maintenance contract. Insurance is generally intended – and priced accordingly – to help policyholders cope with the financial consequences of unpredictable events that are "sudden and accidental." If, for example, you live on a floodplain by a river, flooding of your property in the spring is not sudden or accidental; it is inevitable and, therefore, uninsurable.
How Car Insurance Premiums are Calculated
Car insurance premiums, like all insurance premiums, are determined based on risk. That is, how likely it is that a customer – and a group of customers with the same set of circumstances – will make a claim, and how much those claims will likely cost. Actuaries (those with mathematical training in the principle of large numbers and the theory of probability) must also predict how much it will cost to settle these claims, the company’s overhead, selling costs, industry taxes and the amount that must go into reserve funds to cope with catastrophes.
What My Insurance Company Does With My Premiums
There are some common and persistent misconceptions about what insurance companies do with the money they collect from you and every other policyholder. Some people think it sits in the bank until someone makes a claim. Not true. Others believe that premiums go to pay for claims that have already happened. Not true either.
Your premium dollar travels a long and winding road, but, in the end, most of it goes to assist consumers in one way or another. For example, if you suffer a loss, a portion of your premium dollar and those of several other policyholders finds its way back to you, to help you recover.
For the record, this is what happens to your premiums:
In the insurance system, money is always moving. On a daily basis, there are claims to be settled, taxes to be paid and other costs related to running a business (paying salaries, buying equipment, paying rent, etc.). Some money is always set aside so that the company can respond quickly to catastrophes, when a large number of claims will have to be paid in a short period of time. This is called a reserve.
Any money that is not needed for day-to-day expenses or reserves is usually invested by insurers.
Here are a few things you should know about insurers’ investments:
- Contrary to what some people think, insurers have never had a year when they lost money on investments. Some years are better than others, but the industry has always generated positive investment returns.
- Insurers are among the most careful investors in the country. On average, approximately three quarters of their investments are in government bonds.
- In order to make sure that insurers are able to pay claims, the federal government monitors the industry’s investments to make certain that they are low-risk.
- Insurers strive to maintain a portfolio that allows for quick liquidation of investments to pay claims.
Why do insurance companies invest the money?
The nature of insurance is such that your insurance company holds your premium until it is needed to pay claims. By investing the money in the interim and making a return, your insurance company is able to offset the cost of claims and charge you less than you would otherwise pay.
In fact, there have been years when returns on investments were so good (10% or higher) that insurers only had to collect enough premium to pay for claims and expenses, and made all of their profit from investments. Even when investment returns are much more modest, this is an excellent way to keep premiums as low as possible for consumers.
These factors affect what you pay for automobile insurance:
- Where you live: If you live in a bustling city, for example, accidents and vehicle theft are more likely, which may translate into higher premiums.
- The type of vehicle you drive: Insurers consider the make and model of your vehicle in terms of what the risk factors associated with it might be. For example, some makes and models fare better in collisions than others, meaning injury to the occupants and damage to the car end up being less severe. Also, newer, more expensive vehicles cost more to replace, so they are more expensive to insure. In determining your vehicle’s risk and expected claim severity, your insurance company may rely to some degree on IBC’s Canadian Loss Experience Automobile Rating clear.
- How you use your car: The more time a car spends on the road, the higher the chance of an accident. That means higher premiums if you drive a lot, you drive long distances or you drive to work every day.
- Your driving record: Your driving record has a big impact on the premiums you pay. For example, a long driving history with no accidents can help keep your premiums down, and every accident where you're at fault may push your premiums up. Speeding tickets and other moving violations may also increase your premiums, but parking tickets will not.
- Your statistical group: Depending on what province you live in, your insurer may consider the claims history of the group to which you belong as a driver – for example, the group of drivers of the same age and in the same geographic location. If you belong to a group that is more likely to make claims, your premiums may be higher.
- Other factors: In the highly competitive field of insurance, prices are also affected by the interplay of market forces, government regulations, taxes at many levels, discounts and unpredictable catastrophic events.
Because insurers consider a policyholder’s individual history in combination with that of his/her group, there is no one-size-fits-all method of determining premiums. Therefore, it is not the case that all 30-year-olds driving Fords and living in downtown Calgary pay the same amount for their car insurance. If the factors listed above weren’t considered, lower-risk policyholders would be subsidizing the higher-risk ones.
These factors DO NOT affect what you pay for automobile insurance:
- The colour of your car: The colour of your car does not affect your automobile insurance premium. You will not be asked to specify the colour of your vehicle on your auto insurance application.
- Whether your car is foreign or domestic: Insurance premiums will not necessarily be higher for a foreign vehicle than they will be for a domestic automobile. See “The type of vehicle you drive” in the list above for more information.
Who is insured through Facility Association?
Facility Association (FA) and its member companies ensure that car insurance is available to anyone who is entitled to it or is required to have it. FA is not an insurance company; rather, it is a not-for-profit organization made up of all car insurance providers operating in every province and territory in Canada except British Columbia, Manitoba, Saskatchewan and Quebec.FA ensures that any driver who can’t get car insurance in the regular market can ultimately get insurance. That being said, only a very small percentage of drivers is insured through FA.
Generally, you may have to buy insurance through FA because:
- you have one or more moving violations on your record;
- you have a poor, or no, driving record;
- of something in your claims history;
- of the type of car you drive; and/or
- of how you use your car.
These are some of the reasons you might be considered a higher-risk driver – that is, at higher risk of having an accident. Insurance premiums are based on risk so, higher-risk drivers insured through FA pay more for car insurance.
Getting out of FA
There’s good news: You are not destined to pay the higher FA insurance rates forever. If you are currently insured through Facility Association, you should be shopping around for insurance. Facility Association exists to make sure coverage is available for those unable to obtain it anywhere else. As the insurance marketplace improves, or if your situation changes, there is more chance you can find insurance in the regular market – at a lower price. Talk to your insurance representative.
There are other things you can do to make your insurance business more attractive to insurers and lower your premiums.
Borrowing or Lending a Car?
Under certain circumstances, you can borrow a car without worrying about whether or not the car’s insurance names you as an occasional driver, or lend your car without worrying about whether or not the guest driver’s name is on your insurance policy.
If you are borrowing a car
- The person whose car you are borrowing must give you permission to use it.
- The use of the car cannot be part of a regular pattern, such as driving to school every day. (If you regularly borrow the same car as part of a routine, you must be listed on the owner’s insurance policy as an occasional driver.)
- You must be a licensed driver who is legally allowed to drive in the province.
If you have an accident while driving a borrowed car, the accident goes on the record of the person who has the insurance policy on the borrowed car.
If you are lending your car
- You must consent to its use by the other driver.
- The person who borrows your car cannot be using it as part of a regular routine. If your friend uses your car every Friday to go grocery shopping, then he/she must be named on your insurance policy as an occasional driver.
- The person to whom you lend your car must be a licensed driver who is legally allowed to drive in the province.
If the person borrowing your car has an accident while driving your car, it goes on your insurance record. When you lend your car, you are also lending your good driving record.
What You Can Do to Control the Cost of Insurance
To lower your premium, ask your insurance representative about the following:
- increasing your deductible (i.e., your share of the cost of a claim) – by increasing the amount you are willing to pay, you will decrease your premium;
- dropping collision coverage on an older car;
- getting package deals for insuring your car and home, or more than one car, with the same insurance company;
- installing an approved theft deterrent system in your vehicle;
- buying a car with a lower-cost insurance rating.
Addition to shopping around and considering the options above, you can:
- build a consistent accident- and conviction-free track record;
- adjust how your car is used – for example, to keep annual kilometres down, take public transit to work if it is available;
- check with your insurance representative about excluding high-risk drivers from your policy so that if you are a good driver, you are not penalized with a higher premium;
- Ensuring that the insurance company has an accurate VIN on record for the car. The VIN is your car’s identity – what insurers use to confirm the kind of car you drive. Some cars are more expensive to insure. You could be paying the premiums for a different – more expensive make or model – car.
What to Do if You're in a Collision
Always call the police if:
- someone is hurt;
- you think any other driver may be guilty of a Criminal Code offence, such as drunk driving; and/or
- there is significant property damage.
If no one is hurt:
Safety first: If it is safe, try to move your car to the side of the road, out of traffic. If you can’t drive your car, turn on your hazard lights or use cones, warning triangles or flares.
Just the facts ma’am:
- Jot down details about the accident, including how it happened, the time, date and location, the speed of all cars and the road conditions.
- Get the contact information (names, addresses, phone numbers) of the registered owners of all cars involved, other passengers and other witnesses.
- Get insurance information from all drivers involved in the accident, including the driver’s licence and plate numbers, and the names of their insurance companies and brokers.
Picasso you don’t have to be: A sketch of the accident scene noting the position and direction of the cars is also helpful. (You may want to keep a disposable camera in your glove box to use instead.)
Preventing further loss: If you are involved in a collision, you are responsible for protecting your car from further loss or damage. Your insurance company will, however, pay for this if you have purchased collision or all perils coverage.
Home and Tenant Insurance
Buying a home is probably the largest single financial investment you have ever made. For most people, their home is their life savings tied up in bricks and mortar – bricks and mortar that, no matter how well built, are vulnerable to fire, theft and other
Could you possibly afford to replace absolutely everything you own? Recovering from even a partial loss, like having your home broken into and many possessions stolen, would cost more than most people could manage on their own. Home insurance protects you from having to pay out a huge amount at once, often at the very worst time emotionally.
Tenants need insurance too. If you don't have insurance, you would be held responsible if your actions (e.g., leaving the bathtub running) caused damage to:
- your apartment
- your neighbours' apartment(s)
- the apartment building itself
Even if the landlord's or your neighbours' insurance covered the damage claims, their insurance companies would come to you to recover costs for repairs and/or replacement of:
- the structure of the building
- your neighbours' damaged property
Tenant insurance protects you from having to cover these costs out of your own pocket..
If you are like most people, you will probably never need to submit an insurance claim. But home or tenant insurance is peace of mind that you really shouldn't live without.
Types of Home Insurance Policies You Can Buy and What They Cover
There are several types of insurance polices you can purchase. Please remember that the wording and what is covered may vary within these general categories from one insurance company to another. Trade names may also be used.
This is the most inclusive home insurance policy; it covers both the building and its contents for all risks, except for those specifically excluded. There are two types of insurance risks that are not normally included in any home insurance policy – those for which you can buy insurance (“optional coverage”) and those for which insurance is not available (“uninsurable peril").
If you are looking to save money by carrying the financial risk of some losses yourself, you may wish to consider a named perils policy that covers only those perils that are specifically stated in the policy.
If the comprehensive policy costs more than you want to pay and the named perils policy seems too risky, a mid-priced compromise is the broad insurance policy. This policy provides comprehensive coverage on the big-ticket items like the building and named perils coverage on the contents.
Some insurers offer very basic or “No Frills” coverage for properties that don’t meet their normal standards. If there are physical problems with your home that keep it from meeting insurers' standards, you may save money in the long run by correcting these problems in order to qualify for better coverage.
What Insurance Companies Look For When Insuring Your Home
Before an insurance company can arrive at an appropriate premium, it must first assess the likelihood – or risk – that you will submit a claim. For the most part, the lower the risk – e.g., a well-maintained home with updated wiring and plumbing – the lower the insurance premium. (Some insurance companies specialize in riskier clients and their homes.)
Your insurance representative will ask you a number of questions about your home. Insurance is based on good faith, so it’s important that you give complete answers. Policies vary, but here are a few things about which your company will ask.
Wiring: Some wiring (e.g., knob-and-tube, aluminum) can increase the chance of a fire, especially if the wiring has deteriorated or been damaged during renovations. Some insurance companies want a guarantee that a home does not have this wiring, some may give you time to have it removed, while others might request an inspection to ensure its safety.
Galvanized/lead pipes: Galvanized or lead piping usually means that the plumbing is older, and older plumbing is more susceptible to cracks, leaks and other problems. Insurance companies generally prefer homes where the plumbing has been upgraded to copper or plastic.
Electrical service: It is preferable to have breakers instead of fuses, and 100-amp service at a minimum. Fuses and lower electrical service can increase chances of a fire.
Heat source: Oil-heated homes can present a costly environmental, so your insurance representative will ask for many details about the age and condition of your tank. Insurance companies tend to prefer forced-air gas furnaces or electric heat.
Wood stoves: These are a common source of house fires and carbon-monoxide poisoning, particularly if they are not properly installed and maintained. Insurance companies may want to inspect such installations. Consult your insurance representative before buying or renting a home with a wood-burning stove or installing one.
Age of roof: Companies generally prefer it if your roof has been updated within the last 20 years. Some policies will pay only depreciated values, as low as 25%, for damaged roofs near the end of their designated service life.
Other uses of your home: Companies will want to know if you have built or are planning to build a rental apartment into your home, begin operating a business there or make any other significant alterations to the structure or the way it’s used.
Extra Protection You Can Buy
There is additional protection, otherwise known as optional coverage, you can buy depending on where your home is and how much peace of mind you require. These perils are not automatically included in any home insurance policy. If you want to be protected against these risks, you must purchase coverage separately.
This coverage is especially worth considering if you live in a quake-prone region, such as parts of Quebec — especially around Montreal — the Ottawa Valley and British Columbia. Earthquake insurance generally covers loss or damage to your property caused by the actual shaking of the earth. It is subject to a higher deductible than the other perils insured by your policy. Your ordinary homeowner’s policy, on the other hand, would likely not cover this peril. However, if the shaking were to cause a gas main to break and ignite, the damage as a result of the subsequent fire would probably be covered under your homeowner’s policy.
The cost depends on where your house is and how it was built. Your insurer may be able to advise you of things you can do to cut the risk of earthquake damage to your home.
This coverage is useful in some low-lying areas, especially if your area has storm and sanitary sewers combined. You may also want to install a back-flow prevention device, where permitted by local codes.
Insurance Bureau of Canada encourages Canadians thinking of renting out their homes, in full or in part, to contact their insurance representatives to make sure their home insurance provides adequate coverage and that no exclusions apply to their specific situations.
RENTING OUT YOUR PRIMARY RESIDENCE
A major sporting or cultural event is coming to your city. You decide to rent your home to visitors for a few weeks and take a holiday. When you return, you discover that a burglary has occurred and your jewellery has been stolen. You call your insurance carrier to make a claim.
Your homeowner’s policy was designed specifically for you, and sold to you with the expectation that you, the owner, would reside in the dwelling. Some policies may not permit you to rent your home to someone else, even for a short period of time.
Before you rent your home, or even a portion of it, check with your insurance representative to determine how such arrangements may affect your insurance coverage.
SUBLETTING YOUR APARTMENT
You rent a small apartment downtown. You are planning to travel overseas for an extended vacation. With your landlord’s permission, you sublet your apartment to a friend of a friend. When you return, water damage from an overflowing toilet in your unit has damaged not only your apartment, but the apartment below. You do not have tenant insurance, and you were not in the country when the damage occurred.
Many tenants do not realize that they are responsible for damage that they cause to any part of the building in which they live or for damages caused to others who live in the same building or to visitors.
Therefore, even if someone else causes damage while subletting your apartment, you may be held responsible because you are the one who signed the lease or rental agreement.
To adequately protect yourself, you should first purchase tenant insurance. In addition, you should explain to your insurance representative that you intend to sublet your apartment for a short period of time.
RENTING OUT YOUR SECONDARY RESIDENCE
In addition to owning a home in the city, you also own a summer cottage. Normally, you use the summer property, but this year you decide to rent it out. You find some suitable renters online. One morning, one of your renters accidentally starts a grease fire in the kitchen. Fortunately, no one is seriously injured, but your cottage is gutted. You phone your insurance representative to make a claim
Before renting out your premises, or even a portion of them, check with your insurance representative to determine if your current insurance coverage is adequate. Your policy may need to be changed in order to provide you with sufficient protection against potential liability and your premises with sufficient coverage in the event of a partial or total loss.
Types of Tenants’ Insurance You Can Buy and What They Cover
Landlords have relatively few legal obligations to compensate tenants for damage to, or loss of, their personal possessions. Tenants, on the other hand, are responsible for the harm they may cause to any part of the building in which they live or to others who live or visit there.
Each insurance company packages tenants’ insurance policies differently or calls the products by different names, but they all (should) include two kinds of coverage – Basic Liability coverage and Contents coverage.
Basic Liability coverage protects you if you or your guests cause damage to the building – whether it be your unit or the whole building. If you don’t have this protection and you are sued for the repair costs, you could be financially responsible for the whole bill. This coverage is comparable to the liability coverage in a typical homeowners’ policy.
Contents coverage replaces your belongings if they are lost or damaged. You may think you have little of value, but you would be very surprised how much it would cost you to replace everything – all at once. You should insure for an amount representing the new replacement cost of all your belongings. Coverage is on a named perils or an all risk basis.
Insurance for Cottages, Camps and Other Vacation Properties
Your vacation property is, like your home, one of your most valuable assets. It’s important to protect your investment with insurance. But you should note that vacation property insurance works a bit differently than insurance for your primary home.
How’s it used?
How the vacation property is used and how often it is occupied will dictate which insurance packages are appropriate for you. How much time do you spend there? Do you use it year-round? Do you rent it out at some point during the year? The answers to these questions are important when you are considering what type of coverage to buy for your vacation property.
Coverage's for your vacation property
Most insurance companies will consider providing insurance for your vacation property only if you insure your primary residence with them as well. You can have your vacation property listed on your home insurance as a “secondary” or “seasonal” location, or you can have insurance for the property as a separate, stand-alone policy.
There is one main difference between insurance for you primary home and insurance for your vacation property: Vacation property insurance is almost always provided as a named perils policy, instead of a Comprehensive policy, because of the risk associated with the part-time occupation of the vacation home. “Named perils” means you have insurance coverage for specific risks, such as fire, explosion or smoke damage. Coverage for certain risks, such as water damage or vandalism, may be more difficult or expensive to arrange, because of the part-time occupancy. For example, if a water pipe bursts or if vandals break into your vacation home while it is vacant, the damage is likely to be more severe because no one will be there to take action.
There are some common exclusions in insurance policies for second homes. These include coverage for sewer back-up and damage to, or loss of:
- food in a freezer
- garden equipment
- outdoor plants
- trees and shrubs
Even if you have a “fixer-upper” and the building is worth little, you will still need to have Third-Party Liability coverage to protect yourself in case someone gets hurt on your property or if you happen to start a fire that spreads to neighbouring properties.
Some other coverage's you may want to consider including are:
- Contents coverage: Some vacation property packages provided by your insurance company automatically include contents up to a certain limit. This coverage applies to contents that are permanently kept at the vacation home. (Anything that you take back and forth – e.g., clothing – is covered by your primary home insurance policy.) If coverage provided is inadequate, additional coverage may be purchased.
- Detached private structures: Some vacation property insurance packages include a limited amount of coverage for any outbuildings, including boathouses, garages, or sheds. But you may need additional coverage to ensure that you are fully protected.
- Replacement cost: This type of coverage covers the cost of repairing an item or replacing it with a new one, without any deduction for depreciation.
To get more information about your vacation property insurance options, please contact your insurance representative.
For businesses and non-profit groups in Canada, having the right insurance is essential to surviving and thriving in a world that is full of opportunity, but also full of risk. The right type and amount of insurance will provide some financial peace of mind to organizations navigating their way through the sometimes-complex world of business. For example, in a society that is turning more and more often to the legal system to settle conflicts, insurance that protects an organization and its employees and/or volunteers from lawsuits (that is, liability insurance) is more important than ever.
For smaller businesses and community, social and recreational groups, finding and maintaining business insurance can be critical to survival. But in some cases, the risks involved in insuring these organizations make affordable insurance difficult to find. Canada’s business insurers are working with representatives from the business world, the non-profit sector, insurance companies and governments to come up with, and implement, practical solutions to this problem. With these solutions in place, Canadian organizations will have better access to affordable business insurance, and to financial peace of mind.
Truck Insurance Canada
This article addresses truck insurance in Canada… what it is, who needs it and where can you buy truck insurance.
What is truck insurance and what does it cover?
Truck insurance or trucking insurance as it is sometimes called is extremely specialized insurance since it has its own set of specific coverage. Truck insurance coverage can include but is not limited to physical damage, trucker’s liability, commercial general liability, truck cargo insurance, terminal coverage, garage automobile insurance, warehouseman’s legal liability insurance, specialized and surety bonds.
If you’re in the Canada trucking industry and are a truck driver that own’s and or operate a freight or cargo truck or a business that owns and manages a fleet it will be extremely important that you find and obtain truck insurance. It doesn’t matter whether you are hauling locally, across Canada or into the US or Mexico you need to ensure you have adequate insurance coverage to protect you, your truck and your cargo.
Because truck insurance is so specialized it only makes sense to get this insurance from insurance brokers who specialize in trucking.
Commercial Trucks We Insure
At Able Insurance , we provide more than your basic commercial truck insurance. We offer affordable coverage for most commercial truck and tractor trailer combinations.
The following is a sample list of the commercial trucks that Able Insurance currently insures:
- Box trucks
- Dump trucks
- Flatbed trucks
- Front loaders
- Garbage trucks
- Pickup trucks with standard or commercial beds
- Cement and pump trucks
- Refrigerated box trucks
- Roll-on vehicles
- Semi trucks
- Stake body trucks
- Straight trucks
- Tank trucks
- Tow trucks
- Vocational trucks
Tractor Trailers We Insure
Able Insurance also offers commercial truck insurance for the following tractor trailers:
- Auto hauler trailers
- Bottom dump trailers
- Bulk commodity trailers
- Concession trailers
- Dry freight trailers
- Dump body trailers
- Flatbed trailers
- Gooseneck trailers
- Horse trailers
- Livestock trailers
- Logging trailers
- Lowboy trailers
- Pole trailers
- Refrigerated trailers
- Tank trailers
- Tilt trailers
- Transfer boxes
- Utility trailers