Insurance Questions, Insurance Answers

Disclosure:  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.

As the mother of many, sticking to a budget is paramount. I’ve written on more than one occasion about how families can save money and spend wisely in order to stretch their family dollar. Call me cheap, but why spend money when you don’t have to? Our mothers were right – “money doesn’t grow on trees,” so being smart about spending is not only necessary but critical. In this day and age of job cutbacks, higher prices and general economic down times, more than a few of us are holding our dollars tight to our collective chests in an effort to save.

This is probably why the topic of insurance can be a touchy one.  Many of us have it, we all need it but we don’t know much about it. With the common perception that insurance – whether it’s auto, life or otherwise – is complex and confusing, it’s no wonder that any changes to one’s policy makes more than a few of us break out into a cold sweat.

In Ontario, where I live, there have been some recent changes to auto insurance. Not being one who understands a lot about this topic in the first place, I have to say that I had questions – and concerns. As someone who relies heavily on her minivan to cart her kids around daily, the thought of higher prices for premiums was a concern. As a result, I did what any curious and concerned mom would do: I researched the topic and found out the answers. Like me, many parents are wondering what recent changes will do to their finances in all areas of insurance. Following are the answers to some of the most common questions that parents are asking.

1) Are Ontarians paying more for auto insurance but getting less coverage?

This was the perception that was perpetuated in the news following the changes to auto insurance in the province. Many news outlets reported that we were indeed going to have to pony up more money as a result of the revised insurance rules.

Being someone who wants to get the information “straight from the horse’s mouth,” I had to investigate this myself. Between 2004 and 2010, the cost of assessing – not treating – an injury rose by 235%. During this same time period, the cost of accident benefit payouts in Ontario rose about 180% as a result of the considerable time spent on assessments. During the same six year period, premiums rose, on average, only 5.6%, contrary to popular belief that premiums were considerably higher than previous years. It has also been found that Ontario roads are safer with a 12% reduction in severe collisions that require hospitalization.

What I was surprised to learn was that the small increase for auto insurance in recent times means that we are now getting specifically-defined coverage. What this means is that reforms were made to the cap on minor injuries and the definition of catastrophic impairment.

2) Is the money I pay for insurance set aside just for me to cover any claims I may have in the future?

Another common perception about insurance is the idea that money that is paid via premiums are “banked” – that is, put aside to be used in the event of any future claims. I wasn’t really sure about this myself, so I looked into it.

The reality is that this is a common misperception and completely untrue. There is no personal “insurance account” that is accruing based on regular payments by any particular person. What does happen is that insurers pool premiums received from all policyholders. From that pool, insurance companies pay out to those who have suffered a loss (auto collision, fire, water damage) within the particular insured year. Generally speaking, the payments of all policy holders cover the losses of the few who actually submit a claim. This practice is called “spreading the risk,” and is common amongst most insurers.

3) Is flood damage caused by a spring thaw covered by your home insurance?

We’ve all heard horror stories about how the annual spring thaw has devastated families that were unfortunate enough to be in the path of nature’s wrath. This type of flooding is known as overland flooding and is generally not covered. Many will wonder why a natural disaster such as this would not be included in insurers’ coverage items. The reality is that events such as these usually occur in a very small percentage of the population, meaning that the risk for having this occur is very small for most people. Keeping in mind that the general purpose of insurance is to spread risk amongst many policyholders, the act of insuring an event such as this would be unaffordable.

This doesn’t mean that more common water-related damage is also not covered. Realizing that changes in the amount of severe weather events that have occurred in recent times have increased, insurance claims in these areas are rising. For this reason, it’s more important than ever for homeowners to be prepared and ready in the event of heavy rains.

It’s now a bit clearer in my mind; I hope it is in yours, too. For more information on insurance, changes to your policy and more, visit www.ibc.ca

Tagged as: advice, auto, car, home, insurance