There are only a few certainties in life — and most people can count on purchasing insurance as one of them. But with so many options available to protect yourself, your family, and your property, the question of how much to buy is overwhelming.
“That is the million-dollar question that a customer will come in and say, ‘how much coverage do I need?’ It’s not an easy answer,” says Ashley Manti, past-president of the Insurance Brokers Association of Hamilton.
Although everyone’s needs are different, there are certain types of insurance that warrant close consideration by most people. But fear not — there are a few guidelines in place that can help you figure out the best way forward:
Under the category of ‘general insurance’ are policies like property, liability and auto, according to the Insurance Brokers Association of Canada.
As Manti says, in this category, individuals are generally looking for protection for their home, condo or rental apartment, outbuildings and seasonal properties, as well as liability coverage and insurance for their contents against perils such as fire or theft.
“I would recommend always going with a broad form policy, a comprehensive policy that covers you against all risk, subject to exclusions,” she says.
On the personal property front, when it comes to determining how much insurance is enough, Manti says most brokers will provide you with a checklist to go through your home to tally your belongings — everything from clothes to electronics to furniture — and what the cost would be to replace them.
Property insurance policies, she adds, can also provide coverage for additional living expenses – such as hotel stays in the case of fire, while condo unit protection can cover a certain percentage of the common elements. Condo policyholders can also purchase additional coverage to cover any upgrades done to their unit.
Liability insurance provides coverage for injuries sustained to others on your property or elsewhere for which you could be held liable. While $1 million in coverage used to be enough, Manti says, this is often no longer the case.
“A lot of people are carrying $2 million or they’re carrying $1 million and they’re getting an umbrella,” she says, such as another $1 million that sits over your home and auto to give you additional protection.
As the Insurance Bureau of Canada notes, auto insurance falls within provincial jurisdiction and the rules are slightly different in each province and territory.
In Ontario, says Manti, changes to accident benefits coverage in 2016 mean vehicle owners should talk to a broker to ensure they have what they need — such as income replacement benefits if they work, for example — and look at options for additional coverage if necessary.
Life, disability and critical illness
Life insurance and income protection — namely disability and critical illness coverage — are the basics for most people when it comes to insurance policies, says Natasha Knox, a certified financial planner with Pax Planning in New Westminster, B.C.
Indeed, as the Canadian Life and Health Insurance Association notes, at the end of 2017, 22 million Canadians owned $4.7 trillion in life insurance protection.
The amount of life or disability insurance a person will require is unique to each situation and depends on how much someone will need to sustain her lifestyle.
Generally, says Knox, the calculation for life insurance will take a number of factors into account, such as whether both spouses are working, if they have children, the size of their mortgage, and how much of their actual income they need in order to reach their financial goals.
While some employers provide life insurance coverage, it typically isn’t enough, says Knox, or there is a risk that if the individual moves jobs, their insurability may have changed in the interim.
“A lot of times it’s one times earnings or $50,000 is another common round number that I see, and that’s nowhere near enough,” she says.
“My preference is to see individually owned insurance for life insurance,” she explains. “It follows you if you leave to go to a different job, which can be important if people are at the early stages of their career.”
Individuals also need to be aware that different types of insurance are appropriate for certain types of situations, she says — and if misapplied, will perform as the policyholder intends.
Generally speaking, says Knox, term life insurance is best used for temporary needs — to support dependent children, mortgage and other debt elimination and income replacement if a spouse dies, for example. Meanwhile, permanent policies, she says, are generally used in situations where there are legacy-planning needs.
When it comes to disability and critical illness protection, Knox notes that a lot of individuals also have coverage through work. Financial planners, she says, will take a look at the benefits plan to compare the dollar amount, features and limitations of the policy — such as the definitions of disability and benefit duration — to the person’s cash flow needs in order to determine if the coverage is sufficient.
If the workplace policies are inadequate then personally owned disability and individual critical illness protection are a must, she says.