5 ways insurance can help you when you’re starting out

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Life is unpredictable. Some things happen when we least expect them. Examples of events we most fear are illness, accident, or death. When these happen, they could have a negative impact on finances, work or business, and the family’s well-being. This is why buying insurance can be one of the smartest moves a newcomer can make when starting out.

How can insurance help you as a newcomer?

For many of us, insurance can be the last thing on our minds. Some regard insurance as an unnecessary or additional expense. Others, perhaps because of little knowledge or past experience, consider it as a money-making scam. In Canada, insurance is a legitimate and reliable financial instrument. Insurance providers are regulated and required by law to have sufficient funds to pay for claims. Insurance is also considered a fundamental part of financial planning. It can ease worry and the financial burden from the above mentioned unpredictable events should they happen. Having an insurance policy can help you proceed more confidently with your plans and focus more on the things you need to get accomplished like getting a job or studying.

Depending on the type of insurance and the amount of coverage you have, insurance can help you by:

  1. shielding your settlement funds
  2. ensuring mortgage payments
  3. providing an investment instrument
  4. assuring a good retirement
  5. generally ensuring your family’s well-being

How do you know which type of insurance to get?

You should decide based on your circumstance and stage in life. Married people may consider getting permanent life insurance to protect their partner and kids. For single people, especially those who are young, permanent life insurance may not be as important or urgent to get. They might opt for term insurance to get protection at a lower cost. Meanwhile, those who are self-employed may consider buying a supplementary health plan for things not covered by provincial health care. Others who have health coverage from an employer’s group insurance plan may not need it.

It can also depend on your plans and activities. If you will be establishing a business in Canada, you should be looking into business insurance. And if you frequently travel outside of Canada, buying travel and health insurance (or a combination of the two) is a wise move. Of course, budget is a consideration. It may be a matter of prioritizing which risks are most urgent to you and weeding out additional features or benefits that you will likely not benefit from to save you from unnecessary cost.

Assessing your needs

The best step is to start with a needs assessment. Focus on the life events that may strain your finances should they happen. Calculate the amount of money you and/or your family would need to have to maintain your standard of living should anything happen to you. Then check your available budget.

The next step is to research about insurance options. You can do this by searching online or getting literature from insurance companies. There is so much information out there! But since insurance can be complex, you can talk to a knowledgeable person who can explain the various benefits and features of the product you are interested in. They can also suggest options that may be a better fit for you. Ask to meet with an insurance agent or broker, or if you need more help in planning your finances, speak to a financial advisor or financial planner (read Choosing a financial advisor to know the difference between an advisor and a planner as well as other tips).

Before you sign that contract . . .

You do not have to rush to make a decision. Some agents may employ sales tactics to pressure you, or offer discounts or freebies that are available for a limited time. Beware of these sales strategies. Agents like these are more interested in getting a commission than providing genuine service. You may opt to get the advice of a fee-only financial planner who is not tied to any company or is not under any quota to sell.

It will also be wise to compare insurance products from various companies. Or maybe talk to a friend who has bought insurance. Take time to evaluate product features and cost. When you find the right product for you, read and understand the insurance policy thoroughly before you sign it. Be clear about all the terms and exclusions of the contract. Insurance products can be complicated so don’t be afraid to ask when you don’t understand something.

Definition of terms:

Life insurance – is a type of insurance that provides a financial payment to your family and loved ones upon your death. The main types of life insurance are term and permanent.

Term life insurance – provides coverage or protection within specific period of time (for example 10, 20 or 30 years).

Permanent life insurance – provides coverage throughout your life.

Coverage – Amount of protection you have purchased. The maximum amount of money the insurance company will pay you if you make a claim for a loss or event covered by your policy.

Financial advisor – is a general term that can be applied to anybody who helps you manage your money. This could include an employee of a financial institution, a stock broker, or an insurance agent.

Financial planner – a type of advisor who helps you create a plan to reach your long-term financial goals. Look for Certified Financial Planners. They are trained in financial planning.

Agent – a representative of one insurance company that sells insurance products. In some cases, a life insurance agent may sell products of different insurance companies. They must be licensed in the province or territory in which they do business.

Broker – person or company who sells insurance products of several different insurance companies. Brokers must be registered in the province or territory in which they do business.

Sources: Module 6: Insurance, Financial Consumer Agency of Canada; Understanding insurance basics, Financial Consumer Agency of Canada; and Choosing a financial advisor, Canada.ca. Accessed January 17-18, 2018.

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The Canadian Financial Literacy Database is a reliable source of information on anything related to budgeting, money management, insurance, saving, investing, taxes, even fraud prevention.

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