Have you ever asked what insurance do I need? With so many policies out there for various situations, it can be hard to tell what insurance you actually need. It doesn’t help that some insurance brokers out there aren’t looking out for your best interests and may only recommend products that make them money.
The key thing to understand is that insurance is meant to protect you and your family from unforeseen circumstances. Hopefully, you never need to collect on your insurance policies, but you or your loved ones will have some security if a claim needs to be made. Since every insurance policy is different, you need to read the fine print, but here are 5 types of insurance that you should have.
When some people ask what insurance do I need, they’re usually referring to life insurance. Getting life insurance should be a top priority whenever you have any dependents. For example, my wife and I got life insurance policies as soon as we bought a home. The thinking was, if one of us were to pass suddenly, the surviving spouse would have a difficult time grieving and making mortgage payments on their own. The life insurance policy we purchased was enough to cover funeral costs and the mortgage’s remaining balance.
Most people struggle with how much insurance they need and what type of insurance they should get. The amount of coverage you should get is basic math. You want enough coverage for your dependents to get by without your income. For example, a couple with two kids would want enough to cover the remaining balance of the mortgage, funeral expenses, future education costs, and yearly expenses to raise two kids. Don’t make the mistake of relying just on your work life insurance policy where you’re typically only covered for 1-2 years of your income. You could leave your company at any time, and you’ll need more coverage than that.
As for the argument between term life and whole life insurance, the reality is that most people will only need term life insurance. With term life, you pay low premiums (assuming you’re healthy) for a fixed period. For example, you could get a policy for 20 years that pays $1,000,000. While whole life (or universal life) can be beneficial for some people, there are typically only a few scenarios where it would be better than term life. If your insurance broker pushes whole life insurance on you right away, I would question their intentions and get a second opinion.
Admittedly, getting life insurance can sometimes be a pain. You often need to answer a pretty detailed questionnaire and may need to do a medical with a nurse. It may take up to 10 weeks before you have your policy in place from the time you apply. That said, PolicyMe makes true online applications where you can get a policy in just a few minutes without having to do a medical.
Hopefully, one lesson learned from COVID-19 is how important having travel insurance is. When the pandemic first broke out, and it was advised for Canadians to return home as soon as possible, there was a scrabble to get flight books. For many people, that meant paying out of pocket for last-minute flights, which cost a premium. If you had trip cancellation/interruption insurance, then you likely didn’t panic as much since you knew you’d be reimbursed.
What many people don’t realize is that travel insurance works in different ways. With travel medical insurance, you’d be reimbursed if you need to seek medical attention. At a bare minimum, you’ll want to have this since the cost of healthcare outside of Canada can be expensive. The good news is that many work health benefit plans include travel insurance. Many of the best travel credit cards in Canada come with great travel insurance, so you could easily be covered. If you currently don’t have any travel insurance, you can get a comprehensive yearly plan for about $200-$300 a year, and it’ll cover multiple trips.
Besides travel medical insurance, you’ll also want a plan that gives you extended travel insurance. This would include things such as trip cancellation/interruption, lost/delayed baggage, car rental insurance, and hotel/motel burglary. Many people would usually skip this type of travel insurance, but it’s silly to do so since it covers you for so many things. For example, I put in a claim once for a cancelled flight between Amsterdam and Edinburgh. There was a massive snowstorm, so I had to pay $1,000 CAD to fly to Glasgow instead. That one-hour flight cost more than my flight from Toronto to Amsterdam! The entire cost was reimbursed to me thanks to my travel insurance.
Property, homeowners, and renters all act in similar ways. They’ll protect your home and belongings in case of an event such as fire, theft, flooding, etc. You may not realize how important it is to have it and how little it costs. If you’re currently a homeowner, then having homeowners insurance is a must. As in, there’s a good chance that your mortgage lender will require it. It doesn’t matter if it’s your primary residence or a rental property, you should have insurance.
No one wants to ever claim homeowners insurance, but you’ll be glad you have. Imagine for a second that there’s a fire or flood in your home. The damage caused could cost you tens of thousands of dollars. There are also your possessions that would need to be replaced. The odds are, you or your tenant would have to move out during the renovation process. Besides your yearly premium and the deductible, your property insurance would cover everything. They would also help you through the repair process by finding contractors to get everything fixed. On average, homeowners insurance is about $1,250 a year in Canada, so it’s not that expensive.
Now, if you’re a renter, you’ll only need property insurance to cover your possessions since your landlord should have homeowners insurance. Before you sign a lease, you should find out what insurance they have. If they ever claim that you would need to pay for half of any repairs, bail as soon as you can. Besides your personal property, renters insurance (sometimes known as tenant insurance) also covers you from liability and if you’re forced to move out due to damage. Premiums for renters insurance can be less than $200 a year, and it only takes a few minutes to get signed up.
Many people are shocked to hear I recommend disability insurance when they ask me what insurance do I need? It’s not terribly surprising since disability insurance is rarely discussed, and many people already have an emergency fund, so they feel protected. Here’s the thing, emergency funds will typically only last you a few months. In contrast, a disability could last years. Since your overall earning potential is based on you physically being able to work, you need to protect yourself. Disability insurance ensures that you can still earn an income even if you’re injured.
First, let’s look at how disability insurance typically works if you’re getting it from your employer. Generally speaking, short-term disability applies first, where you’ll earn 70%-90% if you’re unable to work for 90 days from the time of your injury. If you’re still injured after that time, you would go into long-term disability, which pays out roughly 40%-70% of your income for an additional time period. Like any insurance policy, you need to know the details as there might be an income and/or coverage cap. These payouts also typically only apply to people who are getting disability insurance from their employer.
If you’re a freelancer, getting disability insurance is a lot trickier, so you want to try and get it as soon as possible. Insurance companies are hesitant to approve policies for new freelancers as there has been a lot of fraud in the past. In most cases, you need to provide proof of income over 3-4 years. This is obviously problematic since you might not be insured during that time. Any outlining health conditions that you may have could also impact your ability to get disability insurance. Insurance companies do like it if you’re a freelancer with consistent big projects. E.g. you have a contract for six months that pays $X since it’s a defined term.
Anyone who freelances full-time should get disability insurance since it’ll ensure that you can still earn an income. What’s complicated about disability insurance is that there are many different options available that may or may not be relevant to you. Disability insurance also isn’t cheap, as statistics show that there’s a high percentage of people who go on disability at one point during their working lives. Be sure to speak with an insurance broker who can go over all the policy details and answer any questions that you may have.
Errors and omissions insurance
Finally, there’s errors and omissions insurance as one of the 5 types of insurance you must have. Admittedly, not everyone needs this, but if you’re in any kind of creative field, having E&O insurance is probably a good idea. Let’s say you’re a graphic designer. You’re probably coming up with hundreds of designs a year. Now let’s say one of your designs looks similar to someone else’s work. That person is well within their rights to sue you. With E&O insurance, sometimes referred to as professional liability insurance, you’d be able to recover your court costs and any settlements.
Many people don’t think they need E&O insurance, but the reality is, anyone can sue you for any reason. If you’re a freelance writer, content creator, or blogger, you’re putting stuff out there that can be misinterpreted. Putting a “legal disclaimer” on your website that says you’re not a professional and any information listed is for entertainment purposes and you should seek professional advice will not protect you from legal action. I know it sounds ridiculous, but let’s say you’re a food blogger, and you have a recipe that contains nuts. Someone with a nut allergy sees your recipe, tries it, and gets a reaction. They could sue you if they wanted. There’s no chance they would win in court, but you still need to defend yourself, which comes at a cost.
If you’re in any profession that provides advice or products that the public can see, you should probably get E&O insurance to protect yourself. Some industries mandate liability insurance for their professionals, but it’s mainly optional. The cost of E&O insurance can be pretty high, with policies ranging in the $1,000-$1,500 a year. Someone who runs a blog part-time or uses Tik-Tok with moderate success may not want to spend that much, but it’ll cost you significantly more if you ever need to hire a lawyer.
As you’ve quickly learned, what insurance do I need is a bit of a loaded question. The types of insurance you get depend on your current situation, but the odds are there’s at least one policy you haven’t factored in. There are also different options available for each policy that will determine what you’re covered for and how much your payout will be. Admittedly, paying for something you’ll likely never use sucks, but that’s the whole point. You never want to claim insurance, but you’ll be thrilled you have a policy if you ever do.