To help dispel those misconceptions about car, home, life and travel insurance, Claude Alain Généreux walks us through 8 common insurance myths to set the record straight.
"Not all insurance policies are created equal," says Claude Alain Généreux, Insurance Contracts Consultant for TD Insurance. "Across different providers and across policies under the same provider, insurance needs are very individual." And those differences can lead to misconceptions.
Myth 1: Red cars are more expensive to insure
"You won't necessarily pay more to insure a red car — or a two-door for that matter," says Mr. Généreux. "Insurance companies use many statistics to determine insurance premiums. Cars are rated in terms of how much they cost to replace or repair after an accident, how attractive they are to thieves, and other criteria. And, of course, insurers will also take into account the driver's track record to set rates."
Myth 2: Rack up parking tickets and you rack up premiums
Getting caught in a no-parking zone or forgetting to feed the metre won't mean you'll be dinged by higher insurance costs. Speeding tickets, however, are a different story.
"Speeding tickets and demerit points indicate that you may be more of a risk to insure," Mr. Généreux says. "And that means your insurance company could increase your premiums."
Myth 3: Don't file an accident claim and preserve your insurance costs
If your insurance company finds out — for example, if the other driver files a claim — then your rates can still increase. "Also keep in mind that if your rates are lower because of a good driving or no-accident rebate, you may pay more simply because the rebate doesn't apply any longer," explains Mr. Généreux.
Myth 4: Extending your homeowner policy to cover your home office is all the coverage you need
It depends. Generally, home insurance will cover personal property and activities and not business ones. Your insurance options will largely depend on how you conduct business.
Extending or adding-on to your home insurance policy is possible if you:
"It's important that you contact your insurance company in order to get the home office coverage you need to cover losses and liability," advises Claude Alain Généreux. "Don't assume that your home insurance policy will provide everything your home-business needs."
If you offer services (like beauty or spa treatments) from your basement, have special equipment, and see clients often, then you may need commercial insurance.
Myth 5: Home insurance policies ensure stolen or damaged items are replaced at today's prices
"The purpose of insurance is to put you back in the same situation you found yourself before your loss," clarifies Mr. Généreux. "However, you must remember that things depreciate over time. Say, for example, you bought a TV for $500 years ago and it was damaged in a fire. Your insurance company will likely replace it with the same model, even if it's only valued at $200 now. However, if can't be replaced because it's been discontinued, then you'll get $200."
However, in order to protect your possessions against inflation, Mr. Généreux recommends replacement cost coverage for a small additional premium. With this coverage, you'll get the value of new items rather than the depreciated value of your belongings when the loss or damage occurred.
Myth 6: Contractors cover employees who are working on your premises
Generally, your home insurance policy does provide some coverage for people who work at your home — a nanny or gardener, for example. But if you're undertaking a renovation project and have hired contractors, tradespeople and labourers, then you should check your policy. If you're not covered, ask your insurance company for advice that best suits your needs.
Myth 7: Travel medical insurance is only valuable when you're going outside of Canada
While our provincial health coverage extends across Canada, it may not cover full medical costs if you get injured in another province or territory. "Travel insurance will provide the comprehensive coverage that your provincial plan won't," says Claude Alain Généreux. "For example, your spouse may need accommodation for an extra week while you're in the hospital, or if you can only travel back home with healthcare supervision, like with a nurse."
And, in some cases, you may be asked to pay for treatment costs while you're away and then submit a claim with your provincial/territorial health plan to receive full or partial reimbursement of those costs.
Myth 8: Life insurance is too expensive
Actually life insurance coverage can sometimes cost even less than a dollar a day. Consider term life insurance — where coverage is for a specified term, such as 10 years, 20 years, or even longer — which generally offers the greatest amount of coverage for the lowest initial premium. Just how low?
Premiums are usually guaranteed and stated in your policy so it's easy to include them in your budget. And payments to your beneficiaries are tax-free. Remember, life insurance can strengthen the foundation of a sound financial plan by ensuring that, if the unthinkable should happen, your loved ones will be able to maintain the lifestyle you've earned.
Now that you know the truths behind the myths, take the time to determine the coverage you need, treat each milestone in your life as an opportunity to review and, if necessary, adjust your coverage. And, remember, the next time you have an insurance question, call your insurance company and speak with a licensed insurance representative to get answers that make sense.