Buying Financial Insurance in Canada

If you’re a Canadian and have been in the workforce for a decade or more, then you know that your income purchases less today than the first year of your working career. Inflation is a part of our society and while our government continues to devalue our money by printing more and more of it, inflation will undoubtedly continue. This is not only a Canadian concern though. All around the world people are feeling the effects of inflation due to excessive money printing; but more on that another time. The long-and-short-of-it all is this: YOUR MONEY WILL continue to BUY LESS as the years go by.

A quick 100-year calculation using the Bank of Canada (BoC) inflation calculator showed the cost of a fixed “basket” of consumer purchases in 1915 was $100.00. At the end of 2015 that cost was $2,083.61. More recently, over the last 10 years prices have gone up 18.01%. Has your income gone up by the same or greater?

The answer is probably, No.

Whether you’re a six-figure earner or you make 30k a year, your “money” is losing buying power. There are a lot of ways that you can protect your money from devaluation but we’ll discuss two common options people take.

One option is the stock market; put a lump of your savings into a portfolio and see what happens. Sounds like gambling to me. But if you’re prepared to leave your finances up to other factors (and people) other than your own due diligence, then putting your money into stocks may be a good fit for you under the following two conditions:

  1. You have the stomach for volatility and,
  2. Your primary objective is to see a substantial return in a short period of time… hopefully.

Another option, and this tends to be the easiest and most selected, is to open a bank savings account. No hassle involved; just open the account, decide how much you want to save and how often, put it on auto-pilot and watch your savings grow.

Really?

In today’s economy, bank savings accounts are not a viable savings vehicle. Most of the interest rates offered are earning below inflation rates. The sad reality is many savers make a future withdrawal only to realize that thy have lost money on an after-inflation basis.

So, what do you do if you’re not a savvy investor?

Buy financial insurance.

We have insurance for almost every aspect of our lives yet insurance is something many of us hopes we never need to use.

Buying financial insurance in Canada, or anywhere else for that matter, is putting your money into a vehicle that is protected long-term from the ups and downs of the volatile economy.

Buying financial insurance preserves your buying power and provides a hedge against inflation.

The global economy is changing but the only economy that should matter to you is yours.

Understanding Insurance: What Do You Get for Your Premium?

Buying an insurance policy doesn’t give you immediate gratification in the way that buying a TV, a washing machine or any other item you use on a daily basis does. In fact, we often hear clients say:

“I’ve never been in a car accident.” Or “I never get sick.” Or “My employees have never been hurt on the job… So what am I getting for my premium?”

That’s a great question. And the answer requires a shift in thinking, as well as a little history about insurance coverage and its original purpose.

What Am I Buying?

In a nutshell, insurance is an important but intangible product. It buys you protection and peace of mind.

A good insurance policy allows you to protect:

  • Valuable assets in which you’ve invested a great deal of money, such as your home, car, boat, motorcycle or jewelry
  • People you care about and would want to help should they be physically harmed: your children, spouse and employees

Insurance also gives you peace of mind, knowing that:

  • You’re not gambling with your financial security
  • If something bad happens, it won’t financially destroy your business or put your family into bankruptcy

While you may not be able to hold these things in your hand, they are of value.

How Does Insurance Work?

The concept of “risk” is the single most important thing to understand. Insurance involves the pooling of similar types of risk and the transfer of that risk to a central entity, such as an insurance company that agrees to cover the costs of future “losses.” Depending on the type of insurance, a loss could be an illness, a car accident, a workplace injury, a hailstorm, crop damage, a fire or other life events that could prove financially devastating to an individual, family or business.

Customers pay a predictable premium in exchange for protection against such catastrophic events. In fact the term “catastrophic” is another important insurance concept. Originally, insurance was developed as protection from catastrophic, overwhelming losses, rather than everyday expenses.

A Bit of History

The origins of insurance date back to the 3rd millennia B.C., when Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit loss due to any single vessel capsizing. They were, in essence, spreading their risk, much like an insurance company spreads its risk across many policies.

Insurance in the 21st Century

So here’s what you need to know about shopping for an insurance policy today:

  • You’re buying protection-an intangible product that you hope you’ll never need, but will be tremendously thankful to have should something bad happen.
  • The most basic insurance policies cover catastrophic events only-not day-to-day expenses, but the big costs that could wipe you out financially.
  • There are literally hundreds of insurance options available today, to fit every budget. Basic plans are a godsend to folks on a budget, while those who have the means may want to purchase a far more inclusive policy. The choices in between are almost limitless.
  • Your agent should be able to both simplify the complexities of insurance while presenting you with a number of options tailored to your needs and budget.

Perhaps the most important lesson about insurance: Don’t go without it. Financial catastrophes usually come hand-in-hand with emotional trauma. The last thing you need is to be worried about money at a time when you should be tending to your loved ones or employees.

If you don’t have an insurance agent, search online for someone local. Talk to several agents and pick one who doesn’t “push products” but, rather, listens to your needs and tailors a plan specifically for you. Developing a one-on-one relationship with an agent now is something you’ll be thankful for if, down the road, you, your family or your business should experience a catastrophe.