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Insurance 101: Understanding the Basics

Start by getting to know the basics

Understanding the basics of insurance is crucial for making informed decisions about the coverage you need to protect yourself and mitigate the financial impact of unexpected events.

When you purchase insurance coverage, you transfer the financial risk of certain events or losses to an insurance company in exchange for payment of a premium. The insurance company pools the premiums from policyholders to pay for the claims of covered losses.

What type of insurance do you need?

Understanding common types of insurance will ensure you are protected with the proper coverage.

Auto insurance ❐

Includes liability, collision, comprehensive, and uninsured/underinsured motorist coverage for vehicles.

Property insurance ❐

Protects against property damage, theft and liability for homeowners, including condos and cottages, or renters.

Business insurance ❐

Protects businesses from property damage, lawsuits, loss of income, theft, employee injuries and illnesses.

Travel insurance

Covers trip cancellations, medical emergencies and other travel-related risks.

Loan and mortgage insurance

Pays the balance of your mortgage or loans or covers your payments in the event of job loss, critical illness, disability or death.

Health, accident and sickness insurance

Covers medical expenses and can be provided by employers, government programs or purchased individually.

Life insurance

Pays out a death benefit to beneficiaries in the event the insured passes away.

Disability and critical illness insurance

Provides income replacement if the policyholder becomes disabled and unable to work.

How does the insurance process work?

Purchasing insurance and maintaining coverage

Choose the insurance type and coverage limits you need. Once you select the policy, you’ll pay a premium to the insurance company. The premium depends on various factors like the level of coverage, perceived risk, age, and location.

The insurance company will issue a policy document outlining your coverage’s terms and conditions, including:

  • what is covered
  • the limits of coverage
  • any exclusions
  • the duration of the policy (usually one year)
  • the deductible (if applicable)

During the coverage period, you are protected against the specific risks outlined in the policy.

At the end of the term, you have the option to renew the policy. The premium amount may be adjusted based on factors like previous claims or changing risk assessments.

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Filing and settling a claim

If a covered event occurs during the policy period, like an accident, illness or property damage, you can file a claim with the insurance company.

You’ll need to provide the necessary documentation and evidence, such as:

  • police reports
  • medical records
  • photographs
  • other relevant evidence and documentation

They will determine whether it falls within the coverage of the policy and verify the authenticity of the claim.

If the claim is covered, the insurance company will provide compensation in a lump sum or through periodic payments to you or the designated beneficiary. The policyholder is typically responsible for paying a deductible when a claim is paid out.

Policy: This document specifies what is covered, limitations, exclusions and the amount of compensation the insurer will provide in case of a covered loss.

Premium: This is the amount the policyholder pays to the insurance company for coverage. It can be paid monthly, annually or in installments, depending on the agreement.

Coverage: Insurance policies come with different types of coverage. For example, auto insurance covers liability for damages to others. There may also be comprehensive coverage to protect against theft, vandalism or natural disasters.

Deductible: This is the amount the policyholder must pay before the insurance coverage kicks in. Higher deductibles often result in lower premiums.

Claim: When a loss occurs that is covered by the insurance policy, the policyholder can file a compensation claim.

Exclusions: Insurance policies have specific events or circumstances they do not cover. These are clearly stated in the policy and it's important to be aware of them.

Renewal: Most insurance policies cover a specific time (usually a year). At the end of the term, the policy may be renewed, and the premium may be adjusted.

We can help with the specifics

Insurance policies come with limitations, exclusions, and deductibles, so be sure to understand the terms of your policy to know exactly what is covered and what’s not.

We can help. While agents typically represent a single insurance company, brokers like FirstOntario Insurance Brokers look out for you. They provide comprehensive and personalized support, making them an excellent choice for individuals, families and businesses.

FirstOntario Insurance Brokers puts you first

Get the protection you need with a name you know and trust.

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