Insurance 101, Anyone?
Tuesday, May 20, 2014
Insurance is an important part of financial planning, but many people do not understand insurance options sufficiently well to plan effectively. For example, those who think that their home insurance policies cover flood damage may neglect expensive home maintenance because they expect their insurer to pay for repairs in event of a heavy rain storm. As such, insurance knowledge is essential to financial literacy. The majority of Canadians agree.
According to a 2013 Pollara survey commissioned by the Insurance Bureau of Canada, 90 per cent of Canadians believe insurance should be taught at school. More than half of them want a better understanding of home and auto insurance and of how they fit in a family financial plans (Insurance Bureau of Canada, 2013).
Home and auto insurance are not the only two insurance types that are worth learning, however. Business and life insurance options are often even harder to grasp due to their variety of types and their extreme flexibility, but they are central to financial planning. For example, if consumers misunderstand the difference between term and whole life insurance, they may saddle themselves with high premiums during their retirement years. If owners of small home-based businesses believe that their home insurance policies cover their equipment, they can lose their businesses and incomes when disasters occur.
As the country's life expectancy increases, medical insurance takes a centre-stage during the last quarter of Canadians' lives, and as increasing numbers of Canadian families travel and adopt pets, it is also becoming more important than ever to understand travel and pet insurance.
Insurance education will enable Canadians:
- to understand what their policies include and exclude,
- to spot bad insurance deals,
- to negotiate properly with their brokers or agents to obtain a deal that suits their unique circumstances,
- to insure those of their assets that they currently think are uninsurable,
- to understand what constitutes insurance fraud and avoid or report it, and
- to make responsible decisions about their actions and lives.
The purpose of schooling is to prepare Canadians for the job market, but also to prepare them for making informed life decisions. If Canadian families cannot plan for their own financial wellbeing, their welfare will become the responsibility of all Canadian tax payers. Building financial planning and insurance education into the school curriculum will thus benefit all.