Insurance Basics Without insurance, driving a car, buying a home or starting a business would be an unaffordable risk. Risk Happens. Insurance Can Help.A car collision, a basement damaged by water and a business interrupted by vandalism are risks that people face each day. After a loss happens, everyday life can change in big ways.At difficult times, insurance is there to help people recover, get back to their normal routine and provide peace of mind.What Is Insurance and How Does It Help?When people buy insurance, they put money into a premium pool with many others. Some of that pool of money helps people who suffer an unexpected insured hardship due to loss from a home fire, vehicle collision or business interruption in that year. Payouts for these hardships are called claims.Insurers are required by law to have sufficient funds to pay for claims. To better understand this concept, read our piece on insurer solvency.Why Should I Have Insurance?Insurance claims for Canadians who suffer losses from severe weather are on the rise. To cover losses related to the multiple natural catastrophes in 2013, insurers anticipate paying out $3.2 billion in claims across the country. This number is more than double the previous year's and is the highest for insured losses in Canadian history. Natural disaster claims cost nearly $1 billion or more each year in 2011, 2010 and 2009. Without insurance, driving a vehicle, buying a home or starting a business would present an unaffordable risk, since people would have to pay for any mishaps that took place. The bottom line: Canada's economy depends on insurance.Why Do I Pay Annually?With some exceptions, an insurance policy is an annual contract. The premium pool operates for only one year at a time. Insurance companies predict how much money they will need to pay the coming year's claims. Your premiums do not build up over time.Calculating insurance premiums is complicated. It involves a process that requires a risk assessment based on actuarial science. Premiums are based on informed predictions about how much money may be needed to pay future claims. Insurers gather information that they know from experience will help them set fair but accurate premium prices.Why Budgeting for Insurance Is Important Understanding InsuranceLife is a risky business. Sometimes those risks hit home – a car collision… your basement suffering water damage… your business interrupted by vandalism. At times like these, insurance is there to help us recover, get us back on our feet and provide peace of mind. Related ServicesHow Insurance WorksInsurers use a pool of many premiums to pay for the home, auto and business losses of Canadians unfortunate enough to experience a loss. You are covered for losses outlined in your contract only, not for predictable events.Buyer BewareInformed buyers carefully review their insurance policy and policy limits. Know what to look for when reviewing all sections of auto, home or business policies.How Premiums Are CalculatedWithin reasonable limits, some of which are prescribed by law, your auto, home and/or business insurance premium is calculated to reflect the probability that you will suffer a claimable loss.Where Premiums GoThe premiums of many policyholders pay the claims of the few who suffer a claim. Insurers put premiums toward a mix of claims costs, investments and operational expenses.Insurance MythsLike any industry, a variety of myths surround insurance. Consumers of auto, home and business insurance may have misconceptions about policies and coverage as well as how the industry operates. Learn some key facts about the Canadian insurance industry.ReinsuranceLike other businesses, insurance companies, require protection against risk. Insurers buy insurance from another insurer to reinsure risks they assume. The additional insurer is known as a reinsurer. Useful LinksAuto InsuranceRequired by law across Canada, auto insurance covers the owner/driver, passengers, pedestrians and property affected by a vehicle collision.Home InsuranceOwning a home may be your largest single financial investment so it’s important to protect your property and contents against unforeseen risks with home insurance.Business InsuranceHaving the right insurance is essential for a business to survive and thrive in a marketplace that is full of both opportunity and risk. Liability insurance for an organization, employees and/or volunteers helps protect the organization from financial risk.DisastersAm I covered? When can I start to rebuild? In the wake of a disaster, there are many questions to consider.