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Insurance Myths

 

Car Insurance

Red cars are more expensive to insure.

False: One of the most common myths, but red, black, orange ... the colour of your car does not come into play at all in Canada in determining your insurance rate. Your driving record; the year, make and model of the car you drive; prior losses; other drivers in the household; your postal code; the distance you drive to work; are some of the factors taken into account, but colour is definitely not one of the questions asked in your Ontario insurance application form.

Insurance Rates are directly affect by demerit points.

False: Insurers do not use demerit points as guidelines for rating, but tickets are normally categorized as (1) minor (2) major and (3) serious/criminal convictions. For example: failing to obey a stop sign (3 demerit points) and exceeding the speed limit by 10 km/h (0 points), are both regarded as minor convictions by insurers and weigh equally when determining your rates, which may or may not go up, depending on the guidelines filed by your particular company.

I have several parking tickets, therefore I'm afraid of getting quotes for my expiring auto policy in case someone searches and finds them.

False: Parking tickets are not moving violations and do not even appear in your MVR (Driving Record) and hence do not affect your insurance. However, if you "forget" to pay your parking fines, your driver's license or vehicle permit may get suspended, then it becomes a problem for you and your insurance.

If personal items, like laptops and cameras, are secured in the trunk of my car, the car policy will pay for it if I carry comprehensive coverage.

False: Any coverage for physical losses on your auto policy, comprehensive or otherwise, only covers whatever is part of your car. You may try and make a claim for the lost item from your home policy, but then again it depends on the type of coverage you purchased and the policy wordings.

"No fault insurance" means that nobody is ever at fault irrespective of who caused the accident.

False: The person causing the accident will still be assigned the fault. The phrase "no fault insurance" actually means that irrespective of who is at fault, each of the parties involved will make the claim through his/her own insurance company without having to wait for a determination of fault. A good example would be: you have your own insurance, but you were injured in an accident in which you were a passenger in friend's car. The accident was cause by another person who rear-ended your friend. Each of the three parties will report to his/her own insurance company who will make the necessary adjustments for compensation - you report to your own insurer even though you were not the driver of any of the vehicles involved.

The minimum liability amount required in Ontario is $200,000 - it's pointless buying more than that.

False: If you are under-insured, and damages caused by you exceeds the coverage amount, the injured party can still go after your assets for the remainder. For example, if you caused an accident that resulted in someone loosing the use of his limbs, do you think he will only sue you for $200,000 because you only have $200,000 liability? Whatever he does not get from your insurance policy, he will get from the sale of your house, the cashing in of your RRSP and your kid's education funds, and the disposal of your shares in your business!

Older or cheaper cars cost less to insure.

False: Older or cheaper cars may be worth less in monetary terms on the market, but may be a lot more expensive in the terms of risk factors. Just like its human driver, a car is rated according to its loss history, often based on the CLEAR (the Canadian Loss Experience Automobile Rating) system. An older car may fall into a higher claims risk group than its newer counterpart, or a luxury model may have better safety features than its cheaper rival. (higher risks = higher premiums)

It's cheaper to buy from insurers that sell directly to the public because they do not need to pay a broker's commission.

False: Although a direct insurer may not have to pay a broker's commission, it has additional overheads that are often borne by brokers had the insurer used the broker network; for example, advertising and marketing, the cost of preliminary underwriting, taking applications and servicing clients: direct writers need to employ and pay a team of personnel to perform services that are normally done by brokers.

If I don't make a claim for an accident I caused, my rates will not be affected.

False: Rating is based on the number of at fault accidents you've had, whether there was a claim by you or not. Even if you did not report your accident to your insurer, when the other party files a loss, he has to submit your details as well, the information is then entered in a central database and shared among companies. This becomes part of your claims history and is available to authorized users such as insurance companies and brokers, who have legitimate reasons to use such information.

 

Other Common Myths

"Acts of God" are not covered by insurance.

False: The term "Acts of God" is not one used in a Canadian auto or property policy. Things like lightning strikes, high wind, wild fires, hail, all "Acts of God", are insured or insurable. Floods and earthquakes are normally excluded, but can be purchased with additional premium.

My home is worth $500,000 on the market, therefore I must insure my home for $500,000

False: The market value takes into account the value of your land, actual house (building or dwelling are the most commonly used terms for the house) and other perceived assets the home may have (e.g. closeness to a good school, the neighbourhood, etc). You do not normally insure the land or the intangibles, so it is only the actual cost of replacing the building that needs to be insured. Your broker will have the tools to do a quick estimate of the insurance amount needed, and this amount is most often less than the realtors estimate of the market value - unless of course, your house is built with the most expensive of materials but situated in the worst possible neighbourhood! Just a note: sometimes buildings are insured for the actual cash value (ACV), a quick definition being "replacement cost less depreciation" - rather like insurance on your older car - however, if you have a mortgage, your lender may not be very happy with this form of insurance.

I'm going to Buffalo for a day trip. I don't need travel insurance. OHIP will pay for my expenses if there is a medical emergency.

False: Taken directly from the Ontario Ministry of Health and Long-Term Care: "If you are a resident of Ontario and you are insured under OHIP, you are entitled to very limited funding for a limited range of medical services when you are travelling outside of Canada.  For this reason, you are strongly advised to purchase additional health insurance every time you leave Canada and ensure that the supplementary insurance you have purchased provides adequate coverage." Even if you are travelling outside of Ontario, but within Canada, certain costs are not covered, e.g. ambulance services or if you need to be air-lifted. Travel insurance will also pay for things like return of a rental car, or bringing a friend or relative to your bedside should you be hospitalized.

I had cancer, therefore it's impossible for me to get life insurance.

False: That may be true a few years back, but not any longer, because of the advancement of medical science and treatment. Some former cancer patients have even managed to get standard rates with regular companies - but of course this is on a case by case basis. Even if you are declined by regular companies, but your condition has been in remission for a period of time, your advisor is likely to be able to find you an insurer that specializes in guaranteed issue policies or non-medical policies.

 

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