Top Insurance Myths Debunked: What You Need to Know

Your insurance decisions can greatly affect your financial future, but recent studies reveal that some Canadians rely on common insurance myths instead of facts to help guide them in those decisions. For example, a 2001 study showed that 1,300 Canadians believe that Car insurance follows the driver, not the car. The question is, is that True or False?

We want to explore the top misconceptions about insurance types—from home and auto to life and claims. This detailed guide explains each myth and shows you how your insurance actually works.

Myth 1: Insurance Companies Always Try to Avoid Paying Claims

Many people believe insurance companies avoid paying claims. But they actually deny fewer losses than you may think. “The magic number for insurers is a claims denial ratio of 10%.”

Back in 2023 a report by the Canadian Council of Insurance Regulators (CCIR) showed that the claim denial rate for property claims has remained steady at 16% over a three-year period. Auto claims have also remained steady over the same period holding at 5%.

As you can see, the numbers show slight variations across insurance types and fluctuate around the magic number. However, according to the CCIR report, 10% tells insurers more than just how much they paid out in losses.

This 10% rate is not a ceiling that should not be exceeded, but rather an indicator that should trigger a reflection by the insurer. The percentage of claims denied by insurers and the reasons for denial could, for example, illustrate the need to provide relevant and complete information to consumers, before and at the time of purchase so that they can make an informed decision on the suitability of the product being offered.

Reasons for claim denials

A clear understanding of claim denials can prevent future problems. Insurance companies assess claims based on policy terms and coverage limits. Incomplete information, non-covered services, and late filing are the most common reasons for rejecting claims.

“For the P&C sector, over the past two years, the main reason for denial of a claim was indicated to be ‘exclusions or limitations in the policy,’” the CCIR report notes.

The past year witnessed a concerning increase of 10% in the number of individuals who failed to inform their broker or insurer about significant changes. Consequently, the percentage of claims being denied for this reason rose from 17.2% in 2020 to 27.0% in 2021.

Myth 2: I Don’t Need Life Insurance if I’m Single with No Dependents

Life insurance does more than protect dependents. It can be a valuable tool for financial security, even for single individuals. Some policies offer living benefits, provide financial support in case of critical illness or disability, and allow you to focus on recovery rather than worrying about financial burdens.

You should also think about your existing financial obligations. Life insurance can provide a financial cushion to cover debts, ensuring they don’t burden loved ones. Additionally, life insurance can help fund final expenses and relieve financial stress during difficult times. Traditional funeral costs average around $9,150. Life insurance will protect your family and estate from these expenses. The policy can cover:

1. Outstanding credit card balances

2. Student loan obligations

3. Mortgage payments

4. Final medical expenses

5. Funeral and burial costs

Myth 3: Home Insurance Covers All Types of Damage

Knowledge about your home insurance coverage limits can protect you from the most important financial setbacks. Standard home insurance protects you but doesn’t cover everything you expect.

Simple home insurance typically covers the building, contents, personal liability, and additional living expenses. However, insurance companies exclude certain items to keep your premiums affordable. These are the most common things your policy won’t cover:

1. General wear and tear

2. Mold and gradual damage

3. Vermin infestations (some insurers may offer additional coverage to purchase)

4. Nuclear accidents

5. Earthquakes and earth movement

6. Vacant property damage (coverage may be available if the change in risk is reported)

Insurance companies exclude these items because homeowners can prevent most of them with proper maintenance. Some risks are too costly to cover while keeping everyone’s premiums affordable.

Flood Insurance is not a standard included coverage

Your standard homeowner’s insurance won’t help with flood damage. According to a 2022 survey, 30% of Canadian homeowners were unaware that additional coverages, such as overland flood, are not included in a standard home insurance policy.

When the homeowners were asked if they purchased this add-on flood coverage in the last year, the responses were as follows:

• 30% responded that they were not aware or thought flood coverage was included

• 29% considered add-on insurance but did not add it

• 21% added on internal water damage (sewer backup)

• 9% added external water damage (overland flooding)

Until 2015, the inclusion of overland flood coverage in home insurance policies was rare. However, due to significant flood losses, a number of insurers started offering this coverage option. While wind, hail, and fire damage are usually covered by standard home insurance policies, overland flood and sewer backup coverage are typically offered as additional endorsements.

Myth 4: Auto Insurance Covers Everything Related to My Car

People believe many myths about car insurance coverage, such as the misunderstanding that the colour of your vehicle affects the rates. Among those myths are misconceptions about coverage as well. Auto insurance policies do have limits, not just in terms of coverage amounts but also of what items are actually covered.

Standard auto policies exclude:

1. Regular wear and tear items like tires and batteries

2. Mechanical breakdowns

3. Personal belongings left in the vehicle

4. Pre-existing damage

Common misconceptions about auto insurance

Car insurance follows the driver rather than the car itself.

Let’s debunk this myth. Car insurance actually follows the car, which can be beneficial for those who borrow your vehicle. In the event of an accident, the responsibility for covering the associated costs falls on your insurance that insures that vehicle.

There is an exception, though. If the driver has the ‘Loss of Use’ endorsement, which extends your coverage for damage to non-owned rental vehicles you operate. Because this endorsement allows a driver to extend their coverage to any rental vehicle they drive, it can be sometimes referred to as the “rental car insurance endorsement.” However, there are limitations to this coverage, so be sure to review your wording with your broker.

Can my insurance rate be influenced by the postal code I live in?

Yes and no. When surveyed in 2021, only 19% of Canadians did not believe their postal code impacted their insurance rate, and 15% were unsure.

Fortunately, here in Saskatchewan SGI adheres to the principle of fairness regarding registration fees. Therefore, when calculating the rates for your basic registration, they do not consider your age, gender, or residential location when determining the cost of your insurance.

However, if you have an Auto Insurance Policy or Auto Pak, things are different. In these cases, insurance policies utilize an ‘individualized rating.’ Unlike your registration, the premium for your policy is influenced by various other factors. One such factor is the area where you reside, which is determined by the postal code listed on your driver’s license.

You need regular policy reviews and honest talks with insurance professionals to plan your coverage well. Life changes mean your coverage needs to change too. The right insurance protection keeps your finances stable and gives you peace of mind when life gets uncertain.

Let facts, not myths, guide your choices to build complete protection that meets your needs.

*The information provided in this article is intended as a general guide. Please consult your specific insurance policy for precise coverage details, including conditions, definitions, and exclusions that apply to your individual insurance.

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