Rising inflation could be impacting your insurance. So it’s more important than ever to understand how inflation affects insurance, and evaluate your policy options. 

First, rising inflation could impact your cash flow, including your ability to afford insurance. Having a cash flow plan is crucial, especially now, so you can get more life from your money. Meet with a Certified Cash Flow Specialist (CCS) so you can work together to create a plan. An app like Winton is also useful because it provides spending recommendations, and helps you assess your current financial situation. 

Second, inflation can cause certain types of insurance, like Property & Casualty (P&C), premiums to rise. Understanding the link between inflation and insurance is key. P&C insurance companies, including home and auto insurers, evaluate a variety of factors when setting premiums. This includes the number of claims, and the cost to pay out these claims. As inflation increases, the cost to pay out claims likewise increases. That’s why your premiums may rise. 

While inflation doesn’t affect life insurance premiums the same way, higher inflation typically leads to higher interest rates. This could impact the cost of certain insurance products, specifically those that have long-guaranteed premium durations, like Term 100, according to Andrew Fink, Chief Sales Officer at HUB Financial Inc

So as inflation and interest rates rise, you need to re-evaluate your insurance needs and cash flow plan. There are certain types of insurance that everyone should have. Let’s dig into these types of insurance, including life, health, and auto.

Life Insurance

As with all types of insurance, life insurance is a contract between the insurer and policyholder, who may or may not be the insured person. When the insured dies, the insurer pays out a certain amount of money to the beneficiary of that policy. The amount that’s paid depends on how much coverage the policyholder initially purchased.

Life insurance can provide peace of mind for loved ones that are left behind. It can be used to cover funeral costs for the deceased, for instance. It can also be used to maintain the lifestyle needs of a spouse or child.  

There are three main types of life insurance: whole life, universal life and term. Here’s a breakdown of each.

  • Whole life: This type of policy provides permanent coverage for life at a fixed premium. This means your insurance premiums are guaranteed to never rise, and your beneficiary will receive the payout no matter when you die. There is also a cash value within the policy, which can be accessed by the policyholder during their life. 

  • Universal life: Similar to whole life, this policy provides permanent coverage with a cash value. How it differs is that it is a bit more flexible in premiums and death benefit and, as a result, there are fewer guarantees. 

  • Term: This policy provides a financial safety net for a specific number of years, typically 10, 15, or 20. Just like whole life, your beneficiary will receive a tax-free payout, but your premiums will increase every time your policy renews at the end of each term. This insurance is typically preferred when there is an end goal in mind. For instance, you want to ensure your spouse is able to pay off the mortgage and you expect it to be paid off within the given term.

The cost of each type of life insurance depends on personal factors, including age, health and whether you smoke. Be sure to chat with your advisor to determine which policy is right for you, and how much coverage you need. 

Health Insurance

Although our federal government provides several free medical care services, like doctor’s visits, it is important to consider health insurance. It covers costs associated with medical and dental bills, as well as disability or critical illness, which aren’t covered by the government. 

The cost of each plan depends on how much coverage you purchase. The higher the coverage, the higher your premiums. Here’s a breakdown of each.

  • Health and dental: This type of insurance covers all or a percentage of the costs for health expenses, including prescription drugs, dental and vision care. It can also cover costs for hospital rooms, paramedical services and even registered massage therapy. It all boils down to how much coverage you purchase.

  • Disability: If you are not able to work due to illness or injury, this type of insurance covers short- (up to six months) or long-term (up to two years) disability leave. Most plans will replace 60% to 85% of your income, according to the Government of Canada.

  • Critical illness: This type of insurance provides coverage for medical events, like heart attack, stroke, or cancer. It differs from disability insurance in that it provides a tax-free lump sum payout for a serious illness as detailed in the policy.

If you are employed full- or part-time, your employer may provide access to a variety of healthcare plans. So check to see what’s covered. If you are self-employed, there are plans available directly via insurers, or the government. Your advisor can help you determine which plan is right for you.

Auto Insurance

Unlike in some countries, auto insurance is mandatory in Canada if you own and operate a vehicle. According to the Government of Canada, car insurance policies include liability (i.e., injury or death) and accident benefits (i.e., medical expenses and loss of income). The policy might have additional benefits, like the cost of repairing your car, or emergency road-side assistance.   

Most policies do not cover loss of personal items from your car. Be sure to shop around for the lowest rates. 

While the above are the most common types of insurance that all Canadians should have, there are other types of insurance to consider as well. This includes property insurance, which could mean homeowners or renters insurance, depending on if you own or rent. Property insurance can also include specialized policies for floods, fires, or earthquakes. 

And if you, like many Canadians, are itching to travel following two years of Covid-related lockdowns, you may want to consider travel insurance. It typically covers medical emergencies while on holiday, trip cancellation, and lost, damaged or stolen luggage. Be sure to check with your insurance provider to confirm what’s included. Further, if you book your trip on your credit card, certain costs may already be covered. So check with your credit card company first.

Overall, it’s important to consider your cash flow to determine how much insurance you can comfortably afford. An advisor that is a Certified Cash Flow Specialist can help you there. Don’t wait until it’s too late. Ensure you’ve got the right coverage for your life circumstances so you can have some peace of mind. 

Are there areas of your financial capability you’d like to improve? Check out our on-demand Financial Capability Series. Topics include: 

About CacheFlo

CacheFlo is a financial education company that builds eLearning and tools to help financial professionals and individuals make behaviour-based changes, which allows them to get more life from their money. We want to make it easier for people to predict the impact of their financial choices before they make them.

About the Certified Cash Flow Specialist (CCS) program

CCS professionals go through enhanced cash flow-based training to develop the skill set to deliver behaviour-based cash flow advice. They start the financial planning process with a cash flow plan to genuinely help their clients get more life from their money.

About the Financial Capability Program (FCP)

The FCP combines quick and practical lessons with tools, including Winton, which helps people make financial changes they can stick to. Users can apply what they've learned to their financial situation, thus bridging the knowing-doing gap. The goal of the FCP is to help people get more life from their money.