Insurance

What Is Insurance?

Insurance is a contract that transfers specified financial risks to an insurer in exchange for a premium.

4 min

Insurance 101 • 01

Insurance is a way to transfer financial risk.

You pay a premium, and the insurer agrees to pay or provide benefits for covered events under the policy.

The policy is the contract.

It sets out what is covered, what is excluded, how claims work and how much may be paid.

Insurance can protect against risks involving

01Your life or health02Your ability to earn income03Your home or belongings04Your vehicle05Liability to other people

Insurance does not prevent the event.

01

Risk prevention

Tries to reduce the chance that something happens.

02

Insurance

Helps manage specified financial consequences if it happens.

Insurance trades a known cost for protection against a larger uncertain cost.

PremiumKnown recurring cost
Possible lossCould be much larger
Claim paymentDepends on policy
CoverageNot unlimited

Having a policy does not mean every loss is covered.

Coverage depends on the exact contract, including limits, deductibles, exclusions and conditions.

Before buying insurance, know

01What risk you are protecting02What the policy covers03What it does not cover04How much coverage you have05What you must pay yourself

Remember this

Insurance transfers specified financial risk.

The policy tells you exactly which risks the insurer agreed to take.

Lesson complete

Reviewed 2026-08-18

Sources

Financial Consumer Agency of CanadaHow insurance works ↗Financial Consumer Agency of CanadaMaking an insurance claim ↗
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