Skip to main content
Ratehub logo
Ratehub logo

Does inflation impact my insurance?

This higher inflation rate of the Canadian dollar can make financial planning challenging, since it can impact all sorts of important areas in unexpected ways, from insurance costs to the housing market. Read on to find out what this means for your insurance premiums, and whether you’ll be affected.

Ever since 1991, the Bank of Canada has attempted to keep inflation at around 2% year over year. Because of this, the nation has historically seen lower inflation rates compared to many other countries. However, 2022 is set to be one of the highest years for the inflation rate in Canada in recent history.

Key takeaways on inflation and your insurance

  1. Inflation in Canada is measured using the country's consumer price index. This tracks the cost of living over time using an imaginary basket of goods (with items consumers typically buy). 

  2. There are two main ways inflation can impact your insurance. Firstly, you may see your premium go up as insurers now face higher payout costs. Secondly, you may find yourself underinsured if your policy's coverage limit hasn't kept up with inflation. 

  3. To combat these effects, be sure to actively seek out discounts to ensure you're paying the lowest rate possible. And double-check your coverage limits to make sure you're adequately protected during this time. 

What is inflation?

Inflation rates are measured using the consumer price index (CPI) of a country. This is calculated by taking an imaginary “basket of goods”, filling it with everything that consumers typically buy, and tracking the cost over time to purchase these goods. This basket of goods could contain anything from eggs and sandwich meat to gasoline and plane tickets. 

However, not everyone’s basket will look the same. For instance, a vegan who works from home will have a much different basket of goods than someone who eats meat and commutes an hour a day for work. The amount that you can expect to be affected by inflation is generally tied to how similar your basket of goods is to the average citizen in Canada. 

The two types of inflation

There are two different types of inflation: core inflation and headline inflation. Let’s look at the difference between these main types.

  • Headline inflation. This is the main type of inflation and refers to the volatility of all costs of common goods and services in the economy. Since there are less volatile economic areas in developed countries, this is where headline inflation is typically used most. 

  • Core inflation. Core inflation is a measure of all common goods and services in the economy, excluding food and energy prices. Since food prices and gasoline prices are generally volatile, it’s easier for developing countries to remove these metrics to have a more stable look at their economy and generate strategies to move forward. 

Will inflation affect my insurance premiums?

Inflation in Canada can affect insurance premiums in two different ways:

  • Inflation rate increases can cause payouts to inevitably cost more, meaning sometimes insurance companies will have to raise their premiums to keep up with the demands.

  • Another way that inflation can affect your premiums is if your coverage limit doesn’t go up as inflation does. For instance, say you have a renters insurance policy that you have to cash in on due to a fire. If you are insured for a personal contents coverage limit of $10,000, that amount won’t go as far as it did ten years ago, since the cost of replacing your items will have increased. If you haven’t done so in a while, it’s a good idea to reach out to your insurance provider and see if you need to raise your coverage limits due to inflation.  

Are you paying the best home insurance rate on the market?

Just because inflation is on the rise, doesn't mean you need to settle. Compare home insurance quotes from Canada's top providers to find your lowest rate today.

What does this mean for you?

Knowing the effects that inflation has on insurance costs is important for a number of reasons, from keeping your business afloat to knowing how much you’ll be spending on your homeowners insurance.

Tips on how you can combat inflation

Inflation has an effect on nearly every industry, including insurance. If you’re worried about your premiums going up, here are a few helpful tips you can use to combat inflation. 

  • Check to see if there are any savings you may qualify for. For example, you can switch your car insurance provider and purchase the coverage under the same company that insures your home. That way, you'll be eligible for an insurance bundle discount

  • See if there are any policy add-ons you are paying extra for that you may not need. For example, you might want to cancel your earthquake insurance coverage if your home isn't located in a high-risk area. 

  • Explore other options to see if you can get a better price by comparing quotes for auto insurance, home insurance, and business insurance. While some providers are increasing rates due to inflation, that may not be the case for all.

  • Make sure you have enough coverage, since inflation may have devalued your current amount. If you haven't updated your policy limits in a while, reach out to your insurance representative to discuss your options. 

APOLLO is making professional liability insurance effortless for individuals and small businesses. As Canada’s leading online insurance company, we deliver a people-first buying experience through time-saving technology and a deep understanding of the communities we serve.

Also read

How does inflation impact my home insurance?

Inflation in Canada – what it means for your auto insurance

How to combat inflation in Canada