Protecting Yourself and Your Family: Buying the Right Insurance
Imagine you bought a limited edition toaster that spits out a few hundred dollars every day. If you were offered a lifetime warranty on that toaster would you purchase that insurance?
Our ability to earn income is like that toaster spitting out money. If we ever go on the fritz, that insurance is going to replace our income. But if we didn’t buy that "warranty", our income is toast!
Now that we’ve established the importance of insurance, it’s time to figure out the different types and where to find the best providers for the lowest price.
Auto and Home
These ones most people have. A good idea is to annually shop for the best prices. If you find the same insurance for a lower price, go back to your provider and ask if they’ll match. If yes, you just saved yourself some money. If no, then consider switching. Note: some providers' prices are higher because they actually pay claims. Consider the reputations of each provider before switching.
Group Health Benefits
When talking about prescriptions and dental, this insurance is amazing! It typically covers between 50-100% of your costs. If you’re older and a smoker, your rates will be much cheaper than a personal plan but if you’re younger and fit, your rates may be higher.
Business Life Insurance
Examples include key person insurance (for your CEO or top salesperson where the company would suffer a financial loss if they passed away), and criss-cross insurance (which allows business partners to buy each other’s portion of the business if the other passed away).
Work Insurance
This insurance is unpredictable. Some of the most common problems include the employee being underinsured (meaning they don’t have enough to cover their income), or the insurance provider being notorious for not approving claims, using any excuse in the book to deny you. Never consider work insurance proper coverage.
Creditor Protection / Mortgage Insurance
These are almost always overpriced well beyond what a personal policy would cost. And as they do what’s called post-underwriting (they determine if you qualify AFTER you lodge a claim), very few pay out. I recommend staying far away from this type of insurance.
Personal Life Insurance
There are various types of life insurance but the two basic structures are temporary insurance (called term) and permanent insurance (called perm).
Term Insurance
This insurance is used to cover a specific need, e.g. income replacement, mortgage, debt, etc. It is typically in denominations of 10-, 20-, or 30-year periods. Although less expensive in the short term, they can get prohibitively more expensive in the long term. Reputable companies do pre-underwriting (meaning they determine if you qualify BEFORE you begin paying). They require a medical questionnaire and may require a blood/urine sample depending on the answers to your medical questions and the amount of insurance you’re applying for. Note: Not all insurance companies are created equal. Some providers cost 3x more than others for identical coverage so shop around.
Permanent Insurance
Permanent insurance comes in the form of Term-100 (as in 100 years old), Whole Life, and Universal Life (IULs in the States). WL and ULs have an investment component to them. WL pays out dividends while ULs safeguard investments from taxes. While temporary insurance is cheaper in the short term, ULs can be free, as in you can get a return on your premium when your investments outgrow the amount you put in. This typically happens around the 11-20 year mark when properly funded. To know if your policy is properly funded, have your agent run an illustration at 4%. If the policy collapses (as in it doesn’t last to age 100), then you know there’s a chance your policy won’t last.
Funeral Insurance
This is a form of permanent insurance, typically for a relatively small death benefit (under $50,000). Some are sold by funeral homes who have you prepay for your funeral; others are sold by brokers who don’t limit you to one funeral home or location. I recommend the latter. Not only are they usually lower in price, but if you move to a different city, you have a lot more flexibility as to where you can choose to be buried. Some companies include a price finder (they compare costs from various funeral homes so you’re not overpaying for a similar service), support services for your survivors, and funeral planning tools, e.g. Will prep, Power of Attorney, Health Care Directive, and Living Wills at no extra cost! Bet your lawyer can’t say that! Some also offer unlimited cloud storage for important pictures and documents which are released to your beneficiaries after your passing.
Preparation in these areas can save a family from frozen assets, years of legal battles, probate fees, and an estate being eaten away by creditors and taxes. I know of one family who are in a 10+ year legal battle to have a multi-million dollar estate released from probate because the father didn't have insurance to cover the taxes incurred upon his death and his family isn't allowed access to his accounts to cover the cost.
Critical Illness Insurance
The essentials typically cover the top 4: heart attack, stroke, life-threatening cancer, and coronary bypass surgery. The best policies cover an additional 21+ conditions including psychological and neurological illnesses which many work insurance providers don’t cover.
Accidental Death & Dismemberment
The accidental death benefit isn’t worth the paper it’s written on. If you’re betting to die in an accident for 2x the benefit, then you probably weren’t properly insured in the first place. Dismemberment is also a slippery slope. It typically only pays out when you lose a limb or become completely blind, and only if it was the result of a traumatic accident, (not self-inflicted, from disease, or old age). So if you lose your hand in a farming accident because you tried to remove a tree branch, there’s no guarantee you’ll be covered. Also, if you completely lose your hearing (remember: due only to an injury and not natural causes), then you may only get 50% of the benefit. Percentages are calculated for each body part so cutting off your finger may net you $1000, if anything at all.
Critical Illness policies, CPP Disability, and provincial benefits, are usually a safer bet (though the last two may require a year to get approved and after an appeal or two). A good doctor, who understands your condition and who doesn’t mind filling out forms, definitely makes the process a lot easier.
Other Insurance and Factors
There are other various types of insurance, (e.g. child riders, unemployment, long-term care, etc.), and there are various factors to consider (e.g. single vs. joint, level vs. ART, calculating the proper amount, tax implications, etc.).
Working with a professional is the best way to figure out what would work best for your needs and situation. If you would like help in this area, give me a call. My number is 587-801-8462 which spells JUST 01 TINA. I look forward to hearing from you soon.
The opinions expressed in this blog are my own and do not reflect any other organization. I also claim any errors made as my own. To offer corrections or feedback, please contact me.