Insurance You Can Do Without
Mortgage Life Insurance
There are many insurance policies that you should have, like term life, home insurance, critical illness as well as comprehensive and collision for your car. There are however some insurance products that you might want to skip. The first policy in this series is mortgage life insurance.
Mortgage life insurance insures the remaining amount of your mortgage in the event of your death. While this insurance is very convenient to get, since the banks offer it when you sign your mortgage, you can likely get term life insurance for less money. Since mortgage insurance covers the mortgage, you’ll have to apply for new insurance if you move to another bank. This can be an issue if your health situation has changed since your last application. Term life is also a better option as it covers a set dollar amount, where mortgage life insurance is covering an ever-declining amount, your mortgage principle.
On top of all that, CBC’s Marketplace ran a story on people being denied their claim, accused of lying on their original application form.
Identity Theft Insurance
If you become a victim of identity theft, an identity theft policy covers lost wages and any other expenses you incur to clear it up. It does not cover the actual loss, since this is often covered by the bank. The majority of crimes classified as identity theft are unauthorized purchases with a stolen credit card number. This can usually be dealt with with a phone call and sending in any information you have to back up your claim. So if identity theft doesn’t insure the loss, and it obviously can’t protect you from the crime of identity theft, is it worth the cost? You might decide it’s not. Identity theft insurance can cost $25-$50 a year, and if you eventually need to make a claim, expect to pay a deductible in the hundreds of dollars.
A better way to protect yourself from identity theft is to shred your documents, review your bank statements for unusual charges and check your credit reports. If you’re a CAA member, you can register all your credit cards with them for free. Then if you lose your wallet or purse, you can phone one number and have all the card issuers notified. Being diligent with your personal identification and financial information will go much further in protecting you from identity theft.
Auto Glass Insurance
Auto glass insurance is a policy that covers the repair or replacement of your windshield, rear and side windows, and sunroof. No one enjoys getting chips or cracks in their windshield, but is it worth getting insurance for this?
One Canadian insurer quotes a premium of “as little as” $186 a year and then a deductible of $25 to replace three chips or $50 to replace the windshield. Replacing a windshield yourself could cost from $150 to $325. Repairing chips without auto insurance can cost $40 to $50, then $10 per additional chip.
As you can see, you could replace your windshield every 2 years and still come out ahead over the auto glass insurance. Insuring against rock chips make even less sense, the insurance would cost you $211, you could have three chips replaced at your own expense for $70.
Rental Car Insurance
Every time you rent a car, you won’t get away from their counter without either accepting or rejecting their form of car insurance, known as loss damage waiver (LDW) and collision damage waiver (CDW). Is this insurance necessary? It’s best to find out in advance, before you rent the car.
There are a couple ways you may already be covered. The first place you should look is your own auto insurance. Contact your insurance broker and find out if your collision and comprehensive insurance covers you in a rental car. Where you are renting the car will also matter, you may be covered in Canada and the United States, but not in other countries.
The second form of coverage may be the credit card you use to pay for the rental car. Check the agreement that came with your credit card to see if you have coverage for a rental car. If you are not sure, call the number on the back of your card. You may want to ask for the details of this coverage in writing as all cards are not the same and may not provide complete coverage.
With these forms of coverage already available to you, you may not need the insurance offered by the rental car companies, just be sure before you head out on your trip.
Accidental Death Insurance
Accidental death insurance may be offered to you as a rider on your regular life insurance policy. It can also be purchased as it’s own policy. Accidental death insurance pays out an additional amount if you were to die from an accident.
The key issue to remember with all forms of insurance is to insure against a financial loss. You put life insurance in place so that, if you were to die, it covers your income and debts for your surviving dependants. With that said, do your beneficiaries need more money because you die in an accident? The cause of death is unlikely to change the financial loss that needs to be recovered.
The other issue with this form of insurance is the likelihood of death from an accident is 1 in 20. To pay extra for this rare chance of death is not worth the more costly premium. A lower cost term life insurance will pay out for any form of death, whether from an accident, disease, or natural causes.
If you are considering accidental death insurance because you’re concerned that you’re under-insured, it would be a better use of your money to increase the coverage on your regular life insurance.
Credit Card Protection Insurance
Credit card protection insurance is another case of paying too much in premiums for very little protection. Many people signing up for this expect that it will pay off their credit card if they lose their job or become too sick to work.
The truth about credit card protection insurance is that it will only pay the minimum payments, and often only for up to one year. As far as the coverage for illness, you will not be covered if you already have the condition when you sign up. The cost for this insurance can be as high as 1.5% of your credit card balance.
CBC’s Marketplace conducted a poll through EKOS. These are some of the interesting findings:
- 23% with credit balance insurance say they weren’t given full disclosure when it was sold to them.
- 22% with the insurance say it was never explained the policy was optional.
- 51% with the insurance say it was never explained that policy would not pay their entire balance if they lost their job or fell ill.
- 56% with the insurance said it was never explained the insurance wouldn’t cover pre-existing medical problems
While it is a good idea to make sure your minimum payments are covered for times when you’re unable to pay them, you would likely come out ahead by using the money paid on premiums to fund a emergency savings fund.
Cancer insurance is a supplemental insurance that will pay an initial amount after you are diagnosed with cancer. Then it will likely cover any amounts for expenses that are not paid by your regular benefits plan.
The problem with cancer insurance, or any other kind of disease-specific insurance is that you’re often paying too much in premiums for too little coverage. While it will pay for your cancer treatments, it will not cover related issues caused by cancer such as pneumonia or infection.
To be eligible, you cannot have a pre-existing cancer diagnosis. While this makes sense from an insurance perspective, it most likely won’t for you. You would have to be rather sure that you will get cancer at some point in your life, or at least that it’s more likely than other forms of disease and illness.
If you have a strong history of cancer in your family, then cancer insurance may be for you. For most people, you would often be better off with critical illness insurance. Critical illness insurance will cover a wide array of illnesses, which will more likely pay out since you won’t have to gamble on which illness you may get in the future.
Credit Life Insurance
Credit life insurance is purchased so that the balance of your car loan or credit line would be covered if you die before your debt is paid.
As with many of the policies in the Insurance You Can Do Without series, credit life insurance in too expensive compared to the premiums for term life insurance. With a set amount such as a car loan, this is made even worse since the amount insurance declines as you pay down the loan. The reason it declines with the amount owed is that this form of insurance only protects the bank that lent you the money. If you were to die, the pay out goes straight to the bank. With term life insurance, you set an amount to cover all your debts, plus an additional amount to cover your salary or maybe your children’s education. If you’re debt is reduced before you die, the insurance payout would still be at it’s original amount, so your beneficiaries would receive a larger amount after the debts are paid.
If the cost of credit life insurance, compared to what you get for it, hasn’t made you want to cancel and sign up for proper life insurance, then this might have you getting some life insurance quotes. If you’ve ever signed up for credit life insurance, did you notice how easy it is to get it? There are rather simple, vague health questions and no tests required. If you have a pre-existing condition, this might make you think that this type of insurance is easier to qualify for than term life insurance. The problem is that if you were to die and a claim is made, the insurance company would then begin their post-claim underwriting process. This means that the insurer will decide at that point if you actually qualify to receive a payout, even though you may have been paying premiums for years.
Instead of these loan-specific insurance policies, have a look at term life insurance. You can get an idea of the prices from different insurance companies at Kanetix.
Involuntary Unemployment Credit Insurance
Involuntary unemployment credit insurance is another type of insurance you can do without. This insurance might be offered with a credit card or auto loan and will cover your minimum payments, usually for up to 6 or 12 months, if you were to be laid off.
While the price can vary from lender to lender it is often too expensive for the small amount of coverage you get. Say your minimum payment was $100, the cost of insurance could be $25-50. So with some policies, you would be better saving that premium into your emergency fund for one year as your own form of insurance.
Putting the cost aside for now, what makes involuntary unemployment credit insurance even worse is that you might be paying the premiums but would be unable to claim when you needed it. The terms and conditions often exclude those who are part-time employees or older than 65, but much like mortgage life insurance, this product has been sold to those who don’t even qualify for it.
So what else can you do to protect your ability to make the minimum payments in the event of a layoff? While adding it to the emergency fund is one option, if you feel your job is rather secure you could instead use the money saved from not paying a premium to pay down more of the principle. This way you’re working towards eliminating the debt and increasing your ability to survive a job loss. Another form of security is to be prepared for unemployment by being ready to find another job. This includes keeping your resume updated and ready to use, as well as maintaining a strong professional network.
Life Insurance For Your Child
I went to a trade show this past weekend for parents that are either expecting or recently had a newborn. More than one of the booths was pushing life insurance for your newborn. They were marketing it as cheap insurance that will help you save for your child’s future and protect their rates if they develop health problems later in life.
As with most of the insurance policies in this list, the biggest issue is that you have to look at what financial loss it is that you’re insuring against. In this case, you’re insurance against the death of a child. While this is an emotional decision, from a financial perspective what monetary loss will you suffer if something were to happen? There is the cost of the funeral, but otherwise your financial responsibilities would be reduced from not having to provide for that dependent. If the cost of the funeral is a concern, you would likely be better off by saving yourself the cost of premiums and adding that same amount into your emergency savings.
For the savings aspect of some of these universal life insurance products, you would be better off with term life insurance and saving the difference in premiums in a low-fee investment of your choice. That applies to anyone, not just children. However in this case, if you do decide that life insurance is unnecessary, you could save the entire equivalent amount of the premium within an RESP and accomplish much more in saving for your child’s future.
When it comes to protecting your child’s rates from future health issues, this would be a bit like gambling. To insure for this reason you would probably have some concern that your child will have problems in the future. The problem is, if you know of any family history then you have to tell the insurer and this will lead to higher premiums right from the start, and if you don’t tell them they could deny your claim.
As for the insurance being “cheap”, this is simply due to the unlikely event of a child dying compared to that of an older adult. The lower odds mean that the insurer is not taking on much risk, and therefor not increasing the premium.
Life insurance should be purchased to cover financial responsibilities such as remaining debts and providing for dependents. Since this doesn’t apply to children, this is insurance you can do without.
Everyone loves their pet and wants to do whats best for them. You might have paid for training and special food and certainly realize that pets can be expensive. But what if you pet gets injured or has a disease? You may have considered pet insurance to cover these emergency visits or operations, but that might cost you more in the long run.
Pet insurance has limited coverage. Insurers have maximum payouts on various veterinary procedures, so you may not receive as much back as you expected when you filed the claim. Like many forms of insurance, you will not be eligible to claim on expenses related to a previously existing condition your pet may have had prior to getting the coverage.
Instead of paying for pet insurance, you should look to increase your emergency fund to at least partially cover any possible expenses. Simply add the same amount to your emergency fund that you would have paid in monthly premiums. Then you will be able to withdraw this money when needed, without any deductible or concerns about whether the procedure is covered by your insurer. Even better if your pet lives a long and happy life without any major issues, you’ll then have additional savings without having lost your money to premiums.
Now you can always find people that will say that pet insurance was worthwhile because they received a big payout just months after paying $15-20 a month. And while that can happen, you need to weigh the odds of having to claim early in your pet’s life to the size of the possible expense when deciding if any insurance product us right for you. In this case, most vet bills are not a large financial hardship and savings can be put in place to cover all or at least some of the expense.
Long Term Care Insurance
Long term care insurance is designed to pay out a benefit should you need retirement care such as assisted living, home care or nursing home care. However, long term care insurance may not provide what you expect or might not pay out at all when you need it.
First off, you could easily pay thousands of dollars in premiums for insurance you may never need to collect. There are obviously worse things than never needing long term care insurance, but what if you do need to collect on the insurance but the insurer denies your claim?
There are many stories of this happening. Whether the insurer does not agree that a certain diagnosis is covered or doesn’t pay as much as expected, these are possibilities you should be aware of. Unfortunately, there’s no way to know in advance if you’ll have any issues when you need to collect on your long term care insurance.
Another issue with long term care insurance is rising premiums. While you might pay reasonable premiums for a decade or two, as you get into your later years, the insurer may start raising your premiums by as much as 50% to compensate the additional risk they take on as you get older.
If you are concerned about your health in your later years, you can likely put your money better use in an RRSP or Tax Free Savings Account. This can serve as a form of self insurance where you’ll have the money available when you need it, without having to jump through any hoops and red tape.
You should also consider critical illness insurance. This form of insurance pays out a lump sum when you are diagnosed with a major illness. Not only can you use the money how you see fit, but it has a better track record of paying out for the covered illnesses.