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When to Pass on Insurance
Insurance – a word that is supposed to offer peace of mind. Think about it: when we buy insurance, we are purchasing coverage for something of value, the loss of which would be upsetting. To help ease the loss, we purchase a written promise to be appropriately compensated. The safety net of an insurance policy kicks in, and even in the worst of circumstances, it makes life a little easier. Or does it?
Regrettably, many products and services are sold by unlicensed merchants who offer insurance with little knowledge. To make matters worse, the consumer only discovers the problem at the time of claim! Here are a few examples of insurance programs that are best avoided because of their cost, contractual language, or claims adjudication protocol.
Accidental Death and Dismemberment insurance is a staple of most employee benefit plans.
The option of enhanced coverage is tempting because the cost is cheap. I recommend skipping the enhancement option and consider your regular life insurance needs.
AD&D is inexpensive because the likelihood of a claim is remote since most claims occur because of disease rather than accident. Buying enhanced coverage tells us more about the client than the product – the client could be underinsured and want peace of mind. A better consideration is regular life insurance where the success of claim is not determined by how one passes away and the need is the determining factor in this purchase, and not the cost.
Emergency Travel Coverage on Credit Cards
The desire and frequency for travel has increased exponentially as COVID travel restrictions are removed or relaxed. With increased demand, the cost of travel has increased, and travelers may forego emergency travel insurance when booking, believing they are adequately covered using a credit card’s master contract for travel. Be wary here – there are several considerations including:
Rather than hoping for equitable treatment at the time of claim, purchase travel medical from an insurance professional rather than a travel agent. Insurance specialists understand caveats and conditions, and most have more than one carrier to choose from. These options will include:
We can make a similar case for insurance to cover a loss or a financial obligation, like a mortgage. Mortgage/loan specialists are obligated to remind you that when taking out a large debt, it is often desirable to rid the family of the financial burden of the debt at a time of disaster and offer mortgage/creditor insurance. The client answers a few health-related questions by the lender, signs a document, and then has premium debited from their account or blended into their payments back to the bank. The bank:
All is fine until claim time. It is after a death or disability that the health questionnaire is expanded, your medical records are reviewed for accuracy, and the policy limits become known. CBC’s Marketplace did a compelling story on mortgage insurance when interviewing borrowers who bought the product and learned that they were denied coverage at claim time – years after the purchase and premiums collected. Check out CBC Marketplace: In Denial for more details on the restrictions of this program.
A better approach is to choose life insurance to cover your mortgage and work with a licensed professional instead. Benefits of life insurance for this scenario are:
In short, you end up with a better program at a better price, and that brings peace of mind!
Connect Wealth is an independent financial planning firm that offers holistic advice to clients based on their current goals and future aspirations. We use well-established workflows and cutting-edge technology to maximize planning efficiencies while simplifying the process for clients. Learn how you can maximize your financial opportunities at www.connectwealth.com