Often when I am dealing with clients, they ask me my thoughts on insurance. Anyone that knows me knows that I am not a big fan of insurance. I think that in most situations the money you are spending is not worth what you are receiving. That being said, I am also a risk taker. So don't base your opinions on what I do. It is always wise to get as educated as possible before you make any decision. Below is an article that I found that speaks about some insurances to avoid.
Written by Sean Cooper
Today there seems to be a type of insurance for everything from pets to cellphones. While some types of insurance make sense – term, disability, home and auto – other types can be costly and provide limited coverage. Here are some insurance types to be weary of.
Identity Theft Insurance
When you sign up for a credit card you’ll most likely to be asked about identify protection. One company I researched offered Credit Alert for $17.99 per month. It promises to provide instant access to your credit report and credit score, detect fraudulent activity, and proactively protect your credit and identity information.
While it may sound like a good idea for peace of mind, is it really worth the cost? Remember, you’re entitled to a free credit report annually with TransUnion and Equifax. You can further protect your identity by only providing your SIN when absolutely required (not just because it’s asked on an application), only using secure indoor ATMs and protecting your PIN, and shredding confidential documents. Be sure to check your credit card agreement –most likely you aren’t liable for fraudulent charges.
Mortgage Life Insurance
When I signed up for my mortgage I was offered the Mortgage Protection Plan (I actually had to opt out). For $21.51 per month, it provides up to $1 million to pay my outstanding principal. The sales pitch sounds attractive – premiums are fixed for the life of your mortgage and no medical exams are required (all you have to complete is a simple medical questionnaire) – but there are several pitfalls.
Mortgage life insurance is declining benefit – your monthly premiums may remain the same, but your coverage decreases as you pay down your mortgage principal. Also, you’re only protecting your mortgage (and the bank), instead of allowing your family to choose debts to pay off, such as funeral expenses, your child’s education and car payments. Generally, term life insurance makes more sense – it’s less costly and provides greater coverage.
Visits to the veterinarian can be costly, so why not protect Fido with pet insurance? PC Insurance offers pet insurance starting at $9.95 per month for cats and $10.95 per month for dogs. All breeds and ages are covered, advertising and reward costs are reimbursed if your pet gets lost, and financial compensation is provided if you have to cancel your vacation due to illness, are among the benefits listed.
While pet insurance may sound great, you’ll have to pay high premiums if you want more than basic coverage. Some of the drawbacks include high deductibles, lifetime coverage caps and limited coverage (the basic accident plan only provides up to $1,500 per accident with no coverage for illnesses). You’re still responsible for paying for annual check-up, teeth cleaning and spaying and neutering. Also, premiums can be higher depending where you reside and your pet’s breed. Unless your pet gets sick when it’s young, it’s less costly to create a pet emergency fund and budget $200 to $300 per year for unexpected expenses.
Vehicle Rental Insurance
There’s a reason why auto insurance is so much more expensive than home insurance – your likelihood of filing a claim is a lot higher. When renting a car it’s important to ensure you’re covered before going behind the wheel. While rental insurance is relatively inexpensive, it can really add up for frequent renters.
Check with your auto insurance provider if rental cars are covered – it can be as easy as a phone call to your insurance broker while you’re at the car rental service. Most credit cards also cover car rentals (like the Smart Cash) – be sure to ask about the amount of coverage and deductible. If you’re renting a moving truck from U-Haul it’s a different story – cargo vans might be covered, while trucks most likely aren’t. It’s important to ensure you’re covered, as you’re driving a vehicle for the first time and you’re responsible if the truck is damaged or vandalized without insurance.
Life Insurance for Kids
Insurance is designed to protect loved ones, so it comes as no surprise there’s even a type of insurance for children. Canada Life offers Child Life Advance, which promises to pay a lump sum benefit if an insured child is diagnosed with one of 24 critical illness insured conditions. While it may sound good in practice, insurance is mainly designed to protect people with debts and dependents.
It may be worth looking at if your child has a higher likelihood of inheriting a serious decease, but even then it’s hard to justify the high cost. You’re probably better off protecting your child as a dependent through your workplace medical insurance and buying adequate term life insurance. Why not start an RESP for your child with the money instead?
Hopefully you’ll think twice next time you’re offered pet insurance at a “low, low” monthly cost. With insurance policies it’s important to read the fine print and see what’s actually covered and for how much. Remember, insurance companies are in the business of making money – do you really think your cell phone provider would provide cell phone insurance if the deductible wasn’t high and the coverage limited?
Readers, which types of insurance do you think are worthwhile and which do you stay clear of?
About the Author: Sean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University.