I love insurance. It let’s you pre-assess risks and plan in advance for dealing with those risks in a cost effective way by pooling your resources with others, thereby spreading the risk. My family carries a lot of insurance for various risks and the payments we make provide peace of mind that enables us to carry on without niggling doubts creeping in to our thoughts about ‘what if’.
When I started in the insurance industry one of the first things I learned was about identifying risks and selecting insurance that would pay out under certain circumstances to mitigate or compensate for the pre-determined risks.
I have since learned that insurance can provide far more than peace of mind and is in fact a very powerful financial planning tool. That’s why even as a professional I work with other professionals to prepare our plans and implement products to fulfill needs. Anything to do with finances is increasingly more technical and complicated and the consequences of not knowing or missing a small detail can be life altering.
I am a veteran financial professional and I have taught curriculum and specialty courses for financial professionals as well as clients and I know that especially when it comes to something like technical like insurance I wouldn’t make assumptions or try to make my own decisions without professional input. Quite simply, you need to know that if your pre-determined risk becomes a reality, that your insurance will pay out.
Here’s where I get really upset. People who don’t know what they don’t know and have had some personal or hearsay experience with insurance; or who have received a sales pitch from someone who is presenting a scenario based on hypothetical or generic circumstances, and is making recommendations and providing advice.
I find this most often with credit insurance where the call centre operator is selling payment protector plans for credit card balances. The premium is a percentage of your total balance and if you aren’t able to work the insurance will pay your minimum payment. It won’t pay your balance and it won’t stop your interest. It just keeps your loan or card from going into default to protect your credit rating. If you aren’t able to get any other insurance this might be something that makes sense but it would still need to be pre-assessed and planned within the context of your entire financial plan. The biggest issue with credit and any kind of insurance is that you would still need to know under what circumstances the insurance will pay out and how much it will pay and how long would it take, etc.
I have never been able to get this question answered from the sales agent on the phone or from a person at the bank whose advice is to get the insurance then cancel it within 30 days after the policy arrives so I can read the fine print. They have to do this because they don’t know the answer to ‘under what circumstances will the benefit be paid’?
The worst situation of course, is when someone tells you that if you get the insurance the loan would more likely to be approved or that they could provide it at a better rate. This is called ‘tied selling’ and it’s actually illegal. But, it doesn’t stop people who don’t know any different from accepting expensive insurance on the spot that they really have no idea under what circumstances it would pay out. Even some life insurances are like this because they have different benefits depending on how someone dies. If you’re dead your estate will need a certain amount of money to look after your heirs, final expenses etc. That’s the number that is the pre-assessed need and that number then forms the basis of your planning – not how you die.
If I’m going to pay for something, especially something that will affect my monthly cash flow because it has a monthly premium, I expect to know exactly what I’m buying. With insurance that means how much will I get, under what circumstances will it pay out, how long will it take to get etc.
I recently tried to get these kind of answers by going right through to an underwriter of an insurance company. That person repeatedly said, ‘it depends on the circumstances that would be assessed at the time of the application for benefit’. Based on this information I went to the person who said we needed the insurance and who was clearly not a licensed insurance agent or representative of the insurance company who repeatedly tried to sell me on why we needed the policy.
People need to know that financial instruments are not like selling someone on a particular brand of laundry soap or paint colour: personal experience and preference are not same is professional advice. The selection of insurance is extremely personal and requires professional advice. That’s the message that must get out to everyone! And for everyone who has insurance or who is considering insurance of any kind, make sure always get answers ahead of your purchase for these critical questions:
- Under what circumstances will you be able to receive the insurance benefit?
- How does this fit with the rest of your financial plans and products?
- Is the cost of the insurance proportionate to the benefit you will (not might) receive?
End of rant. Know what you know and don’t take just anyone’s word for it. Do your research. The person who sells you the product isn’t living your life or paying your bills.