Ellen Roseman: Insurance coverage is personal finance's blind spot


The federal government continues to be on a pursuit to enhance your financial literacy since the 2008 financial crash.

To be financially literate, you need to know how you can track your expenses, use credit wisely, shop around, save for future years, invest prudently and protect yourself from scams.

Luckily, you will find a host of helpful apps, blogs, books an internet-based resources aimed at Canadian consumers. But where would you go for advice about protecting yourself from the going under arising from demise, income, health, home, car or travel? I'm referring to insurance, a key a part of financial literacy that will get not enough love or attention from authors, bloggers and app developers. Most information comes from the companies that provide insurance – not an unbiased source.

I'm guilty of this around anyone. A decade ago, I helped create an online resource, Financial Basics, targeted at young people. Later, I caused the Financial Consumer Agency of Canada (FCAC) and Ryerson University's Chang School to show the information into a number of e-learning videos online.

Financial Basics workshop participants get a 45-page handbook to consider home. Only one page – yes, only one – deals with insurance, giving tips for example “compare the expense using the need” and “get independent advice if you're able to.” Not much help.

The education gap in insurance can lead individuals to make costly mistakes.

Suppose you've got a cottage or chalet you assume is included in the same manner as your city home. Neglecting to switch off water or arrange for regular checkups can result in an awful surprise whenever your damage claim is turned down.

The education gap in insurance can lead individuals to make costly mistakes

Not being knowledgeable can have catastrophic consequences. We've all heard about people who travel without buying trip cancellation insurance to ensure reimbursement if they can't leave the house for medical reasons – or trip interruption insurance to pay for the cost of going home early for medical reasons.

Worse still is getting sick while outside Canada and being hospitalized or flown home with medical attention. You may be responsible for hundreds of thousands of dollars should you didn't buy travel cover. Even if you did, you might find out that you still need to pay should you didn't disclose your full health history.

In my Two decades like a Toronto Star consumer columnist, I wrote frequently about insurance. I helped a mature woman who fell behind on her behalf mortgage repayments remain in her home when threatened with eviction. The lending company had overlooked the fact that she was spending money on mortgage insurance and she had since forgotten. A quick ask her behalf got it sorted. Which was a satisfying outcome.

When I asked a few experts about the market gap in consumer-friendly insurance information, this is what i was told that.

David Chilton, author of The Wealthy Barber, talked about life insurance coverage in the 1989 bestseller. Most Canadians possess the wrong kind, the wrong amount and frequently even have the wrong person insured (their children). But there's little about insurance in the 2011 sequel, The Wealthy Barber Returns.

“Life insurance coverage is very complicated. Even actuaries can't explain it,” Chilton says, adding he sees an excuse for education about other kinds of insurance. “Travel insurance, for instance, is something I always buy. It's not uncommon to incur $200,000 in costs should you travel without it.”

Life insurance is very complicated. Even actuaries can't explain it

Pete Karageorgis from the Insurance Bureau of Canada, an industry group that offers some consumer resources, agrees that buyers need unbiased help both choosing insurance and defining terms, for example “peril” in home insurance.

He accustomed to give new IBC employees a great guide, The Insurance Book by Sally Praskey and Helena Moncrieff, as a quick studies in the topic. However this 1999 book is hard to locate there are no others like it, so far as he knows, in either Canada or the U.S.

Life insurance expert Lorne Marr has posted educational articles on his website since 2003. There are few comprehensive books about life and health insurance, he says, and almost none about creating claims. “Even the information about claims (like the percentage paid out) isn't public,” he says. “The companies won't release it.”

Karageorgis compares buying insurance to scheduling a dental appointment. “No one likes going and also you wait over and over. When you decide to go, it may be past too far.”

Preet Banerjee, author of Stop Over-Thinking Your Money!, is one of the few personal finance gurus to treat insurance seriously. In the five rules for achievement, number one is: Disaster-proof your life.

“No one likes going and also you put it off over and over. When you decide to go, it might be too late

Writing about disability insurance, he states, “You insure your home and car. You might even insure every electronic gadget you buy by having an extended warranty (which could be considered a mistake, by the way). But what about your single biggest asset: the opportunity to generate income for the rest of your life?”

Banerjee, a well known YouTube personality, also created an illustrated short video on credit card balance protection insurance. It's worth watching.

So, where else can you go for unbiased insurance advice?

There is a surprisingly encyclopedic listing of specific insurance tips offered at the federal government's website Canada.ca. If only this 20-year-old government agency did a more satisfactory job promoting its financial literacy work. Canadians have to know about it when sorting through a bewildering variety of insurance items that can be challenging to decipher.

The federal government's website gives you detailed articles on determining your insurance needs, getting an insurance policy, cancelling your insurance, making an insurance claim and making a complaint regarding your insurance carrier.

You'll want to find out about home insurance for unexpected events and disasters. It says most policies don't cover earthquakes, landslides, floods and sewer backup, but offer add-on coverage at an expense.

Even if you spring for add-on coverage, say flood insurance, you might find there's a minimum $1,000 deductible you must pay out of pocket. And when you've had sewer backup damage, you might want to use a backwater valve to prevent backups and keep your insurance in force.

The FCAC can be opinionated, when needed. Check out the example it uses as one example of the high cost of mortgage life insurance that banks sell to borrowers.

You have to force these to deal with a subject they don't wish to deal with

“On a $250,000 mortgage having a fixed term of 5 years, in an rate of interest of 5%, a 37-year-old, non-smoker woman in good health, living in Ontario, would pay $600 annually to obtain mortgage life insurance coverage,” it says inside a help guide to credit and loan protection insurance.

If she sought out similar coverage outside a bank, the girl would pay $190 annually for any life insurance coverage having a 10-year term or $300 annually for a life insurance policy having a 20-year term. That's substantially cheaper.

Banks base the premiums on the original amount of your home loan, the FCAC says. What this means is your costs stay the same while you pay down the borrowed funds and the outstanding balance shrinks. Your death benefit also decreases along with the outstanding balance.

But ultimately, while the government's guide is useful, it's clear that there's a knowledge vacuum in the personal finance community with regards to insurance. And we'll have to work at changing that mindset.

“It's not the first thing people want to discuss,” says Marr. “You have to force them to deal with a topic they do not want to cope with.”