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Wednesday, May 9, 2018

7 Terrible Forms of Insurance

There are many forms are terrible insurance products out there. There is a hard-fast rule when it comes to insurance: If it is offered by the bank, it is usually garbage. I always recommend saving your money and then protecting your assets with insurance. Sadly, many products exist out there that don’t do much in the way of protection and still cost you a pretty penny. While we continue with Credit Week here at Budget Boss, it’s my job to show you useful information about credit and debt. Today I will go over 7 useless forms of insurance that cost you money and don’t protect you the way you may want. Savings money on these types of insurance can help you acquire better, more durable policies that actually accomplish your goals.

 

1) Extended warranties

I was always amazed at how many people buy the extended warranty offered by stores like Best Buy and Wal-Mart. The profit margin on these extended warranties is absurd. It is essentially free money you are giving to the retailer. Most products come with a manufacturers warranty that lasts a year or two. To extend coverage on a microwave beyond that is foolish. The way I see it, if it conks out after the manufacturer’s warranty, that’s the breaks. Paying extra money up front that I will likely never claim on is ridicules. Ever wonder why they push you so hard to buy it when you are checking out at the store?

 

2) Balance protector insurance

This product offered by the bank makes me want to puke. Balance protector insurance will pay your minimums should you become jobless and can’t make the payments. For a credit card or loan with even an amount as high as $20,000 on it, your minimum payment will be around $300-$500 monthly. The cost of balance protector insurance can be $20 monthly but sometimes it is a multiple of the balance of the loan. I have seen this insurance cost as much $1.00 for every $100 in debt. That means that for 20K in debt you are paying $200 a month for this “protection.” No wonder your balance grows if you only pay the minimums. You will be better served to put that $200 towards the debt itself or save it in a rainy-day fund. Chances are if you lose your job and must find any crummy job, you will. This form of protection only protects the lender, not you.

Mortgage Refinance

 

3) Creditor critical illness and disability insurance

Many banks offer critical illness and disability insurance to protect you in case you get sick or injured. While I am an advocate for these forms of insurance, not ones that have the title “creditor” attached to it. The reason is simple. Why would anyone pay for anything that protects someone else’s liability where the proceeds of the policy do not go directly to the person affected. The exact same goal can be accomplished with personally owned insurance that gives you the benefit directly, of which you can choose what you want to do with it. Another problem is that these forms of insurance are often just as expensive as personally owned insurance. Long story short, you are protecting the bank and not yourself.

9 Ways to Save Money on Insurance – Budget Boss

 

4) Creditor life insurance

Here is another scam if I have ever seen one. Buying creditor life insurance is just plain foolish. You take out a loan or have a credit card and the bank gets you to buy insurance so that if you die they get their money back. Repeat that slowly and really think about it. I have seen some of these policies cost upwards of $30-40 dollars a month and cover off 50K in debt. I secured a 40-year-old coverage of 250K last week for only $24 a month. If they happen to pass away, their beneficiary can do what they want with the money, not just pay back the bank. Here is another silly thing: the coverage might not even pay out. Post-Claim underwriting makes it possible that the bank will do everything in its power to not pay off the debt. With personal coverage the underwriting is done up front, so you know from the get-go if you are covered or not.

 

5) Optional group life insurance

If you are fortunate enough to have group insurance through your employer, you will notice that there is a base amount of life insurance that comes along with it. This amount is usually a multiple of your salary, ie. 1 times to 3 times your annual pay. Many employers off you the ability to buy additional blocks of coverage to boost up your life insurance. While it may be cheap and easy, I would caution against this practice. Group life insurance coverage, in my opinion, is a bonus to personal owned coverage. When you leave the job, the coverage doesn’t go with you. Also, there are no convertibility options into permanent coverage. Waiting until you are retired to pursue personal coverage is a bad idea for several reasons. By that time, you may already be too unhealthy to get coverage. Also, by that time the cost might be absurd, as getting it while you are younger is always cheaper. Instead of purchasing additional blocks of group coverage, think about getting personal coverage that is often the same price and always more effective.

 

6) Hospital stay cash

While receiving money while you stay in the hospital because you are sick or hurt seems like a good thing, the chances of using it are slim. In Canada, we have universal health care, which is a great thing. Where it falls short is that hospital stays are for as little time as possible, mainly because they need the beds. The average hospital stay in Canada is less than 3 days so the claim for this type of insurance will be tiny. Even women who give birth are often sent home the next day. You are much better off getting personal disability coverage that will cover you whether your illness or injury puts you in the hospital or not.

Mortgage Refinance

 

7) Mortgage life insurance

When getting a mortgage, it is prudent to make sure that the loan is covered by some form of life insurance. This will allow your family to stay in your home should the worst happen. Many lenders offer mortgage life insurance that will pay off the remaining balance of the mortgage should you pass on. There are several problems with this product. Firstly, it declines in value as the balance of the loan declines, and the price doesn’t go down along with it. Secondly, it pays off the loan when what you want to do with those proceeds might be something completely different. This means that the bank owns it and not you. Lastly, it may or may not pay out because it also uses post-claim underwriting, meaning it investigates whether you are healthy or not after you die, not before the policy is issued. This leaves you and your family vulnerable. Sadly, mortgage life insurance is almost always the same cost if not more expensive than personal owned insurance. Food for thought.

7 Life Insurance Myths – Budget Boss

There are dozens of crappy insurance products out there that are bleeding people dry on a monthly basis. Billions of dollars are made on products that have very little use and often times don’t even pay out. Getting rid of these forms of coverage and securing better personal coverage will give you peace of mind and save you money.

“If saving money is wrong, I don’t want to be right!” – William Shatner
Mortgage Refinance

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Email – joe@budgetboss.ca 

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