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5 Types of Insurance to Avoid

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.

Pet Insurance

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?

Final Thoughts

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 AuthorSean 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. You can read some of his other articles here.

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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. You can read some of his other articles here.

{ 37 comments… add one }
  • FT FrugalTrader October 9, 2012, 10:48 am

    The biggest one I avoid is the “extended” warranty offered by electronic shops. I’ve heard many horror stories about how difficult it can be claim. Best bet is to get a credit card that offers extended warranty. I’ve written about my experience here:

    http://www.milliondollarjourney.com/claiming-extended-warranty-with-your-credit-card.htm

  • Jane October 9, 2012, 12:44 pm

    As an insurance broker, I agree with everything above EXCEPT the life insurance for kids.

    Not all companies offer medical/health benefits – and life insurance for dependants is rarely a significant amount. Life insurance will cover not only final expenses, but also money for household expenses. As someone who has recently lost a spouse – having that financial worry alleviated while everything else is sorted out, is paramount to mental health.

    For critical illness insurance (covering the illnesses you mentioned) the need is even MORE valuable. My husband got sick and spent 6 months in ICU before he died. I spent every day with him there. I haven’t worked in 9 months. If it was one of my children – I would have spent MORE time there – my husband understood the kids needed me. Critical illness insurance gives you an infusion of cash. Medical EI or short term disability does NOT cover someone choosing to be by their child/spouses bedside during a serious illness.

    The reason you would want life insurance (especially whole life) for your kids is to ensure insurability when they’re older.

    Had I gotten my daughter life insurance when she was a child (before I was an insurance agent) she would now HAVE life insurance – now she is not eligible having been diagnosed with bipolar disorder.

    There are reasons to get those insurances. They have an important place in planning your financial future.

  • Joe October 9, 2012, 5:24 pm

    What do you think of Universal Life Insurance that is essentially term to 100+ acting as inheritance / funeral expenses? Does that work generally or is it just not worth it?

  • Sean Cooper October 9, 2012, 11:05 pm

    Term vs Permanent insurance all comes down what kind of expenses you are looking to cover. If you’re looking to cover short-term expenses like a mortgage or your child’s education go with term. If you’re looking at covering long-term expenses like funeral go with permanent. Or you can go with both. Just don’t under-insure yourself. At least that’s my 2 cents.

  • Jane October 9, 2012, 11:13 pm

    Universal Life is a specific type of insurance that is for a specific type of client.

    If you have maxed out your TSFA’s, your RRSP’s and still expect a large tax bill at the end of your life – then universal has a place.

    It can be a good thing – it can be an overkill.

  • SmithyCA October 10, 2012, 2:01 am

    @Jane: When I was reading this article I was agreeing with most of the comments until I got to the insurance on the kids section too. Critical illness insurance is a great way for a parent to protect themselves should their child become sick. It will allow them to take off the time needed to be with their kid. Furthermore, if you get the return on premium it’s a great way to give your child a little lump sum of cash if you chose a set period on the plan.

  • Mike October 10, 2012, 3:12 am

    I am interested in the mortgage insurance vs term question.

    We were offered a set percentage for our mortgage (0.2%) therefore we didn’t have to worry about the diminishing returns. I had heard that term life insurance was generally a better deal so I invited the broker in to speak with us. We have no dependants at this point and she gave us her sales pitch, and I did the math in front of her and realized that we were getting a higher payout/premium ratio with the mortgage insurance. You mention that we wiill not be able to control which debt to pay first upon a spouses death, but we don’t have any other debt…for us, the bottom line was that one of us would get more money in the end while paying less/month using mortgage insurance vs term insurance.

    Am I the only one that has found this while comparing the two options?

  • Margaret @ DTS October 10, 2012, 3:28 am

    Now is the best time to cut down on expenses. We don’t have to live like cavemen or sacrifice the quality of lifestyle; we just have to be smart on how we spend our money and try to eliminate the expenses that we live without.

  • Steve Zussino - Canadian Coupons October 10, 2012, 7:50 pm

    Sean,

    This was a very well-written article. In the US, I could see paying for the “Identity Theft Insurance” but in Canada this does not happen as often.

  • @Steve: Thank you for the kind comments. Glad you found it helpful.

    @Mike I wouldn’t touch mortgage insurance with a 10 foot poll. The only time I see it useful is if you need to be covered for a couple months if you just applied for term insurance (see this article: http://www.moneyville.ca/blog/post/1224711–life-vs-mortgage-insurance-we-used-both). Another reason to avoid mortgage insurance – insurers do post-claim underwriting. You remember the “simple” questionnaire you completed when you applied? If you filled out anything incorrectly your entire claim can be denied. And guess what? You’re no longer alive to fight it – your loved ones are left to fight on your behalf. I don’t know about you, but I don’t like those odds.

  • LifeInsuranceCanada.com October 10, 2012, 11:19 pm

    The conversation around taking time off work due to illness is really a huge distraction with people potentially considering the wrong things. Taking a one person example and extrapolating that to the point that critical illness insurance, well, that’s not risk management.

    If you are unable to work for a long period of time, you need disablity insurance. If you are off work for a short period of time, and you’re lucky enough to have short term disability, great for you. Otherwise, short term needs are properly handled through budgeting, not insurance.

    If you want critical illness because you want all the benefits for non-financial reasons, that’s fine with me – but it’s an emotional decision not a financial decision. The proper financial decision is life insurance, disability insurance, and proper budgeting for emergencies – not critical illness insurance other than in very isolated situations.

    Insurance on kids is the same thing. No way is that a financial decision. Cloaking that under the idea of ‘they’ll have insurance in the future’ is misrepresenting what they’re buying. If the insurance is $30 a month for $100,000, and they don’t ‘need’ life insurance financially right now (and they probably don’t) then the question is, are you willing to pay $350 a year for the next 15 years so they can have $100,000 at that time? Most people would say no. They’ll take that risk on themselves. You absolutely can end up with kids that can’t buy insurance – it happens. But are you prepared to pay $350 a year to cover that small risk? (I personally am – I have huge policies on my kids for no other reason than when they’re 40 I can hand them a policy that’s dirt cheap at that point. But you have to really love life insurance to see that – otherwise you’re comingling financial and emotional decisions, and that’s the downfall of any insurance purchases).

  • LifeInsuranceCanada.com October 10, 2012, 11:27 pm

    Mike: re: mortgage insurance.

    Comparing mortgage and term goes beyond just premiums, though certainly premiums are a start.

    first, for premiums, make sure you’re comparing 10 year term on the term side – and not just from one company, do a market survey. You can do one on my site if you’re so inclined. You need to shop to make sure you’ve got the cheapest term rates. that’s the first comparison. And realize that the mortgage insurance is probably not ‘level premiums guaranteed for 10 years’.

    Secondly, be really (really really) careful about the condition and guarantees on the mortgage insurance. How long are the premiums level for? Maybe they go up every 5 years? Maybe they go up every time you renew your mortgage. What happens if you’re uninsurable when you renew your mortgage – can the company decline your coverage at that time? What happens if you become insurable later – you probably have no options with mortgage insurance. Term insurance from most companies has some very attractive options for coverage if you become uninsurable (I described these features to someone today and had to repeat it twice because they didn’t think insurance companies would offer that level of benefits).

    In short, there’s some potentially very severe downsides to mortgage insurance when compared to term life insurance. And frankly, term insurance is most often way cheaper and worst case it’s generally comparably priced. Which is why I wonder if your broker shopped the market to make sure you were comparing competitive term rates, not rates from just one overpriced company.

  • Cherleen @ My Personal Finance Journey October 11, 2012, 7:13 am

    I so agree that pet insurance and identity theft insurance should be avoided. There is also another option for rental insurance. However, I believe getting life insurance for kids is a good decision.

  • Geoff October 11, 2012, 11:28 am

    @ Jane and others – tell me again why life insurance for children is a good thing? I’m a father so I’m looking at this strictly from a numbers perspective, but get the emotional part and am discarding it (so I’m not a robot, but a math guy).

    If my wife or I die, my current earnings end and so do all future incomes, therefore my death is a net loss to the financial security of the family. But if my child – who does not earn an income – dies, yes I have temporary bills to pay (funeral, etc) but overall this is a net financial benefit to the family. I’m no longer paying for daycare, saving for his resp, buying food/clothes/toys, etc. If you consider last year i paid around $17,000 for daycare alone, I’m coming out ahead quickly financially (Emotionally, I’m wrecked). And perhaps that’s a stronger argument, I might not want to work right away after the death of a child. Luckily my safety net is capable of that already, so what would I be insuring against? You can’t suggest using insurance to build that safety net, as it’s far more likely I’ll need a safety net (from job loss, etc) than a life insurance claim and it’s just good practice to have a safety net.

    Note I’m clearly referring to life insurance, not other forms of insurance ie accident or critical illness for children.

  • Lideo October 11, 2012, 12:09 pm

    ” Remember, you’re entitled to a free credit report annually with TransUnion and Equifax”
    Really? i didnt know we were entitled to it. I thought you can only obtain this by paying them. Is there a link where I can read more?

  • FT FrugalTrader October 11, 2012, 1:00 pm

    @Lideo, you can call the automated equifax line and obtain your credit report (not credit score) for free. More details here: http://www.milliondollarjourney.com/reader-question-debt-or-rrsp.htm

    @Jane and Smithy – I’m an advocate of only obtaining life insurance to protect dependents with the eventual goal of being self insured. I don’t think I would ever get life insurance for my kids – unless they become tv/movie stars and my lifestyle depended on their paychecks. ;)

  • LifeInsuranceCanada.com October 11, 2012, 4:45 pm

    Geoff: You have it exactly right. If you discard the emotional part, then there’s little real reason to put life insurance on children. That doesn’t mean you shouldn’t put insurance on kids for emotional reasons. It’s not like you’re mortgaging your future by doing so – $30/$50 a month isn’t the end of the world.

    Shoot, people spend $200 on sneakers for their kids and that’s nuts too. But you won’t see Nike justifying it as a wise financial decision – it’s a personal choice.

    If you decide $200 sneakers is a good choice for your kids, that’s fine. If you decide that for future purposes you want to give your kids a life insurance policy when you’re older, that’s probably a better choice than the sneakers frankly.

  • Tim October 12, 2012, 2:00 am

    In regards to identity insurance coverage, fraudulent credit card charges are only one aspect of it. Someone could try to steal your identity to open a new credit card or use your social security number to commit fraud. I’ve been through credit card fraud myself and while the bank had me covered, I spent countless hours dealing with the bank and police to prove my side. Identity theft insurance was an easy decision for me.

  • Brian October 12, 2012, 6:38 am

    NEVER buy LIFE insurance for kids! Many adults should not have life insurance either. The purpose of life insurance is to support your family when you’re dead. Kids provide no finacial support, and have no income to replace. If you want to do them a favor, put that money in a retirement account every month.

    If you’re an adult, and have nobody that is financially dependent on you,,, you don’t need life insurance either.

  • Extended warranties are a pet peeve. You’re told you’re making a great purchase … but you need insurance in case anything goes wrong. That’s a mixed message. Please sell me something that won’t go wrong instead. I’d want a reasonable warranty from the manufacturer (minimum of one year) and I’d buy with a credit card that offers a free extended warranty.

    In recent years, I’ve been purchasing 3 year, next-day, on-site warranties on my pricey business laptops. This protection comes directly from the manufacturer and provides peace of mind.

  • Jane October 12, 2012, 11:52 am

    @Geoff – in my opinion – the biggest two reasons to buy life insurance for kids is this:

    1. Future insurability. Like I said initially – if I had bought life insurance for my daughter when she was a child – she’d have it. She now has medical conditions that will make it difficult if not impossible to get life insurance in the future. Buying a small ($25,000-$50,000) policy ensures that she has some form of insurance as an adult.

    2. End of life expenses. If you’re in a position to pay for the funeral, and everything associated with the death of a child, PLUS take time off work because you’re emotionally incapable of going back to work right away, then no – you don’t need life insurance for your child. However, I’d still go back to point 1 where they have future insurability.

  • Jane October 12, 2012, 11:55 am

    @Brian – everyone needs some form of life insurance. End of life expenses are expensive.

    Life insurance pays for those – it doesn’t matter if you have dependants or not – if you have worked, if you have assets, if you exist – you will have end of life expenses and need some form of life insurance to cover those expenses. It’s unfair and unrealistic to expect your family to cover those expenses.

  • Geoff October 12, 2012, 12:03 pm

    @ Jane – quite frankly what good is $50,000, really? I mean it won’t change someone’s life, nor would it pay off a mortgage or something of significance. Yes I wouldn’t turn it down if someone offered it to me, but at the same time my own personal life insurance is more like $330,000 and even that is a bit on the low side from what it probably should be.

  • Jane October 12, 2012, 12:11 pm

    @Geoff – it pays for end of life expenses. It pays for memorials. It can start a college fund for any children of your children (if they have them at that point). It can take the family on the trip the child always wanted to go on but there never seemed to be time.

    It’s not going to change someone’s life – it’s going to ease the financial difficulties that will happen when suddenly someone you love dies and you’re off work trying to deal with this and have no income coming in. It’s going to make life *that* much easier.

    It’s better to have *some* than none. And if your child ends up with a medical condition that precludes being able to get life insurance as an adult – at least there’s *some* to ease the end of life expenses.

  • FT FrugalTrader October 12, 2012, 12:34 pm

    @Jane, if you purchased $50k insurance coverage for your child, and they pass away 70 years later, don’t you think that inflation would eat away at that balance? The $50k coverage today would be worth around $8.5k in spending power 70 years from now assuming 2.5% inflation.

  • I’ve been avoiding the insurance-on-kids quagmire but can’t resist …

    When I designed insurance products, coverage on children was an after-thought. I think we only offered it in universal life. We took adult smoker rates and made minor adjustments. When the child turned 16, they got smoker rates unless they proved they were nonsmokers. Doing more wasn’t worthwhile because the market was small.

    If you go to WinQuote (http://www.winquote.net) and run a Term 10 quote on a 3 year old boy for $500,000 (which an insurer would likely decline as too high), the cheapest annual premium for Regular rates is $404. Only five companies bother to quote. On a 23 year old man, the cheapest premium is $285 and lots of companies quote.

    Since commissions and bonuses are based on premiums, advisors get a nice carrot for selling insurance on kids — if they can convince the parents :)

  • LifeInsuranceCanada.com October 12, 2012, 4:04 pm

    Promod, I object to the ‘carrot for selling insurance on kids’ argument. It’s old and tired, and paints the industry in a negative fashion. And I don’t recall ever seeing a term 10 on a child. Children’s insurance is almost always one of two things – permanent, or a rider, not term.

    A children’s rider can be had for as low as $5 a month for $10k of coverage from some companies. AND it allows for conversion at up to 5X the coverage when they become adults, allowing for future insurability. $5 a month, $10k of coverage. You want coverage on the kids? $5 a month. Now, hold your $500 Iphone in your hand and stare at it while we argue about how $5 a month is a big financial decision.

    For an individual policy on kids, $100K of permanent insurance can be had for $25 a month. No, you don’t ‘need’ it. But if someone ‘wants’ it, I’m back to it not being the end of the world to spend $25 a month (per http://www.term4sale.ca) on kids future finances, even if it’s not the perfect scenario financially,it’s hardly a life changer either.

    I’ve got $250K of permanent on my kids for all the reasons so far. Guaranteeing future insurability. They’ll have enough to cover their mortgages when they’re adults no matter what. Otherwise, I’ve locked in rates for the rest of their life, at prices they will never see again (because permanent life insurance premiums are on the rise). I have a heightened appreciation for life insurance based on my experience. People who are uninsurable often will put insurance on their kids as well. And people who had insurance on them when they were kids that they let lapse or cancelled – I often hear that they wish they’d kept the coverage. People in perfect health? often don’t see the need.

    There are some things around life insurance for kids that you won’t read on the internet though. I should probably get to work write an article on it.

  • FT FrugalTrader October 12, 2012, 4:29 pm

    While I can respect the fact that you can basically “guarantee” that they are insurable, why not take the $25 and invest it? $300 per year invested over 70 years at 5% return is $186k – looks like a better deal than $100k that life insurance would provide.

  • I understand FT but an insurance premium vs an iPhone? That’s comparing an apple with an … Apple :)

    I wanted to make three main points. Life insurance on children is relatively:
    1) uncommon (more insurers would sell it if there were a broad market)
    2) expensive compared to coverage on adults
    3) lucrative for advisors (even more if selling pricier permanent coverage)

    There’s a bonus point aimed at “Jane”. Leaving comments is terrific but we enhance trust by revealing our identities. That’s especially true when there are potential conflicts of interest. That’s why I used my name instead of the usual SEO-friendlier “Riscario Insider”.

  • Jane October 12, 2012, 8:49 pm

    Sorry – I got busy doing life things and forgot about this discussion.

    I don’t have all my bulletin points to line up because I’ve been on disability leave for the past 9 months. My husband was in ICU from January 19 and died on June 26.

    At any rate – you’re more than welcome to go confirm my qualifications – I’m currently an unlicensed (due to being on disability) Life & General Insurance Agent with the Co-operators in Whistler, BC. Feel free to call them up and ask about me.

    Clearly a lot of people are going to have their minds made up one way or another. I am not, nor do I have plans to become a financial advisor – so questions regarding investing vs insurance are out of my realm of understanding or expertise.

    I still stand by my advice to have insurance on children for insurability & end of life expenses. Whether you and/or your financial advisor thinks it’s a better idea to have your money invested in markets that fluxuate and don’t offer a guaranteed return vs a promise of “X” dollars back through life insurance (which, as someone pointed out up there would be whole or permanent coverage) which also has a cash back value as well as the ability to borrow against – that is between you and your financial advisor.

    My job is not to *sell* a product – my job is to listen to you and find the product that best suits your needs. I have told clients flat out that they have good coverage, keep what they have and don’t move their business because it’s the right thing for them. I would not sell a product to someone who didn’t need it.

  • Geoff October 12, 2012, 10:26 pm

    Jane I’m sorry for your loss. Take care.

    I think it’s good form to identify if you’re a seller of life insurance when posting, in terms of full disclosure in future, though. (For the record I’m a dad who doesn’t earn an income from selling anything).

  • LifeInsuranceCanada.com October 13, 2012, 8:59 am

    There’s lots of things to get upset about in the life insurance. Someone buying life insurance on their kids isn’t one of them.

    Promod, you’re reinforcing negative stereotypes of the industry. As an actuary, you know enough to substitute facts for impressions – it’s right in the society of actuaries mission statement I believe.

    You said:
    1) uncommon (more insurers would sell it if there were a broad market)
    2) expensive compared to coverage on adults
    3) lucrative for advisors (even more if selling pricier permanent coverage)

    and my response:
    1) yup
    2) False. I pointed out an option for $5 a month. $5 a month isn’t ‘expensive’ in the terms of anyone reading this blog.
    3) False. commission on either $5 a month or $25 a month is hardly ‘lucrative’ by any stretch. You sell life insurance – if you sold a $25 a month premium, do you do your ‘happy dance’ over how much money you just made because of how lucrative the commission is? Obviously not. I’m confident you don’t give a dang about that level of income.

    The fact is, despite this being a financial blog, the decision to insure or NOT to insure children is hardly a financial decision. It’s an emotional decision. As a result, the advice to avoid this type of insurance is incorrect. The advice to always insure children for future insurability purposes is also incorrect. The correct advice is to ask, how do you feel about these benefits of putting insurance on kids? If you don’t like it, don’t do it. If you like the idea, go ahead.

    FT,you said “why not take the $25 and invest it? $300 per year invested over 70 years at 5% return is $186k”.

    OK. And what happens if they die tomorrow? That’s the standard industry response to your argument (the correct answer is larger than that). You implemented a convenient 70 year timeframe which makes your scenario look better. But that’s not insurance.

  • Ed Rempel October 13, 2012, 7:59 pm

    Hi Sean,

    I agree that insurance on children is a waste of money for several reasons:

    1. They usually cost more money than they bring in, so there is no income replacement need.
    2. The insurance usually sold for kids is permanent insurance, which is vastly oversold in general. I think only perhaps 5% of Canadians have a permanent insurance need at any point in their life. Few people will need anything other than term insurance.
    3. Buying insurance 20-30 years before you may or may not need it, just in case you might not qualify 20-30 years later is ridiculous, in my opinion.
    4. You can generally get an inexpensive child rider on your life insurance or through your group insurance that would pay for a funeral, if something happens to your child.
    5. It creates an awkward conversation when the child almost always wants to cash it in the day you hand it over.

    We have been through the awkward discussion about cancelling whole life policies for clients when their parents want them to take it over quite a few times. The parent has paid into the policy for 25 years and now wants the child to take it over. The child is our client and has no permanent insurance need and has no problem qualifying for the term insurance he needs. So we
    recommend to cash it in and invest the cash surrender value.

    This is awkward, however, since their parents have paid into it for 25 years. We explain that their parents did what they thought was best and whole life insurance was the main way that most people saved decades ago. They should thank their parents, but just tell them that they already have $500,000 term 20, and do not need the $25,000 whole life policy that has the same premium.

    I do agree with LifeInsuranceCanada that critical illness on kids is a completely different question and is generally a good idea, if you have the money.

    I was actually interviewed for an article “Should you insure your child?” recently. Here is the link: http://www.moneysense.ca/2012/08/30/should-you-insure-your-child/

    Ed

  • FT FrugalTrader October 14, 2012, 8:39 am

    @lifeinsurance, the reason why I chose the 70 year time frame is because the argument you made for insuring your children was about future insurability, and the average man/woman lives into their late 70’s early mid 80’s.

    “I’ve got $250K of permanent on my kids for all the reasons so far. Guaranteeing future insurability. They’ll have enough to cover their mortgages when they’re adults no matter what”

    My response to the “what if my child were to die tomorrow”, financially speaking, nothing. We do not depend on our children for income or financial stability. Most employers allow time for bereavement leave, and if you need extra time, use vacation leave. Any additional leave should be covered by emergency funds or other cash banked.

    Having said that, like you said, children are a emotional topic and I can understand why some would choose to insure them – but not from a logical perspective.

  • Boring Investor October 14, 2012, 9:41 pm

    Disagree About the Pet Insurance. No question it is expensive. However, since pets quickly become part of the family, you want to do everything you can for them if they get sick or hurt.

    I find myself at the vet with a $500- $1000 procedure recommended every few years (accident prone boarder collie). Having the pet insurance to cover part of the cost made it easy to say yes to what they were suggesting.

    Like all insurance, it is easy to live without until you need it. Your suggestion to self insure with a 300/year deposit seriously underestimates the cost of hauling fido to the emergency room.

  • Allan September 5, 2014, 4:11 pm

    Well I totally agree about “mortgage insurance”. Several exposes have been done recently showing that it is better to just purchase real term insurance from a good broker than to sign off on the insurance offered by the bank at the time of signing for the loan.

    In Canada check out the show Marketplace for a great explanation as to why.

  • Clifton Clowers January 31, 2015, 12:45 pm

    My wife is a believer in pet insurance, and had some on her dog when we first got together. When the dog contracted an eye ulcer (breed problem) and required surgery, she learned that the coverage was OK for that eye, but nothing further. Since the dog has TWO eyes, and the breed is subject to eye problems, that insurance was next to useless! No amount of complaining to the insurance provider would change their policy. If you are a pet owner, it might be smarter to set aside an emergency fund rather than be crippled by pet insurance premiums!

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