5 Myths About Insurance
Insurance is one of those budget items that you hate to pay, but you’re really happy to have it if you need to make a claim. There are, however, popular misconceptions that many people believe that will, unfortunately, cause them to be underinsured or improperly insured. Do you believe these common myths about insurance?
5 Myths About Insurance
Myth #1: Insurance is expensive
Most people are underinsured, even across all income levels. The average consumer thinks life insurance costs more than it actually does and that it is a needless expense, especially if they are young.
Related: Health and dental insurance – Not really insurance
Costs are based on life expectancy – and life expectancy is constantly increasing – so, the younger you are, the less it will cost.
Myth #2: Employer-provided life insurance is all you need
Group insurance through your employer certainly has significant benefits – ease of purchase and lower administrative costs per policy, for example, but it may not be enough for your purposes.
Your employer may provide you with life insurance equal to one or two times your salary. This may be sufficient if you’re single and it’s enough to cover personal debts and funeral bills. Others will need to replace their income for their dependents. Experts generally recommend at least 5 – 8 times your income and some even go as high as 10 – 12 times.
Even if you are able to purchase an additional amount, you may lose it when you leave your job, or if you can convert it to an individual policy, it may be much more expensive.
Myth #3: A “house spouse” doesn’t need life insurance
Many people assume that only the breadwinner needs life insurance.
But, “house spouses”, especially those with young children at home, are providing a very valuable service.
Related: Why you should avoid mortgage life insurance
Notwithstanding all those articles that place an economic cost on the value of a homemaker’s tasks (some go up to $500,000 per year), hiring someone to take care of the house and kids would be costly.
Mike Brady (of the Brady Bunch TV show) hired Alice as a housekeeper and to take care of his three sons after his wife passed away. She became so beloved by the family that they kept her on even after Mike married Carol.
Insuring the life of a stay-at-home spouse makes a great deal of sense.
Myth #4: If both spouses are making “big money,” neither needs life insurance
The theory here is that, in the event of a spouse’s death, the surviving partner (and children, if any) could carry on quite comfortably. The problem with this logic is twofold:
- What happens to the children’s financial future if the couple dies simultaneously?
- Many well-to-do couples invariably raise their lifestyles to reflect their joint success.
Although “comfortable” is a very subjective word, few of us would use it to describe any financial situation less prosperous than the one we’ve become accustomed to. In this case at least, buy enough life insurance to eliminate all debt and take care of future obligations.
Myth #5: Your house should be insured for its real estate market value
The recommended route is insuring based on the cost of rebuilding after a total loss (materials and labour). That number is totally different from what someone would pay you for your home and the lot it sits on.
Related: Our home insurance bill is up 30 percent!
Home insurance should cover loss that would be expensive for you to pay on your own. You could probable handle replacing a broken window yourself. Therefore, opt for a larger deductible and save up to 35% on your premium.
Bonus myth:
People believe that red cars cost more to insure than other-colour cars. The perception is that they get ticketed more often.
Insurers don’t use car colour as a factor in setting rates.
I would love to see an in depth review of disability insurance. We are self employed. Our disability insurance policies went up so much that we decided to cancel – so in our early 60’s we have a small life insurance policy (great rate as an alumni) and no disability insurance.
Our insurance agent was obviously upset we cancelled and couldn’t understand our reasoning.
A big part of cancelling our policy was that I could not get a definite answer as to how much and who paid out if one of us is injured.
1. We had disability insurance with a private insurance provider
2. We pay WSIB on our earnings (which is required by law)
3. There is also coverage under canada pension for disability
No one could clearly outline who paid if one of us was injured or disabled. From my understanding, WSIB would pay first, then Canada Pension disability would cover some and then the private insurance company would be the last remaining contributor to the income stream of the injured/disabled person.
But I have been told that at no time can the insured/injured/disabled person claim or receive more than 75% of his or her previous income from all combined sources. This leaves the private insurance company as the last – and least – contributor to the injured parties income stream.
Thereby the huge cost you pay for disability insurance to a private insurance company may incur the least financial amount contributed to the disabled person in the end. I have also been told that if you take early CPP (at 60) and continue to work – then you cannot qualify for a disability pension should you be injured or disabled. So many people have a difficult time getting the payout from their private insurance company that they thought they had been paying for all these years.
I would love to see an articling clarifying all the above.
I would like to see a review of insurance for people in the gig economy, self employed or small to medium businesses. When I left my full time job, it was challenging to find affordable insurance rates. I realized that there are very few options for those that are self employed.