How to avoid my insurance mistakes

My wife Diane was witness to my early insurance mistakes, so around the kitchen table I tend to avoid bragging about the hard lessons I’ve learned along the way.

Like most consumers I had a rough start learning about the ins and outs of this complex industry. Despite some missteps I’ll reveal below, MoneySense has asked me to write a regular consumer-friendly column about all aspects of insurance. The goal is to demystify it so average people can make financially sound choices at reasonable cost.

My first shortsighted move was lack of risk avoidance after buying my first car. One morning, I scraped a parked car while driving Diane to the laundry. Later I compounded that blunder with two speeding tickets. The hiked premiums cost more than the repairs and delayed repayment of my student loans.

Later, I stopped driving to work in favour of public transit, but one evening I totalled Diane’s brand new car. I wasn’t found at fault and we had the policy option that paid the car’s full replacement value in the first 30 months. But I was so sorry about wrecking it I threw caution to the wind and suggested we pay extra for deluxe options to shorten the wait for the replacement vehicle. What was I thinking?

As a young man, the only major financial initiative I took—after interviewing an expert—was to propose individual life insurance. That saved us money because we avoided paying our mortgage lender more money for less protection. Unfortunately, I chose an insurer based only on lowest price, and it became insolvent. I was on edge until our contract was sold to another insurer.

We relied on others to decide on the coverage they thought suited us best—governments, employers, even my mother, who used life insurance rather than savings to pay for her funeral.

Only the lucky have no regrets

Only by luck did we avoid regrets about our lack of insurance. We should have considered disability coverage 20 years ago, after two younger relatives became unable to work.

Before one was disabled, she’d given up a salaried job with benefits. As a result she receives only CPP disability benefits, which at best pays $14,555 a year, plus $2,769 per child.

Another in-law had group disability coverage through an employer, but payments gradually fell in value. Diane and I would have been in the same boat if either of us suffered the same misfortune.

Now I’ve confessed to my early mistakes, I look forward to making amends in MoneySense. We’ll walk readers through the bewildering maze of insurance options and strategies available to support a balanced financial plan.

As a consumer, my learning curve was steep, despite the advantage of being employed to write about insurance or investing for almost four decades. I’ve covered everything from group benefits to property-and-casualty insurance to pensions and wealth management. Eventually I became one of the few journalists to qualify as a Certified Financial Planner, though I didn’t plan to make a living at it.

I’ve never sold insurance or financial advice, but cultivated expert sources who generously share their wisdom. Two veteran planners urge clients to make insurance the centrepiece of their financial plans, implemented as soon as they have dependants and enough income. They say the top priority is individual disability and life insurance, even if it means doing without a car for a while or delaying home ownership.

I realized early that individual life insurance policies offer better security than employer-provided group plans. The life insurance sold by banks to cover mortgage debt shrinks with the debt, and disappears if you change lenders. So you have to hope you will remain insurable. As well, employers and benefit plans may come and go whenever you change jobs.

Insure the goose before the eggs

One financial planner has a simple but powerful message: Your ability to earn an income is like the goose that lays golden eggs. Tony Mahabir, CEO of Canfin Financial Group, says disability insurance lets you “take care of the goose,” while property insurance only looks after the eggs.

“There’s a higher chance of getting disabled for 90 days or more than dying or getting critically ill prior to age 65,” cautions Tina Tehranchian, a branch manager for Assante Capital Management. “The financial damage can be quite severe for most families if the breadwinner becomes disabled for a prolonged period of time.”

Future columns will cover everything from extended warranties to auto insurance, from self-insurance to the personal pension plans known as life annuities.

I welcome questions from MoneySense readers on all these topics and more. Let me know what insurance mistakes you’ve made and what you’ve learned. You can reach me through the e-mail address below.

James Daw is a journalist and Certified Financial Planner based in Toronto. Email [email protected]; on Twitter he’s @jamesfdaw.