Ignorance is the mother of prejudice.
Certain people are quite hostile to the whole idea, or at least the practice, of insurance. Below, I collected some of the reasons for this hostility, with comments. You might find some of these disturbing, some convincing, and some others unacceptable for you. When these issues are raised in conversation, some people feel attacked, cornered, blamed, or tricked; their automatic response is that of counter-attack, denial, excuses, and rejection. Here you are less limited to automatic responses. You can contemplate issues, and can come to conclusions you are really in peace with (even if maybe not comfortable or content with as well). After all, it is YOU you have to agree with.
Hopefully, you are not one of those people who do not like to listen to arguments, or who do not even try to calculate the costs and benefits of options when important decisions are to be made. Their unwillingness is usually based on faulty beliefs and assessments, related to
Discussion of death, sickness or accident tend not to elevate our mood (especially in reference to ourselves) and are usually not very popular topics. Some people may approach the whole issue superstitiously; sometimes it takes the understandable, still really childish form of unwillingness even to think or speak about the risk of death or disability. This is the reason why there must be some truth in the comment about the special nature of insurance: 'usually, it is not bought, it is sold'.
As for the question of 'Should I believe in insurance' is concerned, there is no sensible answer to this. Wrong questions don't yield sensible answers. Insurance is a financial tool, just like a hammer is a tool for driving nails into a piece of wood, e.g. Would you take the question 'Do you believe in a hammer' seriously? Emotions and beliefs obviously have their background role when your intention to make a shelf, hang a picture on the wall, or protect your dependents and/or yourself is being born. When you select and actually wield the tool, you are better off if you stay rational.
Many people are just not aware of basic facts of life. (Or they dream that those statistics have no relevance whatsoever to them, - see the psychological reasons above.) I put some of these facts into the primer I compiled; and I suggest you to check the Web site of Statistics Canada on some life and health related facts.
Again, it is probably plain ignorance. Some people do not know how affordable insurance can be, especially if started when still young and fit. (Nonsmoker status makes it even more accessible. Please check some examples if needed.) Many people are not even aware of the existence of all the basic types of insurance. In their minds, insurance is equated with life insurance, period. As for the need for life insurance, according to one author, you have to check your answers to only two simple questions:
Will somebody suffer financially if I die?
Do I care?
If the answers to both of these questions are 'yes' then you have basically answered the main question, and exploration of affordability and preferences, detailed calculations, analysis and comparisons should follow. There are various methods for the assessment and calculation of needs. These are, and should be, usually quite straightforward, still rarely done that way. (Please see an example of how this can be done.) A broker's experience and assistance can be useful, but you can basically do it yourself. The main factors in such kind of calculations are the comparison of premiums for various products, and the time value of money. Since calculations should be done usually for many years, or several decades, trying various realistic assumptions regarding rates of inflation and net returns on investments is crucial. Some kind of computer program is almost indispensable for the easy implementation of such a job. If you have the expertise, even a spreadsheet program will be helpful. However, there are several specialized programs for exactly such purpose. Your broker surely has one.
The need for health insurance is perhaps even more obvious. Many people who can answer 'No' to any or both of the two short questions above can get into great trouble if struck by a life threatening illness or long term disability. Here, calculations of coverage are different from that of life coverage. Instead of the needs of the family, they are based solely on your actual income. Price for disability insurance may seem steeper than that for life insurance. However, if you consider that the total amount of monthly pay-outs from a disability insurance policy during many years can easily excess the lump sum from a life policy, and also that there is a much higher chance for your disability policy to be needed to pay than for your (term) life policy, the difference is understandable. (The case is different if you own some kind of whole life policy, of course, since in that case the question is not whether the policy will pay but when will this happen.) To see some basic facts about the need for protection against disability and the effects of life threatening illnesses, please be sure to check my primer and the pages I prepared about recent developments in the industry: critical illness insurance, and long term care insurance.
Saving for mishap and using the saved amount in case it is really needed, instead of putting protection money into the pooled resources of thousands of other individuals, organized by an insurance company, can yield nicely, ... especially if that mishap does not happen, or at least not soon. But this is exactly the idea of insurance: with pooling those resources you will have the protection right now, not in several decades that may be too late. One more thing can be added: Even if you can wait with the formation of your protective shield (which, again, is unknowable in advance), you will probably not have the opportunity to let the growth of your protection capital unfold in a tax-sheltered way, as it would happen within an insurance policy. Another version of this misconception is when people want to buy insurance, but the only thing they are willing to look at is term insurance, because it is the cheapest. This is undeniably true as per the moment. However, insurance is bought usually for long periods of time. With a computer, it can easily be demonstrated that the old wisdom of 'Buy term and invest the difference' is frequently false. In fact, if one invests in a good universal life policy (as more and more people do), the cost of insurance protection can in a few years be overbalanced by the investment extra gain due to the specific nature of such investments. In this sense, it is not exaggeration to speak about 'free' insurance either. (And then we have not considered other strengths of universal life insurance yet.)
There are people who treat insurance like a kind of lottery. It is a wrong and dangerous standpoint. While the element of risk is really present in both lottery and insurance, the aims are quite different: gaining wealth in the one, protection of wealth and income in the other. Just think of the difference between two alternatives: in both cases you would "invest" $100 today, and some genie would promise that you will "earn" $400,000 next week, but while in the first case this amount would come as a lottery prize, in the second case it would come as a death benefit. The moneys are the same, but the other factors, the chances, degrees of freedom, and the overall attractiveness of the two scenarios are a bit apart, aren't they? The two things are not really comparable. … Or just think about the comparability of insurance with investments. Would you be really happy if an agent wanted to entice you with high returns on your insurance premium? You know, the highest return occurs if someone signs an application today, pays the premium for the first month, and then collapses dead the next day without previous signs of such a close end. You are better off when the financial return of your money paid for protection is lower. Though insurance can be usefully linked with financial activities of other sorts, it is important to see the unique nature of its basic function: protection. Quite simply, it is an inappropriate question to ask whether you loose the money paid for protection. If you knew in advance when will you die, then it would be a waste of money to buy insurance long before that. Since no-one knows that date, you pool your resources with other people through insurance and then hope you will not need the proceeds from it soon. Return is not an appropriate term regarding basic protection; however, costs, coverage and qualitative aspects are relevant, and you need help in dealing with them.
Besides, for some people at least, there are some additional functions usually related to taxation issues that are good to know of. In those non-protection aspects there is ample room to make comparisons and seek answers to important financial (taxation, or investment related) questions as well. To see some important implications, check Olga's case.
If one says that insurance is too costly, then the appropriate question is: Compared to what? Compared to the benefit or to the cost of other things? Since there is nothing else that could create a comparable size of assets immediately, the only meaningful quantitative comparison of the cost of a policy is with the cost of other available policies. There are various kinds and levels of protection, with different costs. Furthermore, even very similar or same protection from various policies can be quite different in cost. If one feels that he/she cannot afford even the cheapest insurance protection, that person should meditate a bit over what could surviving family members afford without insurance if he/she dies, or what he/she will be able to afford if a long and/or life threatening illness occurs. Of course, there are cases when paying the insurance premium would really be such a serious burden that the person can hardly afford it; but in most cases affordability is just a matter of realistic assessment and prioritizing. What is needed is qualitative comparison like, e.g., comparing the benefit of a family visit to a restaurant once a month with the benefit of having the peace of mind from the knowledge that a big threat has been taken care of. There are enough uncertainties and threats in life even with utmost care; why not to cull out at least what we can?
To me, for one, this principle is quite acceptable. To pamper healthy adults who are able to support themselves seems not to be a very attractive idea. (Or at least not a moral obligation at all, especially for someone whose own future is not very well protected financially.) However, there are people who can afford to pass on significant financial wealth to their children, grandchildren, or perhaps a favourite charity. If this is their wish, why should not they be helped with very effective and tax-efficient financial means provided by special applications of insurance? More importantly perhaps, there must be a line drawn between overindulging, especially if money is scarce for the benefactor, and providing means for decent living for people who we are responsible for. Kids are the obvious subjects for this, but a spouse also can be a candidate, even today, when most of women are also breadwinners. In some cases, some deterioration of the lifestyle of a family, should one of the breadwinners die, might be acceptable; but usually people experience even modest deterioration in their standard of living as quite painful. With buying insurance, most people would like to ensure that their loved ones will not be faced with financial difficulties because of their death, in addition to the emotional trauma. If you want that, then you have to make some insurance need calculations Without that, it is too easy to misestimate the value and sustaining power of existing assets and future income of surviving family members.
Still others are aware of insurance's importance and their need for it, but may believe that all the companies and representatives of the industry are just a bunch of crooks whose only aim and way of doing business is to cheat them. Well, there might be all kinds of characters among insurance people as well, of course. Even if it does not mean too much, perhaps it is worth mentioning though, that agents and brokers have to get licensed, and part of the screening for that is a check-up on the low-abiding history of the person. A dissatisfied customer can turn to provincial regulatory bodies for help. Furthermore, though it is not very frequent, it is not unprecedented either that an insurance agent / broker is sued if his/her professional conduct is not what can be expected from a professional. Again, the best prevention for the customer of being tricked is if /s/he learns the basics and if /s/he turns to more than one professional before selecting the one to stay with. (Perhaps listening to others' opinion as well is not in vain from time to time, even if you have an old contact you are satisfied with.) And do not forget: harsh competition within the insurance industry makes it hard to companies to do whatever they want. In fact, they are squeezed on some fronts, and because of that will probably be forced to increase premiums and/or make the conditions of several products stricter in the near future. Not only the 'homogeneity of dishonesty' should be rejected, but even the assumption of any kind of homogeneity is deadly wrong. The range of products offered by various companies is probably not as bewildering as the names suggest; still, the great variety of prices, protection, definitions, exclusions, complementary options, or guarantees make it quite difficult to find your way among them without good professional help.
Though insurance companies are screening their applicants very carefully, they are willing to issue policies to the great majority of people. If someone is clearly an above average risk, they usually charge a higher than normal premium. Their assessment is not cast into concrete: they are willing to revisit them sometime, with the change in circumstances. For example, they are usually willing to issue insurance on people who have had a heart attack. With the advancement of medicine, their views change: while in the 50s, it was common practice to wait five years after a heart attack, today, you can buy an insurance policy (with substandard rate), after six months. Another example for the change in underwriting philosophies can be the case of psychiatric diseases: Formerly, "feeble mindedness" was seen as sufficient reason to reject applications; today, with the advancement of medicine, mild cases of mental retardation are seen as insurable. Also, today, a mild or short period neurotic depression is usually treated as a standard risk. Moreover, different companies may assess risk factors slightly differently: your application may be rejected by one, still approved by another.
This problem is of psychological nature again. Some people buy a policy and feel that they have to stay with that. Or they have accepted the service of one agent, therefore they have to stay with that person and cannot listen to anybody else. These people seem and feel to be consistent, while in fact they are just slaves of their own past decision. Constant change is usually disturbing but, just in perhaps anything in life, change might be advantageous sometimes regarding insurance policies as well. It cannot be told whether any particular change looks like good or bad, unless one is willing to sit down and revisit facts, circumstances, and decisions occasionally.
There are many advantages of group insurance; but also there are certain limitations. They are not available to everyone. (On the other hand, they may be available to some people who cannot buy individually owned insurance.) Their coverage is usually far below what the actual need for protection is. They can be easily lost, that is the person insured is much less in control than with an individually owned policy. It is best to see group insurance as only one element of the individual's or the family's protection plan.
There are similar problems with an insurance policy offered by banks when you get a mortgage. It is a kind of non-convertible group policy, with non-guaranteed premiums, bank ownership of the policy without opportunity for you to designate a beneficiary, limited coverage that cannot be extended (or can even be canceled any time unilaterally by the company), and no option for riders. In short, it is to protect the bank, and not your family.
The main problem with Workers' Compensation Board protection is that it is quite narrow: it covers only disabilities from accident while on the job, or from an occupational disease.
If someone thinks that a person without direct income is financially worthless, one should consider that person's non-monetary contribution to the family. When calculating the need of a family for protection, those non-monetary services should be evaluated on a financial basis. Furthermore, the cost for the family of a serious or long lasting illness or injury can be quite similar whichever member is the unfortunate. The difference is the lost income earned by that person, at most - but the much tougher issue frequently is the additional costs because of the mishap.
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