Building Blocks is a special personal finance web series geared towards educating families on money-related topics. A collection of stories, videos and discussions, Building Blocks will run online until the end of December.
* Editor's Note: A paragraph in this article, which first appeared on globeandmail.com's personal finance site on Nov. 11th, has been edited. Andy Hall said a group insurance policy is two times an individual's take-home pay and that benefits paid through a work policy are taxable. In reality, group benefits are paid on gross salary and are non-taxable to the named beneficiary. The incorrect information has since been removed.
When it comes to insurance, there are three almost universal truths: Canadians hate thinking about it, begrudge paying for it and the majority of us don't have anywhere near enough of it.
The first two attitudes are easy to understand. Insurance is a downer. Besides that whole “death or dismemberment thing,” you are betting against the future health of yourself and your loved ones. And then you have to pay for it, when that cash flow could be put to “better” use paying down the mortgage, starting an education fund for the kids or replacing the rattling family beater.
“Nobody likes insurance. Generally when you mention insurance, people want to grab the waste paper basket and throw up into it,” said Brian Poncelet, who is an insurance specialist and independent certified financial planner based in Mississauga.
Like others in the field, Mr. Poncelet starts with the assumption that young families are seriously underinsured when it comes to covering the earnings of the breadwinners, even if they had group insurance through their employers. He also takes the approach that most twenty and thirtysomething families have limited ability – or desire – to buy additional insurance.
Nobody likes insurance. Generally when you mention insurance, people want to grab the waste paper basket and throw up into it. — Insurance specialist and independent certified financial planner Brian Poncelet.
Because of that reality, he finds ways to pay for additional coverage within the family budget. One surprising source: existing insurance policies. A good example is raising the deductible on home insurance, as Mr. Poncelet did on his own policy, bumping it from $500 to $5,000 and freeing up $500 annually which can be put towards insurance against the loss of income. “Same thing with auto insurance,” he said, noting people generally carry a pricey low deductible on an aging vehicle that in many cases would not be worth committing to expensive repairs.
When sitting down with a “typical” young family with two kids and a house, insurance adviser Andy Hall of Mitchell Sandham looks first at the home. “First and foremost is protection of their biggest investment, which is their home.” Besides contents and property insurance, he is a big believer in mortgage insurance (more on that later).
* Mr. Hall, like other experts, finds most people he sees do not carry enough life insurance to cover the loss of income of a family breadwinner. In his opinion, "two times salary is not sufficient" to support a household in the case of a breadwinner dying. As well, he notes that group insurance can quickly disappear in the event of a job loss.
Mortgage insurance is important, advisers say, but getting it from the bank where you have your mortgage might not be the best route.
