Category: Insurance

Handling an at-fault car accident in BC

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Please note that I am not a lawyer, nor do I work for ICBC. This post is based on my own experience only. 

British-Columbia is one of 3 provinces in Canada that has an at-fault system when it comes to car accidents. In legalese, it is called tort.

It means the non-faulty party has the right to sue the at-fault driver for various damages related to the car accident, such as loss of wages, medical expenses, pain and suffering etc…

This is what happened to me when I was involved in a collision 4 years ago, for which I was found 100% responsible. Both the other driver and their passengers claimed injuries and sued me 2 years later in the BC Supreme Court.

IF YOU ARE SERVED, BRING THE DOCUMENTS TO ICBC

in BC, people have 2 years to sue. I was served a Notice of Civil Claim 6 weeks before the limitations were to expire. If it happens to you, do not panic. Bring the documents to any claim centre. ICBC will take it from there.

This is why you pay them for basic third-party liability insurance. the crown corporation will cover the legal costs and any damage assessed up to $ 200 000. If you pay for extended third-party liability insurance, your coverage will be greater, up to $ 5 millions if you wish.

do not contact the other driver 

No matter how upset or surprised you may be, there is no need to contact the other party.

ICBC will handle everything on your behalf. You will not be consulted on how to handle the lawsuit. Your appointed lawyer will also not take any direction from you in the matter.

This is why you pay for third-party liability insurance. Precisely so that you don’t have to do much….which brings me to the next point.

DUTY TO COOPERATE

The only thing you have to do is cooperate. Depending on the accident and the lawsuit, you may be required to meet with your appointed lawyer, ICBC or to attend the trial. Also, return any phone calls and reply to any e-mails sent to you.

Not cooperating could result in a breach of coverage, i.e. ICBC will no longer cover you and you will be on the hook for the entire cost of the claim.

For my case, I attended 2 meetings with my lawyer, an examination for discovery and replied to a bunch of e-mails from both my lawyer and ICBC. I never saw the other party again.

FINAL WORD

All lawsuits will settle, whether it is before or at trial. My appointed lawyer indicated around 95% of claims settle out of court. I was no exception. I did not have to pay for anything beside the deductible.

Being sued as a result of a car accident will not have a significant impact on your life, in most cases. I am not talking about injuries here, but about the lawsuit in itself.

The only time it could be problematic is if ICBC breaches your coverage for one reason or another, or if the damages exceed your third-party liability limits.

 

 

Stress-testing your finances

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The Office of the Superintendent of Financial Institutions (OSFI) implemented a new mortgage rule that will come into effect on January 1st 2018.

Any mortgage applicant will have to be put to a financial stress-test, regardless of the down-payment amount. Same goes for renewal and refinancing, unless the lender is the same.

Initially, only high-ratio mortgages were subject to said test, i.e. mortgages with less than 20% down.

Basically, borrowers will need to qualify for a mortgage at a rate 2% higher than the rate they are actually getting or at the 5-year Canadian benchmark rate, whichever is greater.

This measure is put in place to ensure Canadians do not buy properties that they ultimately can’t afford to pay for. We also are in a rising-rate environment, after 7 years of stagnation….and household debt is at an all time high.

Canadians will qualify for lesser amounts, and personally I think it is a good thing.

stress-testing our personal finances is always a good idea

Life is never a straight line. Sometimes, shit happens; things don’t go according to plan. Suddenly, we are out of a job; or we are involved in a car accident.

So, what do we stress-test our finances? Let’s take a look at a few items.

liquidity 

How liquid are you? if something bad happens, you will most likely need some cash right away.

If you are sick, you will probably need to pay for your medication before submitting an expense claim. If you apply for E.I. benefits after being let go, there is a one-week waiting period. It will take 2 to 3 weeks before money is actually deposited in your bank account.

And no, a credit card is not considered as liquidity! Sure, you can charge expenses to it and earn rewards, but at some point, you will have to pay the credit card company back.

Your house and RRSP are not liquid either. It will take weeks, if not months to liquidate these.

insurance

Having adequate insurance coverage can be a life-saver and may avoid you bankruptcy or foreclosure on your home. I wrote this article a while back. Use it to assess whether you have sufficient coverage (shameful plug, I know!).

mandatory expenses

These include shelter, food, debt repayment at the very minimum. Depending on your situation, you will probably have more categories such as transportation and/or various insurance policies.

Don’t think for one second you will be able to skip these. Vacation and entertainment, however, can -and should- be put on hold. This is the basis of your bare-bones budget.

net worth

In extreme circumstances, you may have to sell all your assets to pay for what you owe or to avoid becoming homeless. Your net worth equals all your assets minus all your liabilities.

if after doing the math, you don’t have anything left, or you owe more than you own, you have a problem. Having some net worth is another good safety net.

Final word

Everyone should stress-test their finances at least once a year. Review your savings amount and allocation; review your insurance coverage; live on a bare-bones budget for a month. You don’t need to wait for an emergency to do so.

Annuities basics

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Please note I am not a licensed insurance agent. This post is for information purpose only. 

Upon retirement, many people decide to convert their savings into an annuity. But what is an annuity?

AN ANNUITY IS A CONTRACT GUARANTEEING AN INCOME FOR A SET PERIOD OF TIME

Basically, you buy it with your savings and the money is returned to you in the form of set payments as well as any interest earned.

There are different contracts that can match your needs: straight-life, term, prescribed, indexed, insured, variable, joint-life (for couples), guaranteed minimum..etc

ANNUITIES ARE GREAT IF YOU ARE CONCERNED WITH OUTLIVING YOUR SAVINGS

If you buy a straight-life annuity, payments are guaranteed until you die. A number of term annuities can make payments until you are 90.

ANNUITIES TAKE AWAY INVESTMENT CONCERNS

With an annuity, you don’t have to worry about selling stocks, bonds and re-balancing your portfolio. The insurer will do it for you.

ANNUITIES CAN BE A SOLUTION IF YOU ARE SINGLE WITH NO DEPENDENTS

Most annuity contracts will stop payments upon your death and will not necessarily return the excess funds to your estate. If leaving a legacy is not a priority, you can choose a higher payout instead.

ANNUITIES MAY NOT WORK IF YOU ARE IN POOR HEALTH

if you are not expected to live a long retirement due to health issues or a terminal illness, an annuity may not be the best solution for you.

ONCE YOU BOUGHT THE ANNUITY, YOU ARE LOCKED IN

This is the biggest drawback of this product. Once you have signed the contract, you cannot go back. You no longer have control over the money you handed over, nor can you choose how to invest the money.

THE INCOME IS CALCULATED AT THE TIME YOU BUY THE ANNUITY

If interests rates are higher upon purchasing, you can expect a higher payout. If they are lower, your payment will also be.

Age, gender, life expectancy and the amount of money you have also influence the payout.

As a rule of thumb, you are better off buying an annuity when you are 70 or older.

ANNUITIES ARE TAXABLE

If you buy your annuity from an RRSP or a RRIF, you will be taxed at your marginal rate.

If you buy from a non-registered account, you only pay tax on the interest portion of the payment. As you age, the income received will gradually shift to the principal, lowering your tax bill overtime.

A good tax advantage is with a prescribed annuity. The insurer will pay an even amount of both principal and interest,evening out the portion subjected to tax.

YOU NEED TO CHECK THE INSURER’S FINANCIAL POSITION

As annuities are guaranteed contracts, the insurer needs to be in a solid financial position.

Should the insurer become insolvent, Assuris will provide 85% or $ 2 000 of the monthly payout.

FINAL WORD

Annuities are complex products, but they are definitely worth a look. An annuity can be a great part of your retirement plan, but it should never be your entire plan.

Term insurance vs. permanent insurance

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Please note I am not a licensed insurance agent. This post is to give general information only.

Life insurance is probably one of the most confusing and complex financial product out there. In the PF blogosphere, it seems like pretty much everyone is touting term insurance as the only way to go while permanent insurance is shamed at every turn.

unfortunately, life insurance is not so black or white, all or nothing

There are a few considerations you need to look at before deciding what type of insurance is best for you, namely for how long you will need life insurance, your health, your family status, your financial situation and estate.

to simplify things, here is a basic comparison table

 

Term insurance Term 100 (permanent) Whole life (permanent) Universal life (permanent)
Coverage length specified period lifetime lifetime lifetime
Payout only if the insured dies during the term guaranteed guaranteed guaranteed
Premiums usually increase at renewal remain the same remain the same remain the same
Medical questionnaire/exam depends on the insurer, age and amount required depends on the insurer, age and amount required depends on the insurer, age and amount required depends on the insurer, age and amount required
Cash surrender value (if policy is cancelled) no usually no yes yes
Investment component no usually no yes, controlled by the insurer yes, more flexibility and choice for the insured
dividend and interest payment no usually no yes yes
Borrowing component no usually no yes, against cash value; decrease benefit amount if not repaid yes, against cash value; decrease benefit amount if not repaid
Use as collateral no usually no yes yes
Riders or adds-on usually no yes, additional benefits can be included yes, additional benefits can be included yes, additional benefits can be included
Overall cost cheaper more expensive very expensive very expensive
Other notes very difficult to obtain after 70-75 can be obtained up to 85; premiums cease at 100; coverage remains can be obtained up to 85 can be obtained up to 85
The major advantage of term insurance is the cost

This is mostly because the odds are in the favor of the insurer. It is very unlikely the insured will die during the term, particularly if they are young.

the main problem with term insurance is that you have nothing to show for it

You pay premiums for a determined period, but once the period has expired, you are basically back to square one. In determining the type of insurance you want, you have to be honest about how you feel about the above point.

the main principle behind term insurance may not be valid anymore

The basis for term life insurance is that as you age, your savings and assets grow, and that by the time you retire, you will have sufficient funds to cover final expenses such as funeral costs, estate taxes or probate fees.

Unfortunately, a lot of people do not accumulate enough wealth during their working years. We also tend to still be in debt upon retiring.

Last but not least, most of us will live well beyond 70-75 years.

the main benefits of permanent insurance are that payout is guaranteed and coverage is for life

Depending on your personal situation, it can make sense to have permanent insurance. For example, if you die at a ripe age with considerable wealth and your heirs are not your spouse or children, the taxes on your estate will be huge. If you want to leave a legacy, you are going to need money.

that being said, permanent life insurance distorts the definition of insurance

Insurance is a tool to replace lost income/property or to cover for a shortfall. It is not meant to build wealth. The returns on the investment component is usually not that great.

the biggest drawback is definitely the cost

Premiums are 4 to 5 times higher than with term insurance. You definitely need to crunch some numbers to see the total cost of your policy over the course of your life. Depending on where you are at, you might be able to save and invest that amount yourself.

final word

I have been reviewing my affairs recently. Although I am single, it doesn’t mean I don’t need coverage or that I don’t need a will.

Based on my personal situation, I am leaning towards a term 100 insurance. This type of insurance would provide me lifetime coverage without all the fuss associated with the investment and borrowing components. It is also slightly cheaper.

Travel insurance explained

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Image result for travel insurance picturesPlease note I am not an insurance agent or broker. This post is to provide basic information only. 

Many Canadians believe their healthcare system is universal, but it is actually not exactly true. It would be more accurate to say it is compulsory, i.e. everyone has to register by law for coverage. In Canada, healthcare administration is a provincial responsibility, not a federal one, meaning there is no unique and unified system.Each province has its own program.

Your health coverage does not work abroad or in another province

While most Canadians are aware their healthcare system does not work abroad, very few are aware that it also does not work in another province….technically. Should you require medical assistance while in another province, you will only be covered at the rates in your province of origin. If the costs of another province are higher, you will have to pay for the difference out of your own pocket.

That’s why it is always a good idea to buy travel insurance if you are going away, even for a few days.

Here are a few tips to ensure you get the right coverage and that it actually works when you need it:

your travel agent is not an insurance specialist, buy from an independant broker instead.

Travel agents are usually not licensed to sell insurance. They will push for you to buy from them as they most likely receive a commission. They are not knowledgable enough to answer your questions, and you could end-up with insufficient or inadequate coverage.

beware of pre-exisiting conditions and disclose them

A few years ago, a story about a pregnant woman who gave birth in Hawaii made headlines in Canada. The couple had purchased travel insurance but the insurer denied their claim, based on a pre-exisiting condition and the fact she hadn’t been cleared for travel by the company’s doctor. The couple found themselves facing a 950K bill. Each insurer has its own definition of a “pre-exisiting condition”. It could be anything from heart surgery to pregnancy or a broken leg 10 years ago. You will most likely have to pay more for them to be covered.

beware of your leisure activities

If you are into scuba diving or bungee jumping and something happens to you while practising these activities , chances are that you won’t be covered.

your doctor’s opinion is not the insurer’s doctor’s opinion

Because your doctor cleared you for travel, doesn’t mean the insurer’s doctor has also cleared you for travel.

make sure you fill the application correctly

For example, don’t forget to include all the names of the people who need coverage.

ask a lot of questions

Ultimately, it is your responsibility to understand your policy and what it covers and what it doesn’t. When in doubt, it is best to ask.

Remember, insurance companies are not charities. If the insurer has an opportunity to deny your claim, it will do so!

Auto insurance basics in BC

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In Canada, auto insurance is mandatory. Each province and territory has its own requirements. Since I live in British-Columbia, I will provide information about how it works in this province.

In British-Columbia, there are no private auto insurance providers. Auto insurance is administered by ICBC, a crown corporation run by the Provincial Government. It usually is quite a shock when newcomers to BC find out there is no such thing as “shopping for auto insurance” and “compare quotes”.

Insurance is bought and renewed through an ICBC Autoplan broker. All dealerships have a broker so you don’t leave with your new car uninsured. This is not necessarily the case in other provinces.

ICBC mandates basic coverage. It includes:

  • Third-party liability up to $ 200 000: if you are found at fault in a crash, both driver and passengers of the other vehicle can sue you for their medical treatment costs, as well as lost wages and an array of other items.
  • Autoplan accident benefits: If you are injured in an accident, ICBC will pay for some of your medical expenses and lost wages, even if you are at fault.
  • Underinsured motorist protection, up to $1 million: if a driver involved in a crash is not insured or underinsured.
  • Hit & run up to $ 200 000: this coverage is available to all residents of BC, even if you don’t have a vehicle
  • Inverse liability protection: certain parts of Canada do not allow you to sue another driver in case of a crash. ICBC will cover your costs if you are involved in an accident outside of the province.

And that’s it!

Did you notice some items are missing such as collision? You are right, this is not included in the basic ICBC coverage. Got a crack on your windshield? Not included either!

Most British-Colombians elect to purchase the following extra coverage:

  • Collision: repairs to your car in case of accident, even when at-fault. This also comes with a deductible. In BC, you only pay for the deductible if you are at-fault.
  • Comprehensive: this covers you in case of a crack in your windshield or if you hit an animal or hail damages. There is also a deductible for this.
  • Extended third-party liability: in case of a lawsuit, 200K may not be enough, depending on the nature of the injuries, the type of income and the number of people suing you. Lawsuits are pretty much the norm. You can purchase coverage for up to $ 5 millions.

You can find all the optional coverage products here.

In terms of costs, it also expensive. It is very common to pay $ 120.00/month with a very good driving record and reasonable coverage. A lot of items impact your premiums such as the usage of the vehicle and the type of vehicle. The fact that ICBC has monopoly doesn’t help either.

That being said, the driving factor – no pun intended!- behind the high cost of auto insurance is injury claims and lawsuits. These are extremely expensive.

Pros and cons of group benefits

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Group benefits are various insurances an employee can get from their employer, such as extended health or life insurance. In Canada, the healthcare system is provincial, not federal.

Each province has its own rules, rates and financing. In British Columbia, a lot of items are not covered by the Medical Service Plan (MSP), including medication, vision and dental care.

Let’s look at the advantages and disadvantages of group benefits:

Pros

  • Eligible for coverage, even with health conditions: the idea behind group coverage is to spread the costs between many companies and people. “pooling” is a common insurance practice, particularly for small businesses. Rates remain stable for the employer, and employees are not penalized for using their benefits. Coverage may be more limited, if you have preexisting conditions, but you would still qualify. It may not be the case on an individual basis.
  • Better, cheaper coverage: group benefits usually offer better and higher coverage at an affordable cost for the employee. All employers pitch in to pay for the premiums; some, like mine, pay 100% of them.

Cons

  • Non-transferable benefits: if you leave your employer, you also leave the benefits behind.
  • One-size-fits-all plans: employers decide what type of benefits they can afford and want to provide. Depending on your situation, it may not be enough.

In Canada, employers are under no obligation of providing benefits.

I am lucky that my employer not only provides a very good benefit plan, but also pays for it. A portion of the costs remain a taxable benefit to me, but it still is cheaper than if I had to pay for a similar, individual plan.

Insurance you probably don’t need

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As I previously mentioned a few types of insurance are a necessity. But there are also policies you can definitely do without.

Mortgage life & disability insurance : all financial institutions will try -hard- to sell you life & disability insurance on your mortgage. Don’t buy these from your lender, as they are not advantageous for you. The premium you pay remains the same for the life of the mortgage, however both your coverage and the mortgage amount decrease. Any monies paid will also be directly to the bank, and more often than not, you can’t collect on the policy.

Credit or payment protection: credit card companies offer this insurance to pay a portion of your balance if you loose your job or become sick. If you have disability insurance or an emergency fund, you definitely don’t need this. Premiums can be hefty.

Accidental Death & Dismemberment (ad&d): again, if you have life and disability insurance, you don’t need this either.

Extended warranties: Check the current warranty first, as well as the manufacturer’s requirements, before shelling additional money. Carefully read the fine prints of the extended warranty. They usually contain many exclusions. If the price exceeds 20% of the item you want to cover, take a pass.

Car rental insurance: if you pay for your rental with credit card, you can decline the insurance offered. If you have an existing car insurance, your coverage may transfer to the rental.

Collision or comprehensive coverage for older cars: if your vehicle is over 10 years old, you don’t need full coverage.

There are definitely more cash-grabs insurances you can skip without blinking. It is crazy what insurers come up with nowadays!

Life insurance needs & being single

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All too often we hear that single people with no dependents don’t need life insurance, period. I encourage single people with no dependents to ponder this statement and take a closer look at their personal situation.

There are occurrences when it actually makes sense to have life insurance, even if you are single.

  • Dependents are not necessarily children. A growing number of adults care for their aging parents, including financially. You may be in this category; or you may take care of another relative. In any case, you want them to be protected should something happen to you.

 

  • You have some assets. If your wealth is substantial, you can most likely self-insure. Otherwise, life insurance can help with financial costs related to your estate, such as legal fees and taxes.

 

  • You want to leave a legacy. If you bequest your estate to your favourite charity or a relative, you don’t want them to be on the hook for your funeral and other after-death expenses. The average cost of a funeral (burial) in Canada is $ 8 000.00. The Canada Pension Plan death benefit is $ 2 500.00 maximum, if you meet the requirements.

 

  • You own your company. Life insurance can pay for outstanding loans and taxes, as well as provide money for a buy-out if you have business partners.

You may also want to keep in mind your “single” situation might be temporary. It may be easier to modify an existing policy than getting a new one.  It will also be cheaper to get insurance when you are (still) young and healthy.

You may already have life insurance through your employer. Usually, the amount is minimal and may not be enough to cover for all expenses. You will also loose this benefit if you leave your job.

Condo insurance

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A lot of condo owners have a misconception of what condo insurance is, and the type of personal coverage they need.

Before I elaborate on this, I would like to do a brief clarification on semantics. Depending on where you live, the “condominium world” has different names. In British Columbia, where I live, it is called Strata. This is the term I will use.

When you buy a condo, you become a member of the strata corporation. You own a share of the building and are entitled to vote on its affairs.  One of your responsibilities as an owner is to pay monthly fees.

These fees usually cover for all repairs and maintenance, electricity, landscaping, caretaking and insurance. In British Columbia, insurance is mandatory for strata corporations. Owners are automatically named as insured.

However, the strata insurance does not provide coverage for anything and everything. The policy usually covers the original structure of the building and its original fixtures. It also covers for the replacement of the building at cost. If your building burns down, the insurance will pay for this. Note that if you have a mortgage, the money will be sent to your lender first.

The policy will also have a deductible. To keep costs low, most corporations choose a higher deductible. My strata’s is at $ 10 000. In order to trigger a claim, the total cost of repairs needs to exceed this amount. The corporation may also elect not to file a claim, particularly if an owner is responsible for the damage. Filing repeat claims has an impact on the price at renewal.

As an owner, you need to have coverage for both property damage and deductible assessments. You also need to include your personal belongings. The strata insurance will definitely not pay for them.

As mentioned above, the strata insurance only covers for original fixtures. If you change the floorings, the kitchen cabinets or the blinds, these are no longer covered. You need to include the value under improvements on your policy.

I would suggest you also include additional living expenses. If your condo sustains massive damage, it might become uninhabitable.  The Province of British Columbia will only pay for relocation for 3 nights.

Obviously, your personal insurance could include many more items, but these are the basics. As a council member of my strata, I sometime encounter disgruntled owners who don’t understand why they have to file a claim with their own insurance company, or why they actually need personal coverage.

They are under the assumption that because they pay monthly fees and the building has insurance, they are not responsible for anything else. It is not the mandate of a strata corporation to pay for and be responsible for anything that happens in a building.