Income Replacement: The Hidden Extras
by Gary Opolsky
Why getting the best insurance is the only option
Our consumer society has taught us to look at things on the basis of face value. For this reason, people often sacrifice quality for price. A $5 stapler may look exactly like the $10 one, except the $10 stapler has a better spring action that reduces the number of jams and will last longer because it is sturdier.
You’ve just been introduced to what I call a “hidden extra.”Hidden extras often determine the difference in the cost of two similar items, whether it be a car, a professional service, or insurance. The more complex the product, such as insurance, the more difficult it is for the lay person to comprehend the contract and appreciate the value of the hidden extras.
Here’s an example to demonstrate why paying for the hidden extras made a huge difference for me personally.
We made a decision 10 years ago to have the best house insurance available. It cost about 25 per cent more than other policies and we had no clue about the hidden extras that made it more expensive.
At 3 a.m. on Valentine’s Day 2002, my family and I had to evacuate our burning house. We escaped unharmed. Twenty-five per cent of the house was burnt, and the other 75 per cent had water and/or smoke damage. Ninety-five per cent of our possessions were destroyed or damaged. We then became acquainted with the hidden extras in our policy.
Hidden Extra #1
With most insurers, you have to replace the damaged contents, provide the receipts, and then get reimbursed. If you do not replace your contents, you receive the depreciated value, usually 10 to 25 per cent of the true replacement cost. We did not have to replace anything. We received full replacement cost once the inventory of our damaged and destroyed contents was tallied.
Hidden Extra #3
Our insurer provided free trauma counseling. We were all traumatized and this service helped all of us return to “normal.”
Hidden Extra #2
With most insurers, you have to replace the damaged contents, provide the receipts, and then get reimbursed. If you do not replace your contents, you receive the depreciated value, usually 10 to 25 per cent of the true replacement cost. We did not have to replace anything. We received full replacement cost once the inventory of our damaged and destroyed contents was tallied.
Hidden Extra #4
Our insurer provided free trauma counseling. We were all traumatized and this service helped all of us return to “normal.”
Private disability plans come with many hidden extras such as premium guarantees and locked-in definitions. With a group plan, an insurer can change the definitions, increase premiums, add exclusions, or do whatever else it sees fit to do. Here are three examples of some private plans’ hidden extras.
1You are 45 and cannot return to work. A future option becomes available. If your pre-disability income would have qualified for an increase, you could exercise that option once during the claim for free. If the monthly benefit were $750, the value over 20 years is $250,000, adjusted for inflation. Group or association plans do not provide this hidden extra.
2You can accumulate total or partial days of sickness to add up to your waiting period. It could take six months or longer to amass 90 days of illness. At that point you would be on claim. One association plan states that you need to be totally disabled for 30 consecutive days before you can start accumulating non-consecutive days of disability. Since most claims are partial in nature, effectively, you’d have to be very ill to ever meet this criterion or never be able to claim.
3When someone is on claim, it is stressful, demoralizing, and perhaps the worst time in his or her life. I counsel my clients, assist them with the claim forms, and advocate on their behalf if required. This is one of the hidden extras I provide as an insurance advisor. Who does that for group plan members at claim time?
It is very important to know what the hidden extras are in a private disability policies as they are very often worth the additional premium.
