A survey I saw recently asked women, age 45 to 64, how they viewed money matters. Here are some of the questions and my comments on the results.
What is the most important goal for you in your career now?
16% of responders said they wanted to retire or retire early, but 62% said they wanted to be happy at their job with only 11% wanting to earn a higher salary.
It’s interesting to note that while some responders were at an age where retirement would normally be a definite option, the majority wanted to be happy at their job.
Related: How Did You Choose Your Career?
Most conceded that they would have answered the same question quite differently when they were in their 20’s, when 46% would have wanted a higher salary.
This corresponds to other surveys indicating that many boomers would like to be happy and productive at their job for longer than the normal retirement age as long as interest and health permit. Freedom 55 and strolling down a sunny beach every day seems to be of little interest.
Also, people who are debt free with most family obligations behind them are able to pursue work that perhaps pays less but is more rewarding in other ways.
Who is responsible for major financial decisions in your household?
45% of responders said both of us. Otherwise, 39% of wives and 16% of husbands make the major financial decisions in the household.
Related: Women and Finances
I found this surprising at first because the impression seems to be that husbands make the major financial decisions while wives tend to the day-to-day finances because they don’t have a good grasp on investing. On giving it some further thought though, I realized that most people I’m acquainted with would actually give similar answers. What you read about, or think you know, isn’t necessarily true.
Why do you have a separate savings or chequing account?
30% of responders use them to pay personal bills and 18% for long-term savings, but 44% want financial independence. Gone are the days when the husband gives the wife money for groceries and household expenses, or the wife asking her husband for permission to make her own purchases like in my parents’ day.
Would you rather receive $10,000 a year for the rest of your life or live at your ideal weight for the rest of your life?
It’s amusing to see that the answers to this question were almost evenly split. 54% would take the money and 44% want to be at their ideal weight. I know it’s difficult to get to, and maintain an ideal weight, especially as you get older, and maybe $10,000 a year doesn’t seem like much money to some.
Would the results have been different if the annual stipend was, say, $100,000?
What is the most important advice to pass on to a 21-year-old woman starting out in her professional career?
39% of responders offered miscellaneous advise and 10% said to focus on family. However, 45% recommend continued education. Interestingly, only 6% said to save more money.
Related: The Best Time To Start Saving Is Now
While I would agree that obtaining a diploma or degree generally results in a higher salary and more job satisfaction, I am surprised at the low percentage that think saving more money is important.
How do these opinions compare with your own?
You see it on TV. No medical exam insurance. No agent will call. Less than a cup of coffee a day. No burdensome medical exam. Happy, well insured people!
Surely it can’t be that easy though, is it? If you can get life insurance with no medical exam, why would anyone bother? Why would a broker ever recommend anything but no medical exam life insurance?
Part of the answer lies in the quick voice over you’ll hear at the end of these commercials – “limited benefits in the first two years”. Wait, what? What the heck does that mean? I’ll explain that and other ‘gotcha’s’ below.
Another point to note is that no medical exam does not mean guaranteed acceptance. Some no medical exams have a basic questionnaire that needs to be completed. Still, that’s not an overwhelming task for many people – answer a dozen yes or no questions and as long as you’re able to answer them all no, you qualify.
What medical exams offer
What do you think of the idea of a car insurance company that offers car insurance where they don’t take into account your driving record? They might as well put up a sign that says “19 year old drivers who’ve had 8 accidents, apply here”. As a good driver, with no other information about the insurance company, would this be a company you’d likely go with?
If you’re applying for life insurance, disability insurance, or critical illness insurance it should be clear that for a company to offer you the best rates that they need healthy people. An insurance company full of clients who signed up from their hospital beds is a company that’s going to pay way too many claims. And clearly, more claims means higher premiums.
So, to get the lowest possible premiums on these types of insurance, it pays both the clients and the insurance company to take medical exams. If you’re healthy, you should prove that you’re healthy (by taking a medical exam). That way the insurance company can price based on healthy people.
In short, a medical exam proves you’re healthy, and ensures that you’re going to get the lowest rates.
Not everyone can or wants to take a medical exam
Not everyone can or wants to take a medical exam. And it’s not only for health reasons. Sometimes people just don’t like needles. Or they’re healthy but travel to places that traditional insurance companies don’t want to provide coverage for. Or they have a non-life threatening medical condition that the companies don’t understand (if the company can’t assess the risk, they won’t assume the risk. They don’t play guessing games.).
Related: Travel Medical Insurance – Don’t Leave Home Without It
So there are absolutely people for which no medical exam life insurance is an important product. Still, it should be clear that the general clientele for these products are those people that for some reason don’t qualify for regular insurance. That means higher risk for the insurance companies, and that means either premiums or benefits must suffer.
No medical exam life insurance premiums
In many cases, premiums are higher for these products. That’s certainly one thing they don’t promote in the TV commercials. But higher than what? Well, higher than ‘regular’ or standard life insurance rates for those that took a medical exam. That does not mean it’s the most expensive product for you.
Let’s say you could qualify for regular life insurance at $50/month. Perhaps no medical exam life insurance is available at $95 month. Is it worth $45/month to you to skip a medical exam one time? For most of us, the answer is no, it won’t.
But let’s say you’re outside the lines of traditional underwriting. You take a medical exam, and the insurance company says they can’t cover you at $50, but they are prepared to offer you insurance for $150/month. Now the $95/month coverage on the no medical exam insurance looks both like a lot less hassle and a lot cheaper.
So from a premium perspective, you should expect to pay a higher rates than standard or regular rates. If you qualify for regular life insurance just by taking a medical exam, the savings can be substantial. If you don’t qualify for regular rates, this no medical exam life insurance can sometimes actually be less expensive than plans that require a medical.
Related: Health & Dental Insurance – Not Really Insurance
There’s two things you want to compare with no medical exam life insurance – the premiums and the benefits. In the following sections I’m going to address the general differences between different types of insurance and the differences in benefits between no medical exam products and products that require a medical exam.
No medical exam life insurance
No medical exam life insurance typically has a simple handful of qualifying questions. As long as you can answer them all ‘no’, you qualify for the insurance. Questions range from little more than ‘are you upright and breathing’, to a more detailed list of questions like ‘have you had cancer in the last 5 years’.
You should expect premiums to be higher for these products than for a plan where a medical exam is required. Still, as I noted above, for some folks that have would be subject to high ratings these no medical exam plans can sometimes be cheaper than the alternatives.
For an individual life insurance policy that required a medical exam, you’re covered for ‘death’ with very few exclusions as soon as the policy is in place and in force. For no medical exam life insurance the ‘limited benefits in the first two years’ comes in to play. This phrase means that no medical exam policies pay only for death do to accident in the first two years. In this case the opposite of accident isn’t ‘on purpose’, it’s death due to medical reasons that it won’t pay on.
Most no medical exam policies are permanent life insurance – variations on traditional whole life insurance. After the initial two years of limited benefits, and ignoring the higher premiums, these no medical exam life insurance policies look pretty much the same as a regular life insurance policy when it comes to paying claims.
However, some no medical exam policies are term insurance polices. These policies are often not renewable and not convertible. At the end of the term you have no options in the policy – it doesn’t renew and you can’t convert it into a permanent policy. This can potentially have some pretty dire consequences.
No medical exam disability insurance
For people with no disability insurance coverage at work, obtaining a standard disability policy on an individual basis can be a real pain. In my experience, consumers hate both the lengthy underwriting requirements and the perceived high cost.
In addition many people simply can’t qualify for a regular plan, sometimes for reasons that have nothing to do with medicals. I was recently declined for disability insurance due to my occupation. Occupation? I’m a somewhat non-traditional life insurance broker. What’s the worst that I could be doing? I stay away from power tools and electrical outlets and (most of) my clients don’t hate me so much that they’d beat me up and put into a claims position. Yet I wasn’t even offered a rated policy with a higher premium – I was flat out denied.
There’s two very curious things about no medical exam disability policies. First, they’re often actually less expensive than a medical exam policy. Secondly, while the situations where these policies would pay out have been minimized, some of the other benefits are often enhanced!
A disability policy that requires a medical exam is generally going to pay out if you’re disabled – no matter how you became disabled. This is the big difference between those policies and the no medical exam policies. Common no medical exam policies pay out only as the result of an accident – they don’t pay out for disability due to medical reasons.
So if you fall and break you’re ankle, a no medical exam policy is going to pay out. If you’re stressed at work and become disabled as a result, don’t expect your no medical exam disability policies to pay out.
Related: Is A Long Commute Destroying Your Job Satisfaction?
Now here’s the interesting part that I touched on earlier. Because these policies would commonly only pay out for accidental reasons, premiums are often inexpensive compared to a regular disability insurance policy.
Secondly, you can easily get these policies with no waiting period. If you claim, you can claim from day one (subject to your policy having this feature). By comparison I normally recommend a 90 day waiting period – three months before a claim would start – for a regular disability policy.
Thirdly, you can receive benefits to age 70 if you’re disabled. Many people’s disability coverage at work will only provide coverage for 2 years or 5 years if you’re disabled. Individual disability policies can provide coverage for 2 years, 5 years, or to age 65 but many people don’t go with the to age 65 option due to cost.
So in summary, no medical exam disability insurance would normally only pay out if you’re disabled due to an accident, as opposed to being disabled for other reasons. This can actually both lower the premiums and increase some of the other benefits of the policy when compared to a typical policy that required a medical exam. An interesting alternative even for healthy folks as long as you’re aware that you’re not covered for some types of disabilities.
No medical exam critical illness insurance
No medical exam critical illness insurance premiums are typically within range of medical exam critical illness policies, though they can be less expensive. So, about the same price, sometimes a bit cheaper.
However, the big drawback with no medical exam critical illness polices is their benefit coverage. The insurance industry uses a fairly standard list of covered medical conditions. For a medical exam critical illness policy you would expect to see 26-29 covered conditions (heart attack, stroke, cancer, etc).
On no medical exam life insurance polices, many companies will provide coverage for only a dozen or 15 covered conditions. The no medical exam process comes at the cost of much more restricted benefits – they don’t cover as much.
The second drawback with no medical exam critical illness comes in the premiums structure. Critical illness premiums are similiar to life insurance premiums – you can purchase a premium structure that increases every 10 years (10 year term) or a structure that’s level for life (permanent/term to 100).
With no medical exam critical illness insurance companies take a variety of approaches. Some offer 10 year term rates to age 75. Others offer 5 year rates with no guarantees of the premium in year 6. There’s little in the way of standards across companies, so just a reminder when looking at no medical exam critical illness to compare premiums with respect to the structure (term, permanent, etc), the guarantees (at renewal), as well as conversion (whether you can convert your term premium structure over to permanent).
Summary
No medical exam life insurance has higher premiums than a standard life insurance policy, but may actually be less expensive for someone who’s likely to be rated. The tradeoff is in the benefits.
No medical exam disability can have competitive or even inexpensive premiums and better coverage, the tradeoff is in that the covered conditions are restricted.
And no medical exam critical illness coverage can have competitive or inexpensive premiums, the tradeoff is in the covered conditions and potentially in the guarantees of the premiums structure in future years.
In short, it’s not as simple as “no medical exam means everything’s the same just easier”. There’s a definite tradeoff between your proving your insurability vs. your not proving it. It may be worthwhile, but make sure you compare both premiums and benefit coverage with comparable fully underwritten policies that are available to you.
Everybody should have a financial plan. Very few people do. A scientific poll of me, my girlfriend, and our infant daughter reveals that only 33% of Canadians have a financial plan (margin of error of +/- 2.2%, 19 times out of 20).
A financial plan is a broad sketch of how you’ll use money to achieve your definition of success. It should take stock of where you are today and where you want to be in the future. Your plan should include “big picture” financial goals and basic contingency plans.
If you don’t already have a plan, relax. Making one is easy. Go find a free template.
If you already have a financial plan, read this article. Then consider revising your plan because the chances are high that it sucks.
6 Reasons Your Financial Plan Sucks:
1) Your financial plan sucks because it reads like the love child of a math exam and a James Joyce novel.
Good financial plans are only a few pages. Your plan should be focused on the strategic level. Everything centres on your money goals. Your financial plan is the place where you enumerate these goals. Some might include:
- Retire by 55
- Travel Europe like you’re in a Sun Life commercial
- Pay for your kid’s education
- Not pay for your kid’s education and disappear without a trace when he turns 18
- Eliminate your consumer debt, if you’re foolish enough to have any
Your plan should look a lot more like Dave Ramsey’s ‘Seven Baby Steps’ than a pro forma financial statement.
Sure, your plan needs some numbers, including your assets, liabilities, and net worth. Don’t forget to include your gross income and to calculate your savings as a percentage of your income. With this information, take a look at your short- and medium-term goals. Does this savings rate need to change if you want to send Junior to university in a decade? The sooner the event, the easier it is to figure out.
Run some numbers for your retirement scenario, too. List any pension incomes that you expect to receive – check out CPP projections online or, if you’re lucky, just look at your defined benefit pension statement. If you really, desperately need to calculate “the number” (that is, the amount of savings you’ll need for retirement) then you’ll probably want to read a book or consult a planner. Personally, my number is “as much as possible”, but I have thirty-one years until I can collect my pension – assuming, optimistically, that it still exists.
2) Your financial plan sucks because you didn’t even read it.
If your investment advisor wrote your entire financial plan, I’m going to guess that you weren’t enthralled by the binder spit out from his computer. At best it’s sitting on your shelf collecting dust. At worst you round-filed it.
Preparing a basic financial plan doesn’t require a degree in finance or a special credential. I’m not telling you to fire your advisor. They’re extremely useful details people – they can fill very large gaps in your financial plan like tax planning and portfolio allocations. A good Chartered Accountant’s advice is more than worth the cost. What I’m saying is that you owe it to yourself to walk into your investment consultant’s office with a big picture already in your head.
3) Your financial plan sucks because it ignores your mortality.
Do you have critical illness and disability insurance? If you said “I think I have it through my work,” then you just failed the test. Find out. Get it. Same goes for term life insurance. These should be written into your plan because they’re essential components of your financial health. Reviewing your plan from time to time will remind you to reassess your coverage levels. And unless you don’t care about your family, spend $300 and get a will.
4) Your financial plan sucks because your assets blow.
Real assets generate an income.
Sorry, your primary residence doesn’t count. It doesn’t produce cash flow unless you have a basement apartment (in which case, enjoy the parties you aren’t invited to). And if you’re relying on hypothetical capital gains, think again. The Canadian housing market is in a bubble. Ignore that. Let’s look 20-years down the road. Boomers will be selling their houses en masse. Do you think the debt-laden, unemployed Echos (this blog’s namesake excluded) will be able to afford their parents’ homes in Podunk?
If your home comprises over 40% of your “assets” and you want to retire anytime soon, you’re screwed. Still got a mortgage? You’ll be joining the 59% of retirees who are in debt. Want to be triple-screwed? Buy a cottage with your HELOC.
Related: Is It A Good Idea To Buy A Timeshare?
If you want to include your vehicle, make sure to put it under a separate heading: “Faux Assets”. We’ve all heard the obnoxiously-repeated truism that cars lose most of their value in just a few years. But it’s a truism because it’s true. Do I put my 2003 Chevy Malibu (a glorious American-built machine) on my balance sheet? Not since the left fender got a dent that matches the right fender. If you have a car loan, please don’t click on the link to visit my blog unless you’re a glutton for punishment.
If you don’t have any real assets to list, start building wealth. Save up cash. Buy a junk bond index fund. Construct a dividend-focused stock portfolio. Buy an apartment building in Florida. Just please don’t flip condos and call yourself an investor.
5) Your financial plan sucks because you’re counting on an impossible rate of return.
Financial plans get very complicated when there’s something to hide. Usually it’s the fact that a person’s current savings rate is insufficient to fund their goals. The non-solution? Increase the fictional rate of return.
Investors face a new reality of lower returns on the open market. You can plan to beat inflation. You can plan to earn inflation plus two-percent from dividends or corporate bonds. Squeeze everything from your returns by reducing your investment management fees. Just don’t plan on 10% annual returns from the TSX.
Direct investments (e.g. buying a rental property or a business) and leverage can help super-charge your returns. Nevertheless, they’re risky. If your financial plan has a funding shortage, fill it with increased saving. Speaking of which…
6) Your financial plan sucks because you’re not pushing yourself to save more.
The National Film Board should do a Canadian history moment about saving money. It’s part of our heritage and nobody does it anymore. Unless you have a gold-plated pension, saving 20% of your gross income (an unimaginable amount for most people) is insufficient. You must max out your RRSP and your TFSA while you’re working, each and every year. It doesn’t get easier.
If your financial plan doesn’t suck, congratulations. Put it into action. If you’re drafting or revising a financial plan, follow these rules and don’t make it an excuse for failure. That would suck.
Joe Wood writes at TimelessFinance.com, a personal finance blog that’s focused on proven strategies for building wealth.