Buying insurance is more complicated than buying a loaf of bread or a new pair of shoes. For starters, neither bread nor shoes are meant to last a lifetime, nor do they come with a fine print policy or instruction manual explaining what they’re all about. There’s no fine print when it comes to bread or shoes (other than perhaps the list of ingredients contained in the bread).
What you see with bread or shoes, is what you get.
The same can’t be said for purchasing insurance. There are thousands of twists, turns, bobs and weaves contained in each different policy of insurance; regardless of what the insurance is being purchased for. Often what you think you’re purchasing isn’t exactly so; or the insurance product doesn’t work the way you expect it to to work.
Case in point, let’s take the example of long term disability insurance. Here are some common misconceptions:
- My long term disability benefits will cover 100% of my income: WRONG! Most policies only cover around 60-80%. Some lesser policies only cover 50% of your pre-disability income.
- My long term disability benefits will last for the rest of my life: WRONG! Most policies terminate benefits at the age of 65, despite the fact you may have intended to work until the age of 70. Other less policies only cover benefits for a maximum duration of 5 years, or up to the age of 65; whichever period comes first.
- I don’t have to pay any tax on my long term disability benefits. WRONG! Whether or not you pay income tax on your long term disability benefits depends on the wording contained in your policy. Rule of thumb: If your employer pays your premiums, then your long term disability benefits are taxable. Rule of thumb #2: If you lump out your long term disability claim with your insurer; only past benefits are taxable. Future benefits are not.
- My long term disability benefits are paid in addition to my CPP Disability benefits and other collateral disability benefits so that I can double dip and make just as much money disabled (or more) than I made while I worked. WRONG! Nearly every Long Term Disability policy our lawyer have seen contains a set of provision whereby to long term disability insurer is entitled to a dollar for dollar set off for any disability income you are receiving; thereby reducing the amount of long term disability benefits owing to you.
The fine print in long term disability policies will kill you. In almost all of the long term disability cases our lawyers have seen, policies don’t work the way that the policy holders expect them to work. The same applies to life insurance, mortgage insurance, critical illness insurance, short term disability insurance etc.
This is why it’s important to have an insurance broker explain to you the ins and outs of your policy. Because buying insurance is not like buying a loaf of bread or a pair of sneakers. It’s confusing, complex and there are a lot of options out there with a lot of riders to chose from to tailor your policy to your individual needs.
An insurance broker is supposed to have intimate knowledge of the ins and outs of the policies which they are trying to sell to you. They are supposed to provide you with proper information so that you can make an informed decision about which policy best suits your needs.
Sometimes brokers make mistakes.
Sometimes brokers are in it for the quick sale.
Example: A policy from Insurer “A” will pay the broker a commission of 2%. But the policy from Insurer “B” (which is an inferior policy) pays that same broker a commission of 4% plus one time flat fee bonus of $500.
Sometimes brokers feed you information which is simply not accurate. Whether this is due to negligence, or because they want to push the sale is another question all together.
Sometimes brokers don’t spend enough time explaining to their clients how the policies work, leaving the client with a lot of unanswered questions.
These sort of things happen a lot. And when they do, the policy holder client is not informed, and not happy. But the funny thing about insurance is that it only gets used when you need it. It’s a kind of “break in case of emergency” sort of product. So all of those questions which the client policy holder had at the time they signed up for the policy in the first place are likely all forgotten at the time when the policy needs to be relied upon.
The insurance broker has a fiduciary relation to the client whom they serve. The broker is presumed to have intimate knowledge and expertise of the product they are selling to their client. The broker is held to a higher standard of care than that of a typical salesperson. It’s for those reasons that personal injury lawyers are able to hold brokers liable for their negligence in selling policies which don’t adequately meet their clients’ needs in the first place. When a broker fails to provide his/her client options to make an informed decision about the right policy which would work best for their client; they will be held accountable for their negligence. When a broker is in it for a quick sale to earn a commission and fails to explain anything to the client about the policy and how it works other than throwing them a generic folder from the insurer; that broker will have some explaining to do.
You cannot just walk in off the street and start selling insurance to unsuspecting individuals. In order to sell insurance, and be recognized as a General Insurance Agent under the Insurance Act, you must complete an exam through the Registered Insurance Brokers of Ontario (RIBO) or an exam through the Insurance Institute of Ontario and: