Creditor Insurance with Matthew Inglis | E071
Protecting yourself and not the bank when insuring your debts.
On this episode of Financial Planning For Canadian Business Owners, Jason Pereira talks to Matthew Inglis. He is the founder of Creditor Insurance Watchdogs, which is division of Mobile Advisors. Matthew specializes in educating people and providing tools for people to get better rates and better coverage on their various forms of creditor insurance.
Episode Highlights:
01.38: Matthew is a life and health insurance advisor. He has been in the industry for a long period of time that just has bones to pick with specific industries. He finds the best way to express myself through Insurtech Technology.
01.53: Matthew explains - creditor insurance - in a nutshell, is a product that is offered by financial institutions to make sure that your loans are taken care of and paid off in the event of a death. It is typically sold through all types of different financial lenders and institutions within Canada.
03.20: Depending on what financial institution or mortgage broker or mortgage organization you are borrowing from you will run into products like creditor life, creditor critical illness and creditor disability insurance.
05.27: Most Canadians don't know when they are purchasing greater insurance products when rates are blended. This means that male and female blended smoker nonsmoker translates into is that non-smoking female who is paying the same mortgage as a male who smokes in packet day.
06.11: Matthew says that creditor disability insurance is blended so male female smoker, non-smoker it is blended but what is even worse is that all of all clauses are blended as well.
6.43 Jason explains that a female accountant that's in office all day is going to be paying the same to protect her mortgage payment from disability as a guy that is swinging a pipe wrench with a smoking as well standing on the rig floor as a roughneck.
7.42 Jason points out that, when you go and apply for an insurance policy through a licensed insurance agent, you basically have to go through the underwriting process that can mean medical questions.
9.09: Matthew says underwriting is black and white. If you get it right, it's good, but it's not about whether or not we get it right in front of professionals that help me get it right now and the seriousness of the simplified questions that these people are answered.
10.38: Referring to the strengths and weaknesses to the contractual insurance strengths and weaknesses so it could be 99% of the consumers out there are going to make a switch based on saving money, not contractual obligations.
11.42: Matthew says some mortgage creditor products are portable, most aren't. You switch your mortgage and upon time of application for your creditor insurance on your first mortgage you were insurable, but you aren't moving forward as you switch mortgage carriers.
12.25: Jason talks about the bottom line of paying less. If anybody decides to move their financial situations because they are getting a better deal, he is back to square one.
15.35: The first opportunity that a Canadian consumer has to learn anything about life, critical illness, or disability insurance is being taught to them by a banker who knows nothing about it, says Matthew
16.01 The real big problem is that people will often go to their banker, mortgage broker, automotive dealership, whatever, and be offered life and health insurance products prior to a Canadian consumer actually understanding what the process is.
18.14: A person needs to take into consideration the traditional criticalness insurance side, carriers are constantly evolving their definitions so that they are more competitive and more attractive, says Mathew.
21.55 Matthew explains how Canadian consumers, all they know is their credit or insurance. They know absolutely nothing about traditional life and health insurance space. Because their bankers and lenders, which doesn't make any sense at all about, says Matthew
22.52 Matthew points out about the rule of thumb - the more your debt, the older you are, the more you're going to be spending on creditor insurance problems.
24.04 Matt suggests identifying the primary product and then when you have identified the primary product that you want to replace your client, go start digging up the secondary stuff so likelihood of them having primary or creditor insurance on a primary loan is going to be a skill off.
25.24: Matthew suggests, when we are comparing traditional disability creditor disability insurance were actually using a product that takes all class into consideration, which means your disability insurance is priced on the risk of your occupation.
26.45 Matthew says that the creditor critical illness insurance only covers three illnesses and at age 55 it would be increasing in price every year.
27.45: The policy along time of claim pays you, not the bank. You can determine how much or how little of that goes to paying off said loan based on the factors of your life, says Jason.
3 Key Points:
In today’s episode Matthew is going to explain the concept of creditor insurance, where the flaws and gaps are in the current normal credit insurance people get daily basis is and how to do something better and actually protect yourself with a high degree of certainty.
CUMIS creditor insurance certificate states that if you have not made your critical illness claim given in a specific number of days from the date of your critical illness, they could literally say it right there contractually declined, says Matthew.
Jason inquires, how does disability differ from a typical disability policy we get from an advisor or even the group insurance policy plan?”
Tweetable Quotes:
“Underwriting is black and white. If you get it right, it is good” - Matthew Inglis
“If you're clean, healthy, you've never had a problem you check those underwriting question boxes and you got no problem whatsoever, but these are very loosely open to interpretation.” – Jason
“The big things other than beating up the price are those portability, declining balance and conversion option.” - Matthew Inglis
“There comes a point in time in everyone's life where it is no longer about renting insurance and protecting debt. it is about buying insurance and protecting its stated legacy.” - Matthew Inglis
Resources Mentioned
Facebook – Jason Pereira’s Facebook
LinkedIn – Jason Pereira’s LinkedIn’
Woodgate.com – Sponsor
LinkedIn – Jason Pereira’s LinkedIn
Transcript:
Producer: Welcome to the Financial Planning for Canadian Business Owners Podcast. You will hear about industry insights with award-winning financial planner and entrepreneur, Jason Pereira. Through the interviews with different experts, with their stories and advice, you will learn how you can navigate the challenges of being an entrepreneur, plan for success, and make the most of your business and life. And now your host, Jason Pereira
Jason Pereira: Hello and welcome. Today on the show, I've invited Matt Inglis of Creditor Insurance Watchdogs, which is a division of Mobile Advisors. Matt specializes in basically educating people and providing tools for people to get better rates and better coverage on their various forms of credit insurance. I brought him on the show to explain the concept of creditor insurance, where the flaws and gaps are in the current normal accreditor insurance people get on daily basis, and how to do something better and actually protect yourself with a high degree of certainty. And with that, here's my interview with Matt.
Jason Pereira: Matt, thanks for your time today.
Matthew Inglis: Pleasure being given the opportunity to come on here and chat with you. Jason, thanks for having me.
Jason Pereira: Oh, my pleasure. So Matt Inglis, tell us a little bit about what it is you do.
Matthew Inglis: To keep a long story short, I've been an advisor life and health insurance industry for, well, going on 14 years now. So as you know, over the last few years, we've started to dabble into, or I've started to dabble into developing and building Insuretech. But I think it's really important for everybody to know that does follow me out there that we are, or I am, an advisor first. So yeah, life and health insurance advisor that's going to be industry for a long period of time that just has bones to pick with specific industries. And I find the best way to express myself is through Insuretech and technology.
Jason Pereira: So let's talk about creditor insurance. What is it in a nutshell?
Matthew Inglis: Creditor insurance, in a nutshell, is a product that's offered by financial institutions to make sure that your loans are taken care of and paid off in the event of a death. And it's typically sold through all types of different financial lenders and institutions within Canada, from your credit unions to automotive dealerships, to equipment dealerships, to banks, to agricultural lenders. So it's quite a product and it's pretty prevalent within the Canadian life and health insurance marketplace.
Jason Pereira: Yeah, I mean, anyone who's bought a house in the last 15, 20 years has been asked during the mortgage closing procedure, if they want to get insurance. This is very commonly sold through banks. This is the most common form. In addition, of course, we've all seen... We've all gone to calls for creditor protection insurance or credit insurance on our credit cards. But for business owners, anyone who's got a sizeable enough loan, banks will sometimes require, and at the very least offer you coverage that protects them. And let's be clear, this protects them. This is not a check from these policies that basically goes to your estate, and then your state pays the liabilities. This is a check that goes, when you buy these policies, typically to the bank or lending institution, correct?
Matthew Inglis: Yep. Yep [crosstalk 00:03:11].
Jason Pereira: So I, and many others in the industry, have long beaten up on mortgage insurance. Let's start with mortgage insurance, then we'll talk about other forms afterwards. So what forms of insurance are typically offered when you go and apply for a mortgage?
Matthew Inglis: So depending on what financial institution or mortgage broker or mortgage organization you're borrowing from, you will run into products like creditor, life creditor, critical illness and creditor, disability insurance. Now, they're not offered on all of the mortgages. It's not a blanket across every financial institution. It's up to the financial institution and the creditor insurance provider to determine what products they want to offer their clients, but majority of them are critical illness, life, and disability. Yeah.
Jason Pereira: So you basically borrow all this money. You think to yourself, "I don't want to leave my family behind with giant mortgage, should I pass away, get ill, or get disabled." So in principle, the concept is sound. It's in execution with these things where it completely falls apart, in my opinion. And let's talk about that. So let's talk about a couple of things. So first off, we're going to go start with the generalities of pricing. How does the pricing offered through these institutions compare to, say, going on the open market and looking to buy something yourself? And I know that's a very general question, but in general, to your experience, how does it look?
Matthew Inglis: So let's talk about life quickly, then we'll talk about CI, then we'll talk about DI. Okay. [Inaudible 00:04:40] for life insurance, comparing an apple to an apple, let's talk a woman who goes and purchases credit or life insurance to protect the mortgage versus a term insurance policy, she's going to be paying roughly 2 to 300% more for creditor insurance than she is to go and purchase her own term insurance policy. Okay?
Matthew Inglis: So what most Canadians don't know as well is, for the pricing [inaudible 00:04:59] the window right now, when... Now, this isn't every institution in Canada. This is just the banks. I can stress that this is all of the banks. This isn't the brokers, because I'm very familiar with Manulife's MPP product and I know Manulife does offer smoker, non-smoker rates on their [inaudible 00:05:16].
Jason Pereira: But let's just talk to go to the average bank. Luck of the draw, odds are, you're going to end up with the falling.
Matthew Inglis: Okay, so I think what's really important to know is not so much exact pricing, but can most Canadians don't know that when they're purchasing creditor insurance products, that these rates are blended. This means that male and female, blended, smoker non-smoker, blended. What this translates into is that a non-smoking female is paying the same to ensure her mortgage as a male who smokes a pack a day. So the fairness there, [crosstalk 00:05:46].
Jason Pereira: Okay, so...
Matthew Inglis: That's creditor life, credit or critical illness insurance. Well, I mean, at the end of the day, it's a three illness product and the cost bands are increasing every two or three years based on your age, Right? So it is what it is, it's a three illness product. Going into disability insurance, creditor disability insurance, creditor disability insurance, again, is blended. So male, female, smoker, non-smoker it's blended. But what's even worse is that all of the occ classes are blended as well, so...
Jason Pereira: Occupation classes being... Different occupations have different levels of risks for becoming disabled. So instead of parsing those out and saying, "You're behind a desk in a bubble wrapped room versus you're climbing a high wire on a job site, very different. I mean, those are two very extreme, basically joke examples. But yeah, this is just an example of where I'm coming from on.
Matthew Inglis: No, it's bang on. A female accountant that sits in that office all day is going to be paying the same to protect her mortgage payment from disability as a guy that is swinging a pipe wrench with a smoke in his mouth, standing on the rig floor as a rough neck. And there's absolutely nothing wrong with being a rough deck, but the reality is that there's a big risk difference between a rough neck and accountant. Right?
Jason Pereira: So bottom line is pricing can actually benefit some at the detriment of others, essentially. And that's largely done for simplicity of issuing out this stuff, right?
Matthew Inglis: One hundred percent. I believe that everything is issued at a 1A or a B when it comes to creditor disability insurance, which is in a lower totem pole.
Jason Pereira: Yeah, fair enough. I mean, a lot of safer white collar office jobs will typically be in the fore. So yeah, so overall, bottom line is you may end up worse off on pricing. You may end up better off depending on the situation. But let's talk about another key factor here, and that's the concept of ex-post underwriting. So give us somewhat an idea of what that means. When you go and apply for an insurance policy through a licensed insurance agent, you basically have to go through the underwriting process. Yes, that can mean medical questions. I don't know why people are always so terrified of those things. And it can mean medical tests. But what that does mean is that the insurance company, the time that you were applying, confirms that yes, you qualify for this form of insurance, and therefore we're issuing it to you.
Jason Pereira: In fact, there's even a two-year clause that says that as long as you didn't make any fraudulent statements, that basically after two years, they're not going to contest the entire thing. So from a standpoint, there is a guarantee there, is that, "You keep paying for this thing and we will pay you when the event happens." How does that contrast with how underwriting happens in the creditor market?
Matthew Inglis: I don't want to talk about underwriting, because underwriting is underwriting. And if you get it right, you get it right. And if you get it wrong, you get it wrong. It's black and white from an underwriting perspective. It's a black and white answer. The issue is, is that you have people that know absolutely nothing about life insurance going through questionnaires with you. People that know absolutely nothing about this industry quickly shuffling you through three or four questions at the end of probably a one or two hour business loan appointment or farm loan appointment or mortgage appointments.
Matthew Inglis: These aren't people that specialize in this stuff. This would be like sitting... It's no different than sitting down with me, your life insurance advisor, and at the end of me putting your life insurance policy in place, pushing a bunch of business loans in front of you saying, "Hey, guess what? I'm your business lender now." Think about that. Reverse that role. Logically, does that make any sense whatsoever? So underwriting, Jay, is it's black and white. If you get it right, it's good. But it's not about whether or not if you get it right, it's about the professionals that help them get it right and the seriousness of the simplified questions that these people are answered.
Jason Pereira: [Crosstalk 00:09:25] like four questions, which are omnibus, right? So I'll give you perfect examples. I remember one time, way back, I had a client who, previous firm, who came in. He's like, "Well, ha, you guys couldn't get me life insurance last month, but I got it from the bank for my mortgage." And I'm like, "You had a heart attack four months ago. You don't have life insurance to go back and get." He's like, "What do you mean? They gave me the insurance." I said, "Did you answer any medical questions?" They're like, "No." Well, again, the unlicensed person with no repercussions basically checked a couple boxes and made a sale.
Jason Pereira: And at the end of the day, he went back, asked the right questions, and got refunded the money after he's demanded the money back, because essentially he was sold something that he actually technically didn't qualify for. And the worst part is that the onus on this, in ex-post underwriting, is the insurance company doesn't check until after the event happens. So they would have, later on when he passed away, gone and checked to see if if he had answered this correctly by looking at medical records. And they would have been like, "Oh, that box was hit incorrectly. Guess what? No payout. Here's a refund of your premiums."
Jason Pereira: And the problem is, because they're not taking the time to look at this in advance, there is no assurance that you got it right. If you're clean, healthy, you've never had a problem, you're going to check those boxes, you got to no problem whatsoever. But these are very loosely open to interpretation. And CDC did a piece called In Denial that basically showed just how loose and open to interpretation some of these things are. And it's a bit frightening. So to me, I don't know about everybody else, but if I have insurance, I want the assurance that it will pay. And I think that there's a real problem in this part of the industry. So that's the underwriting piece. Let's talk about the quality of these policies. Okay? So any issues? Talk to me about issues with the life insurance coverage on mortgages.
Matthew Inglis: So to discuss some of the strengths and weaknesses, the contractual strengths and weaknesses... So I mean, 99% of the consumers out there are going to make us switch based on saving money, not contractually obligations of the insurance contracts. If you want to talk contractual obligations, we've got the fact that it's a declining balance. We know that, right? So it's one thing to say, "Oh, you know what? As my debt decreases, my life insurance needs to decrease." But I guarantee you that you'll never run into somebody that's terminally ill that looks at you and says, "I love the fact that my life insurance is decreasing on an annual basis while I'm dying." Right? So some of the other things, the portability. Some mortgage creditor products are portable, most aren't. So you switch your mortgage, and upon time of application for your creditor insurance on your first mortgage, you were insurable, but you aren't moving forward, as you switch mortgage carriers. That could pose a big problem, as well as convertibility.
Matthew Inglis: There comes a point in time in everyone's life where it's no longer about renting insurance and protecting debt, it's about buying insurance and protecting its state and legacy and inheritance and tax. And convertibility option is absolutely [inaudible 00:12:11]. I'm sure every person, every advisor out there has run into a client that's no longer insurable that has a term product that they need to convert. Right? Think about how invaluable that is. In any other situation, that client would never have the ability to have a standard issue permanent life insurance contract. So again, the big things, other than beating up the price, are those, portability, declining balance, and conversion options.
Jason Pereira: So bottom line is, I'm paying less. And if I decide to move financial institutions because I am getting a better deal, well, I'm back to square one and my health better be in good shape.
Matthew Inglis: Another one that's really scary and sneaky too that I want to mention too, it's expiration date or the period of time you have to make a claim, which is actually quite terrifying. I've mentioned this a while back, but CUMIS Insurance, I've read through one of their certificates where you literally have 90 days from date of diagnosis of critical illness to make a claim on your critical illness...
Jason Pereira: What?
Matthew Inglis: ... creditor insurance certificate without it potentially being disputable and deniable. [Crosstalk 00:13:18]
Jason Pereira: So let me get this straight. There's actually a clause on one of these things, and this is only critical on the slide, which we'll get to critical issues in a second. But you're telling me that if I did diagnosed with a critical illness, I'm focused on just dealing with that and I haven't thought to contact the mortgage insurance company to basically make my claim and I am at a hundred days, you're telling me that they will cause a problem that.
Matthew Inglis: There absolutely is...
Jason Pereira: Oh my god.
Matthew Inglis: ... a clause within a CUMIS creditor insurance certificate that states that if you have not made your critical illness claim, given this specific number of days from the date of your critical illness, which is not very long at all, don't quote me, I can send it to you later, but it's between 90 and 120 days. They could literally, it says it right there, contractually decline... So you're in the hospital recovering from a bad stroke or heart attack and you're...
Jason Pereira: You're focused on recovery. You have a stroke that impairs your ability to even remember you had the insurance.
Matthew Inglis: Yeah, you spend too much time in the hospital or get out of rehabilitation too late, your critical illness insurance on your CUMIS mortgage or CUMIS small loan might not pay your loan off.
Jason Pereira: Oh, that is vulgar.
Matthew Inglis: You missed your your claim window.
Jason Pereira: Wow, that I've never seen before. All right, let's talk about... We talked about life insurance, talked about critical illness. What are the other limitations to critical illness in the creditor insurance world?
Matthew Inglis: Again, some of the things that I've just disclosed. It's the loose underwriting. It's the lack of questions that are asked in order to gain access to a product that may or may not cover you. So it's not about in the backend when they're underwriting it upon time of this or that, because at the end of the day, all underwriting companies do this everywhere. It's how loose this product is offered to people upfront and it's sold by people that don't know what they're doing. They don't know what they're doing, where people go into mortgage brokers, banks to get financing, and they just don't think that there is...
Matthew Inglis: A person will likely go in and get a small business loan as a 20, 30, [inaudible 00:15:15] year old, or go in and buy a mortgage or go out and take money out to purchase their first piece of farm machinery. They will make these transactions in their life probably prior to making their first serious life, health, critical illness, disability insurance purchase. That makes sense, right? So what's going on here, on the grand scheme of things, is that the first opportunity that a Canadian consumer has to learn anything about life critical illness or disability insurance is being taught to them by a banker who knows nothing about it. That's what we're programming people to think, is that that is what a life disability and critical illness insurance interaction should walk, talk, and be like. And it's wrong. It's wrong. That's not what traditional life and health insurance [inaudible 00:15:59].
Matthew Inglis: That's the real big problem, is that people will often go to their bank or mortgage broker, automotive dealership, whatever, and be offered life and health insurance products prior to a Canadian consumer actually understanding what the process is. That's the easiest way for me to explain one of the biggest dangers of all of this, is that this is the standard that Canadian consumers set the bar at when it comes to purchasing life and health insurance products, because they're supposed to trust people.
Jason Pereira: Okay, [inaudible 00:16:32] and we can echo those concerns. Well, let's get into the specifics of the contract, right? So the underwriting is loose. If I go buy a critical illness policy from an individual advisor, my normal insurance advisor, what are the differences between that kind of contract and the typical mortgage insurance contract that you're seeing out there?
Matthew Inglis: So the first issue with creditor insurance contracts is that it does limit you to only being able to make a claim in the event that you're diagnosed with one of three critical illnesses, where we know it's in the marketplace that there's critical illness products that offer up to 32 illnesses. So that's the first thing [crosstalk 00:17:07].
Jason Pereira: Let's expand on that for a second. Because here's the thing about that, this is not an immaterial point. Now, the biggest one, by far, is cancer. It's almost two thirds a claim. And then we got heart attack and stroke and open heart surgery, which basically encompasses about 90 some odd percent of claims. Some of them I've seen don't even cover open heart surgery, they only cover the other two. Right? So you have a choice to either... So it's a perverse choice, either wait for the heart attack or get the intervention in the first place, which is ridiculous.
Jason Pereira: And then you have, you said, 20 somewhat other conditions potentially. From based on data I've seen, MS diagnoses are 1% of all claims, right? That is not an immaterial thing. So the reality is that if you're covered by three, that covers 90-ish percent of all claims. You're covered by four, you're at 97-ish percent of all claims. I don't know about you, but if the price is the same or better, I would rather be covered for 27 or whatever the number is than that, even if it is a small probability.
Matthew Inglis: Being covered for the big three isn't a bad thing. It's better than nothing.
Jason Pereira: No, better than nothing.
Matthew Inglis: What a person needs to take into consideration is that on the traditional critical illness insurance side, carriers are constantly evolving their definition so that they're more and more and more, more and more competitive, and more and more attractive. When you're talking about creditor critical illness insurance, when was the last time that any of these creditor insurance providers, creditor critical insurance providers, enhanced the definitions of any of their critical illnesses within their creditor insurance [inaudible 00:18:40]? I don't know. I have no idea. So over here where a heart attack may be claimable, may not be claimable over here. Potentially the same with cancer and stroke within the definitions of what is a stroke in a creditor critical illness insurance certificate. They don't have to compete over here. It's just a creditor insurance certificate when you purchase critical illness insurance in the open marketplace. In order for the carriers to compete with each other, they have to constantly be evolving and bettering their definitions of what a critical illness is and when they will pay.
Jason Pereira: So that's critical illness. Let's talk about disability. How does disability differ from a typical disability policy someone would get from an advisor, or heck, even their group insurance policy plan?
Matthew Inglis: Creditor disability insurance is not meant to be a disability insurance product that is inclusive. It has nothing to do with your income, it's based on a payment, which I like. I do like that. Right? So if I wanted to go out and buy a disability product to protect my disability or my mortgage payment, I could do so in addition to the disability benefits that I have that are protecting my income. Okay, so again, creditor disability is not inclusive. The same with the product that we use to replace creditor disability insurance, which is a pretty much mirror image product of what banks use. However, the product that we use is traditionally underwritten, the client has the option between whether or not they would like their monthly mortgage payment payable for two-year, five-year, or to age 65.
Matthew Inglis: And then if they do want [inaudible 00:20:06], or if they do want it payable for five years or at age 65, then we can increase the definition of disability. Right? So again, there's a lot of product in the traditional marketplace that looks like the stuff that creditor insurance providers are offering. It's just fully underwritten and it comes with the ability to select an occupation class and [crosstalk 00:20:27].
Jason Pereira: You have that, but in general also, I mean to my experience, tell me if I'm wrong here, typically what I see on mortgage insurance policies is a period of coverage of up to two years. Is that about right?
Matthew Inglis: Yeah.
Jason Pereira: So, and here's the stats on disability. The probability I'm being disabled at some point in your life for a period of a longer than 30 days is somewhere in neighborhood of about one in four, three to one in four, depending on white or blue collar jobs. But the probability of going back to work after the disability's lasted two years is near zero. So the reality is that that coverage drops off at the moment in which you know you're not going to be able to work, which is... Sure, okay, you can argue CPP disability kicks in, but man, I don't know about you, but I would much rather not have to worry about my mortgage once I know there's no chance of me working.
Matthew Inglis: Yeah. I mean, it is what it is. My thoughts on that are if the bank tried to increase the payable period, it likely wouldn't fly with consumers. They'd say it costs too much and we're going to cancel it. You got to remember that creditor insurance [crosstalk 00:21:21].
Jason Pereira: But this is the entire thing. It's a composition. The entire thing is packaged as a, "Do you want fries with that? Look at this giant payment you just agreed to for your mortgage, here's this tiny little thing to protect it." Right?
Matthew Inglis: Yeah.
Jason Pereira: And it's designed to be appealing to say, yes. It's designed to be easy to say, yes. It's not actually designed to educate the client as to what's best for them and actually deliver true value to them.
Matthew Inglis: It circles back to, believe it or not, despite what we think, the Canadian consumers usual, typical first life and health insurance interaction is with their lender or mortgage broker. Right? So what do they know? What do they know? They don't know anything. All they know is their creditor insurance product. They know absolutely nothing about traditional life and health insurance space because they're bankers and lenders, which doesn't make any sense at all. And that's where this whole problem stems from anyway. Right?
Jason Pereira: Absolutely. Unfortunately. So with that being the case, let's move on from the traditional mortgage coverage. What other forms of coverage are the big ones that business owners need to be aware of or typically pursuit for?
Matthew Inglis: So we'll split them into primary, secondary, and junk. Okay? So the primary creditor insurance products that people really need to pay attention to because you're really going to be taking a bath are mortgages. I'm not picking or trying to be rude when I say, "When you get older, start paying attention," but when you get older, start paying attention, because this is when creditor insurance costs per thousands really start ramping up, and the price bands go from increasing every five years to every year. So your creditor insurance is jumping in price on you every year. So as you get older, start paying attention to this stuff. The rule of thumb, the more your debt, the older you are, the more you're going to be spending on creditor insurance products. So again, primary creditor insurance products that you want to really pay attention to, mortgage, big farm loans, big agricultural loans, big business loans, any big commercial loans. You really want to start paying attention to that stuff. That's our primary creditor insurance products.
Matthew Inglis: And when you get into your secondary creditor insurance products that you might want to start paying attention to, that's your personal loans, personal lines of credit, automotive loans. I mean, you can go and buy a truck for $120,000. You can literally go and buy a new Ford tomorrow that will cost you the same as a used Ferrari. So you get a guy that's in his fifties and sixties insuring that stuff with creditor insurance product, it's going to cost a lot of money. Same with equipment dealerships too. Guys walk in and spend a few million dollars on Tom buy-ins, or heavy machinery, or whatever, it's in that stuff too. So again, you got to pay attention to that stuff. And then we get into the really, really junky products that you should just cancel and never look back on.
Matthew Inglis: And that's primarily credit cards.
Jason Pereira: Yeah, those ones are terrible. Honestly, absolutely terrible, criminal.
Matthew Inglis: But again, primary, secondary, and junk. Identify the primary. And then when you've identified the primary product that you want to replace for your client, go start digging up the secondary stuff, because the likelihood of them having primary or creditor insurance on a primary loan is going to, it's just going to be a spill off. They're likely going to have it on everything. If they're a believer in insuring their million dollar farm loan or their million dollar mortgage, they're probably going to be believers in making sure that they ensure every line of credit and loan that they run through their financial institution as well.
Jason Pereira: So let's talk about... Let's give a real life example. You've built these tools that basically help business owners and advisors better to understand how much this is costing them. So we did a quick example here of trying to replace all three forms of insurance for a 55 year old male. Can you... Let's talk about the results there. What is it likely that I'm paying at the bank versus what I'm paying if I was to go ahead and talk to a licensed advisor and if I was to get properly underwritten?
Jason Pereira: And this is on... The example we used here is comparing to the bad coverage it was. So the biggest coverage you can get on this type of product from a blue bank, who that will not be named, 750,000 of life, 300,000 critical illness, and about 3,000 a month of disability, which is the most they would give you. So let's see what this... How does this compare?
Matthew Inglis: Yeah. So let's say we've identified one of our clients is a 55 year old male non-smoker with a foray occ class, because when we're comparing traditional disability to credit or disability insurance, we're actually using a product that takes occ class into consideration, which means your disability insurance is priced on the risk of your occupation.
Matthew Inglis: But anyways, let's say for instance, that 55 year old male with that $750,000 mortgage said that he plans on paying the mortgage off over the next 15 years.
Jason Pereira: So said bank would charge me, based on what you're telling me here, 4,680, so 4,680 a year for that 750,000 of insurance. Alternatively, what am I looking at as an alternative?
Matthew Inglis: So what we want to make sure we do is offer three term insurance rates, because we want to make sure that we're helping whoever's using our tool align the length of the term with whatever the length of the repayment period for their client is. So in this situation, if this 55 year old male wanting to purchase a $750,000 term 10 policy, we're looking at 2,130 a year, a term 15 policy for 750K, 3,352 a year, a term 20 policy, 3,930 per year.
Matthew Inglis: So the options range from saving the client between $2,500 a year to about $700 a year.
Jason Pereira: Yeah, but I mean, assuming this is a, for example, 10 year term loan or whatever it might be, we're talking about more than double the cost, right? So not immaterial in any way, shape, or form. How about on the critical illness side, what are we looking at there?
Matthew Inglis: So again, we go over to critical illness, and important to remember that creditor critical illness insurance, again, only covers three illnesses. And at age 55, it would be increasing in price every year. The cost per thousand age band would be increasing every year. So in this situation, the 55 year old would be paying $3,564 a year, or his $300,000 worth of creditor critical illness. Where his alternative option would be to purchase a critical illness insurance policy that covers him for four illnesses, which is fixed price for the next 10 years, which would cost him 3,540.
Matthew Inglis: So we're pretty much bang on there, but we can fix the cost of his critical illness insurance for the next 10 years versus it increasing on him on an annual basis.
Jason Pereira: Yep. So overall about the same, but... And this is, sorry, is that a permanent insurance policy there in the critical illness?
Matthew Inglis: The critical illness insurance policy is a T104 illness [crosstalk 00:27:35].
Jason Pereira: So back to the 10 year period, but the bottom line is about the same cost for more robust coverage is what it comes down to. Plus again, let's remember the optionality of this. The policy, on time of claim, pays you, not the bank. You can determine how much or how little of that goes to paying off said loan based on the factors of your life. And again, the portability. So let's go on to the last one, disability. How does that look different?
Matthew Inglis: So again, if the client, if the 55 year old male were to become disabled... Now, remember, even though the client's payment with a mortgage that big is probably going to be upwards of 4 to $5,000, remember, creditor critical illness insurance is limited, and on the specific certificate that we're talking about today, the bank would only pay a maximum of $3,000 disability benefit. So if we compare the cost of a $3,000 disability benefit, creditor disability insurance benefit versus him buying his own, his creditor disability insurance benefit would be costing him $1,562 per year. That's likely a 60 day elimination period. If he went and bought his own non-inclusive disability insurance payment protector for 3000, with a 60 day elimination period at a 4A occ class, his payment is $1,212 per year. So you saved about $350 there, or without charging the client any more than we could take him from his his creditor disability insurance, which is a 60 day waiting period, right into a 30 day waiting period for roughly the same cost.
Matthew Inglis: So we shaved the cost in half, or sorry, shaved the waiting period and half.
Jason Pereira: And sorry, the benefit period, how long is it?
Matthew Inglis: Benefit period is two years for both.
Jason Pereira: So it matches, right? So bottom line is, if look at this situation, in this case, the client would've paid, for this kind of protection, almost $9,500 a year. And we're talking about saving them up to roughly about 3, $4,000 a year, let's call it three. So a full one third reduction in cost, plus better coverage, plus the optionality, plus the portability. So like I said, convenience comes at a price, and yeah, these are not small numbers, especially when we're talking about 10 year periods. This person would have saved $30,000, at least, over the course of 10 years. I don't know about you, but I've yet to any individual who's willing to just donate that to an insurance company. So it is something to keep an eye out for.
Matthew Inglis: So here's a thought, everybody's trying to figure out how to pay their mortgages off faster. Why don't you do it this way?
Jason Pereira: Yeah, very true. Get the protection you need, pay a better price, and get better coverage. And that 30 grand... I mean, perfect example, that was 30,000 in savings, and we did that on a $750,000 debt. That's a pretty sizable debt. So perfect. So thanks for taking us through this math. So important message, and anyone who's listening, do not take the easy route on insurance ever. It just doesn't work. It doesn't work out as well for your pocket book, that's for sure.
Matthew Inglis: Take it, but replace it.
Jason Pereira: Take it, but replace it. Fair enough.
Matthew Inglis: Insurance is still insurance, overpriced creditor insurance. Don't get me wrong, I'm not going to beat it up. If it didn't exist, I wouldn't have something to replace. It still serves a purpose, but replace it and do your own homework. It's like sitting in the aisle at Safeway, grabbing for that chocolate bar that you know is going to cost $3, which you can walk across the street and buy at 7-Eleven for a buck 50.
Jason Pereira: Me, I'd rather not walk. Anyway, but that's just me. Anyway, Matt, where can people find you?
Matthew Inglis: You can check us out at www.mobile-advisors.ca. That is our mother brand. I'm kind of quiet about what we're doing with Creditor Insurance Watchdogs. I don't create a big landing page to tell everyone what we're doing and what our strategy is. And probably one of the best ways to get ahold of me is to find me on LinkedIn. I love the platform and I try to be as vocal as possible on there.
Jason Pereira: Yep, excellent. Matt, thank you so much for your time and thanks for sharing the message with us.
Matthew Inglis: Thanks Jay. Thanks for having me.
Jason Pereira: So that was this week's episode of Financial Planning for Canadian Business Owners. We got a bit in the weeds there on the forms of insurance coverage. And there is a lot of nuance to this, but the bottom line message is this, if you take the simple default answer or the simple default offer that's there and do nothing to make sure you're getting the best price, you're probably getting hosed and you're getting hosed without the degrees of freedom and the ability to make changes that you can get somewhere else. So always make sure to speak to a knowledgeable and qualified licensed insurance advisor about this sort of thing. As always, if you enjoyed this podcast, please review on Apple podcasts, Stitcher, Spotify, or wherever you get your podcasts. And until next time, take care.
Producer: This podcast was brought to you by Woodgate Financial, an award-winning financial planning firm, catering to high net worth individuals, business owners, and their families. To learn more, go to woodgate.com. You can subscribe to this podcast on Apple podcast, Stitcher, Google play, and Spotify, or find more episodes at jasonpereira.ca. You can even ask Siri, Alexa, or Google Home to subscribe for you.