Sunday, January 11, 2015

(No.280) "Pt.2 of Buying LIfe Insurance in Canada: More on Accidental Death Insurance"

"Part 2 of the series 'Buying life insurance in Canada':
some interesting responses to the column on accidental 
death life insurance"

by Alastair Rickard

In my first column in this occasional series (RickardsRead, no.279 posted Dec.31, 2014) I reiterated for life insurance consumers my long held and oft-articulated negative view of accidental death insurance  (i.e., life insurance that will only pay a death benefit to a beneficiary IF the death of the life insured is the result of an accident) -- an eligible accidental cause of death being defined by the life insurance company issuing the AD policy.

In response to the column I received a number of responses. I have selected four which are both interesting and informed. As is my custom in using readers' emails in I have identified the writers not by name but rather to make clear their insurance connections to readers.

From an American writer and teacher with a longtime involvement with insurance:
"I found No. 279 fascinating. ...  Many years ago I had occasion to fly into LaGuardia for a meeting in New York City.  On the return trip, I took an airport bus from the terminal in midtown Manhattan.  I sat next to a good looking, gray-haired gentleman with four stripes on his sleeve.  In answer to my question, he confirmed he was an airline captain, and he asked what I did for a living.  I told him I was an insurance professor.  He immediately asked for my views on accidental death flight insurance sold through airport vending machines.  You can imagine what I told him.

"He then said he captained transatlantic flights.  He said he liked to spend a few minutes before a flight watching--from a distance--the facial expressions and mannerisms of people buying flight insurance.  He explained that if somebody wants to commit suicide by bringing down a plane and minimize the likelihood investigators will find out what happened, the best plan is to bring it down in the middle of the Atlantic.

"What I cannot remember is whether my chat with the captain was before or after the 1968 publication of Arthur Hailey's novel "Airport," which had precisely such a plot line and later became a blockbuster movie that is not to be confused with the later spoof."

From another American teacher of insurance subjects, also with a longtime involvement with insurance: 
"Great column, Al!  As usual!!!

"My students are astounded to learn that it is highly unlikely for them to die of an accident, as opposed to other means.  Thus, cheap ADI sounds like a good deal.   I quickly disabuse them of that fact; however, my classes are a drop in the bucket and undoubtedly the entire student body believes what my students believed before we tackle the subject.

"My students are also astounded to learn how cheap term (and even whole life) insurance is at their age.  Most of them have never been approached by an agent.

"If you can get your message about ADI out to a broad audience, that would be great."

From a Canadian life insurance agent of long experience:
"1.  I have never added, on any policy that I have sold, an accidental insurance rider.

"2.  My thinking is exactly as you state:  "If a  person needs insurance they should purchase insurance that pays on any type of death."

"3. Several of the life insurance companies through which I sell life insurance send out mailings soliciting AD purchases. They do this as part of their direct sales marketing efforts.

"I was in the midst of working with a client to update term insurance to permanent insurance. The client had suffered a debilitating illness which meant their conversion from term to perm was very very important. Ironically, when they received the marketing material for Accidental Death they duly signed up for AD insurance, thinking this communication was the important conversion from term to perm insurance that we had discussed.

"These are astute people.  They are university graduates and business owners, facts which verify your suspicions that the average person purchasing AD insurance has no idea what they are purchasing. . . or perhaps we should say . .  . .not purchasing."

From a Canadian teacher of insurance subjects:
"I quite enjoyed this article. Accidental death benefits are poorly understood and are usually sold inappropriately, and Canada’s insurers are certainly complicit in offering this lottery-type of coverage to consumers.

"I do have at least one circumstance in which I prefer the use of Accidental Death benefits, though it owes to what I consider a larger failing of the insurance industry today.

"Underwriters at every major insurer, to one degree or another, have started customarily adding an exclusion to the effect of “No claim shall be paid related to an absence from Canada for a period of greater than 30 days.” This exclusion gets added to life insurance policies for consumers who are purchasing life insurance, and have a history of foreign travel with extended absences, especially with respect to East Africa, West Africa, India, Pakistan, and the Philippines. Mostly, this would be immigrants to Canada.

"In such a case there is a real risk that death can occur (e.g.. a heart attack happens on week 3 of a 5 week visit home) and fall under this exclusion. The exclusion is related to some problematic claims (you may have seen these firsthand) where the proof of claim was able to be obtained in another country, even though the actual covered event had not occurred. (e.g., having a doctor forge a death certificate.)

"Where this exclusion gets added I prefer to also have some Accidental Death benefits provided. Most AD benefits do not include an exclusion specifically related to foreign travel, and while my heart attack example, above, would still not get paid out, a bus accident or similar event would, most likely. Of course, in such a case, it is critical that the consumer understand that the AD benefits are simply a gap-filler, and in no way provide a substitute for actual life insurance.

"Curiously, the policy that any [Canadian] soldier can purchase through Manulife (formerly a Maritime Life policy) automatically includes an AD rider which doubles the death benefit if that soldier is killed in what is known as a “Special Duty Area.” SDAs are locations defined by DND [the Dept. of National Defence] and specifically related to the execution of a formal operation. During our time in Afghanistan, this AD rider would actually have paid out in a meaningful number of circumstances."




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