“Most people don't want to learn and read about money but we must to a certain extent.” — Preet BanerjeePreet Banerjeee quit his job the day after we first met. That’s coincidence. He was an investment advisor for a bank and I did advanced marketing for a life insurance company. We also met just before he started writing for The Globe and Mail, while he was filming Million Dollar Neighborhood, and other times too. He’s followed a squiggly career path.
The financial sector is filled with two kinds of people: salespeople (know how to sell) and technicians (understand what’s being sold). Preet stands apart. He’s very likable. Even better, he has a deep insider understanding of how the financial sector works, provides objective advice and says what needs to be said.
Preet spoke at Rotman about his new book. I already read and recommended Stop Over-Thinking Your Money: The Five Simple Rules of Financial Success (review on GoodReads). I attended to support him. The quotes in this post are from his live talk and have been lightly edited for readability.
Rule #1: Disaster-proof Your Life
“The risk of running out of money is important and something you need to address. But if retirement is potentially 40 years away, there are a lot of risks that exist between now and then. Your future income is your single biggest asset.. Protecting it is one of the most important things you can do.What are all the different ways you can lose that income?
- If you die, clearly you're not going to have any income and your family's lifestyle may be put in jeopardy
- If you become disabled, you're going to lose your future income
- If you lose your job, you're going to lose your income"
1. Life Insurance
“Life insurance is boring if you are not in the industry. Even if you're in the industry it's pretty boring.”I find insurance exciting, but I’m an actuary. What else provides a predictable lump sum tax-free at an unpredictable time of need? That’s peace of mind. I designed products, helped advisors sell them and use that insider knowledge to help the public review their protection.
We’ve changed. We understand the consequences of dying with financial obligations remaining but don’t always prepare. Term life insurance is inexpensive but life-changing events no longer trigger insurance purchases. For instance, the birth of a child creates expensive responsibilities. Yet 60% of parents don’t get life insurance within two years of their family addition. Does that surprise you? Maybe there are challenges affording the insurance.
If you’re single and without dependents, you might think you don’t need life insurance (but read this). Regardless, you likely agree you need insurance to replace your income if you become disabled.
2. Disability insurance
Disability insurance is complicated (see the guide to disability insurance, which includes links to an article and video by Preet). If you work for a company, you may think you have proper coverage. How do you know? Products are complex and life insurance literacy remains low.How do you do you gauge
- the stinginess of the definitions
- the generosity of the benefits
- the quality of the guarantees
Your benefits aren’t guaranteed even if you pay part of the cost. Remember Nortel? The long-term disability insurance covered 50% of pre-disability income. Would that be enough? Many employees didn’t think so and topped up coverage to 70%. Unfortunately, Nortel went bankrupt leaving the 357 disabled with only 35% of their expected benefits. Could you live on that? How would you feel knowing that lawyers and other professionals have already received over $1 billion in windup fees?
If the Nortel employees got independent advice, they might have purchased personal disability insurance that Assuris guarantees will pay at least 85% of the promised benefits if a member insurer goes bankrupt.
If you’re self-employed, don’t you need disability insurance too?
3. Job Loss Insurance
You can’t buy job loss insurance. That doesn’t stop you from taking precautions to bulletproof your career, following the eight steps to getting a job today or taking a Krypton course.You can self-insure against job loss by establishing an emergency fund once you decide on the right size. Yet 45% of Canadians have no savings for emergencies. How’s that for optimism?
Act
Knowing isn’t doing.Disaster-proofing your life isn't glamorous. The process takes time. Preet tells readers to get started by contacting suitable advisors immediately: “Put down the book and book the appointment. You do not know when these [unpredictable] things could happen. Do it. Get the ball rolling.”
An author telling us to stop reading? At least Preet didn’t tell us to leave his talk. That’s advice we would have ignored. What advice will you act on?
Links
- Preet Banerjee: website, blog, book (Amazon.ca)
- Book review on Goodreads
- Income replacement: A guide to disability insurance
- Two types of insurance you may have but cannot own
- Oblivion: what happens if my life insurance company dies?
- How to afford the insurance you need
- Tips for first-time life insurance buyers
- Test your insurance literacy
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