March 27, 2010

Lease or Buy? How Life Insurance Compares With Getting A Car

If you routinely lease your car, you get access to new features such as better fuel economy, integrated Bluetooth, integrated GPS navigation, better headlights, more airbags, all wheel drive and run-flat tires. You can change from sporty to family-friendly to stately, depending on your age and needs.

Car prices may not even increase to keep pace with inflation. This year, Mercedes Canada dropped the price of the E350 to the level of the now-discontinued E300. So you actually get more for your money. That's the power of competition.

Leasing Insurance
You can also lease your insurance. Unlike cars, insurance products change little. As people live longer, the mortality component of the insurance premium decreases. However, lower investment returns and higher expenses boost the costs. Let's assume that the overall premium does decrease. You won't see the savings.

Say you got coverage three years ago at age 40. For new coverage, you'd pay the higher prices for a 43 year old. If your health deteriorated, the price could be much more. You might get denied coverage. Since companies pursue ever-cheaper ingredients, new insurance contracts may subtly weaken guarantees or add new conditions. Instead of sugar, you might get corn syrup. Would you or your advisor notice? With a new contract, conditions start anew. For example, death benefits are generally not paid for suicide during the first two policy years.

Before dumping your current life insurance for a shiny new contract, take a careful look at the consequences --- especially if a different advisor is encouraging you to switch.

Residual Value
Leasing a car leaves you with a residual value and an option to buy.

Leasing life insurance leaves you nothing at the end of the term, generally 10 years.  You usually have an option to convert to permanent coverage at your now-higher attained age. This is especially valuable if you now need insurance for life and your health has deteriorated: you pay normal prices without new underwriting.

When leasing, you can experiment with cars you wouldn't like to own for long. You can pick an unusual colour like bronze/orange or an unusual shape such as the BMW X6 SUV/hatchback. If you're flexible, you can save money by getting a less popular vehicle or a demonstrator.

With insurance, you get fixed prices. That puts the onus on the insurer to be competitive rather than on you and your negotiation skills. That's great for those of us who hate that aspect of getting a car. You also see extra cost gimmicks like the accidental death benefit, which lets you gamble on the cause of death. With cars, you're offered stain protection

If you've decided to get a car, there are arguments for buying new, leasing new or buying old. If you've decided to get life insurance, your choices are simpler. You can't buy old. That leaves buying permanent coverage or leasing temporary coverage.

Podcast 60 (4:12)

direct download | Internet Archive page

PS You need insurance on your car but you don't need insurance on your insurance

March 20, 2010

How Advisors Really Prepare Term Life Insurance Proposals

If you have a short-term need, term life insurance provides the most protection for the fewest dollars. You may think you can buy on price. That's generally true. Advisors say they'll survey the market to pick the right proposal for you. Some do and some don't. Here's what really happens.

Run Computer Illustrations
At The Sony Store, you can't buy Samsung, Panasonic or Nakamichi. Some advisors only sell products from one company. They give you get no choice. You rarely get the lowest price either. Since the advisors are captive and need commissions, the insurer gets sales without being especially competitive.

Independent advisors often conduct market surveys using comparison tools. You can do this online yourself. Beware of biases. Comparisons may not consider all products available since an advisor is only contracted with selected companies. Do you think they'll show products they don't sell?

Some advisors do show all products and then explain their recommendations. This prevents another advisor from showing you a cheaper option.

Coke or Pepsi? Like most of us, advisors have personal biases. Some insurers provide better support. Some pay more compensation. Some give better ongoing service. Some are better at paying claims. Some are better-known (e.g. more like GM than Subaru). Some are more financially stable. Some host better conventions.

Since there are so many insurance companies, it isn't practical for your advisor to deal with all of them. It's not advisable either. Because forms and procedures differ among companies, mistakes can easily be made. Companies also disappear, but you're protected against that.

Risk Classes
Insurers generally charge different rates based in expected claims
  • males pay more than females
  • smokers pay more than nonsmokers
Now there are further distinctions by health: regular (higher), preferred (lower) and elite (lowest). Since your advisor can't which class you'll be in, you'll probably see comparisons for the regular class. If you're found to be healthier, you'll get the pleasant surprise of a lower price. That's better than thinking you'll qualify for elite and having to pay more. 

If your health is even worse than regular or if you take part in dangerous activities like race car driving, you'll face a temporary or permanent surcharge for that extra risk.

Since companies assess risks differently, your advisor might ask you to apply to several insurers. 

After The Term
Circumstances change. You may find you that you need permanent insurance. Most insurers anticipate this and let you convert your temporary protection to pricier permanent coverage up to a maximum age (say 65). You don't even require proof of good health. You simply pay the higher premiums for the new plan based on your current age.

Your advisor may anticipate your changing needs and select a term plan from a company with good permanent plans. Your term coverage may cost a bit more in exchange for these valuable options.

The Proposal
Your advisor may take the time to prepare a simple easy-to-follow summary of the different products. Others skip that step and show you computer-produced illustrations for selected companies and let you pick. Others select a company for you and only prepare proposals for that one. These advisors may bring printouts for different coverage amounts to help with your budgeting.

Despite the simplicity of term life insurance, you'll see differences in the advisor approaches. Since products and prices are similar, you'll generally get a reasonable solution. The deviations hurt most with a complex product like universal life.

Podcast 59 (4:33)

direct download | Internet Archive page

PS Paying premiums monthly is great for budgeting but usually costs more than paying annually.

March 13, 2010


I invested in myself — in study, in mastering my tools, in preparation.
— Henry Ford

It's what you learn after you know everything that really matters!
— John Wooden

When you receive a professional designation, your studies aren't over. You'll face requirements for continuing education. The concept is fine. If you love your field, you'll keep your skills current. Without passion, will the whack of the stick motivate you?

The hassle comes when you're committed to learning but forced to prove it.

Different professions have different requirements. As an actuary, I'm required to have 100 hours of Continuing Professional Development (CPD) every two years. This gives more flexibility than requiring 50 hours per year. Say you're on maternity leave or a sabbatical. Besides, 100 hours sounds more impressive than 50+50. Maybe actuaries can market.

The 100 hours must include
  • Technical: 12 structured hours
  • Professionalism: 4 hours
  • Structured: 24 hours
So 76 hours can be unstructured, which allows self-study. This system is reasonable and gives actuaries leeway in judging what is suitable.

Some organizations which are much easier to enter mandate fewer hours but have full control over what qualifies.

What Qualifies?
The easiest way to get continuing education credits is by attending seminars.

Sit there half awake and earn credits as you lose hours from your life. Feel free to daydream: you're rarely tested for comprehension. If you'd rather sit in your jammies, study online. You'll be more comfortable but probably have to pass a test to show you were paying attention.

Are the tests tough? Try one from the CDIC, which insures bank deposits. Here's a description:

"This course is a simple “read and learn” program. The examination component is composed of 16 multiple-choice questions. The questions are based on material found in the course, many of which are word-for-word."
Some organizations require that presentations be certified and even charge for conducting their review. How counterproductive. This encourages trainers to recycle previously-approved presentations instead of developing new ones. Since the trainers are helping the members, why not treat them as allies rather than wallets.

Suppose you educate as a free public service. Would you eagerly hand over your intellectual property and then pay for the review? Not me. Let those lured by CE credits go elsewhere. That leaves more room for those who yearn to learn.

Self Reporting
Continuing education requirements get implemented in phases. First, the minimum requirements get established and members do their own record-keeping. Soon the records must be submitted to the organization, and probably input online.

Does mandated continuing education protect the public?

Do you trust self-regulation when the members vote on the minimum requirements? Government regulation is hardly a solution. Remember Canada's controversial gun registry? Costs rocketed from $2 million to $1 billion. Imagine if your investment returns zoomed like that.

When trouble arises, you invariably find the wrongdoer followed all the rules.

Ultimate Protection
The real protection comes from people who care. They continue to educate themselves to serve you better. You can get a sense of this informal education when you talk to them. Are they current on what's going on? Can they answer questions in a way that you understand?

If harm occurs, the courts can help but this gets expensive and time-consuming. The side with more money or better lawyers has the advantage. The profession often steps in to protect their members instead of the public. That's why we have incompetents treating us and teaching our children. It took six doctors to mis(treat) one toe. At least they left my other nine alone.

Another Threat
Some people have fake credentials. Fake institutions sell thousands of fake diplomas each year. These buyers needn't worry about continuing education. They have no education to start.

Podcast 58 (5:28)

Direct download | Internet archive page

PS Even if you aren't forced to study, still study. If you won't invest in yourself, who will?

March 6, 2010


If I have seen further, it is only by standing on the shoulders of giants.
--- Isaac Newton

We get further with help. That's true for Olympic athletes and us. A coach helps you build specific skills. A mentor helps you build a better you. A mentor is more of a psychologist than a trainer. You set the agenda, typically.

The Ideal Mentor
The ideal mentor is
  • Free: giving back for what they've received, not taking from you
  • Compatible: you won't always agree but must be able to talk
  • Knowledgeable: have insights tailored to your situation. They are probably older but older doesn't always mean wiser.
  • Proven success: they have achieved what you want to emulate (ideally, more than more money)
A coach can also help, but a coach may not have succeeded. A coach is more of a teacher than a doer. Each has a role. You can have more than one mentor and more than one coach.
Know how to listen, and you will profit even from those who talk badly.
--- Plutarch
Yes, you can learn from flawed people if you're careful to avoid contamination from their bad elements.

Are You Ready?
To warrant a mentor's time,
  • be reasonable: Mentors have their own lives and issues. You can only ask for so much, so often.
  • help others: this is an ideal way to give thanks for what you've received
  • listen: before rejecting suggestions, reflect (which may take days or weeks or years)
  • act: apply what you learn to show progress
  • show you're worthy: how does investing in you payoff (not necessarily for the mentor; perhaps for your company, clients or society)
Can't Find One?
There are other ways to get mentored if you can't find a volunteer
  • Read books (e.g., from the library)
  • Read blogs for contemporary ideas, and participate by leaving comments
  • Listen to audiobooks (classics and current)
  • Attend group meetings (e.g., through Meetup but avoid the ones that are just selling)
  • Hire a coach, ideally one you have gotten to know through their blog
A book that's new to you doesn't need to be new to the world. You don't need to read the latest ones. There's great value in classics and they're usually available from the library without a waiting list. You can get mentored by people who died. Autobiographies and biographies can help you get inside the head of another. Books written in previous decades or centuries will show you how little we've truly changed.

When You're Done
Mentors move on and pass away. You might outgrow them.

Over time, you'll learn principles. You'll see the world though a new lens. You'll anticipate what the mentor would say. You'll think in new ways. You'll start cutting your own trail through the wilderness. You'll be ready to mentor.

Podcast Episode 57 (4:20)

direct download | Internet Archive page

PS Avoid the word "mentor" because you might intimidate the person you're asking for guidance. There's a feeling of commitment. Instead, start by asking questions.