THE FINE PRINT TAKETH AWAY … EXCEPT IN LIFE INSURANCE

We’re sceptical because even the simplest offers have fine print. You're enticed but the many conditions take away the charm.

Not only do you spend money to get the offer, you often spend money to use the reward.

A Common Example

Here’s the fine print in a free movie ticket offer from a pizza chain.

1. the buy-one-to-get-one-free condition
2. limited provinces
3. limited theatre chains
4. no IMAX films
5. no IMAX digitally remastered presentations
6. no VIP room
7. no 3D films
8. no Real D 3D films
9. no non-feature film entertainment
10. no advance tickets
11. no midnight performances
12. no reward points
13. no pass-restricted movies
14. no refunds
15. not redeemable for cash
16. no reselling
17. no extensions
18. no reproductions
19. not combinable with other promotions, coupons, vouchers or special discount offers

If you get through all that, be sure to go to a participating theatre by the April 29 expiry date.

Okay, some conditions won’t affect your life. Yet someone felt the need to spell them out. There’s no warning that the movie might be a waste of your time even for free and that you’ll be subjected to commercials. That doesn't warrant a mention?

The Surprising Exception

We’re so used to fine print that we don’t notice one surprising exception. In Canada, personal life insurance contracts routinely guarantee everything except

1. government actions
2. investment returns
3. the availability of investment options

Fine print: Products differ and practices change. We’re looking at what’s common to help you in discussions with your advisor.

Government Actions

Provincial governments set the premium tax rates. They range from 2% in most provinces to 4% in Newfoundland. These rates are far below normal sales tax and the federal government doesn’t add a surcharge.

Insurance contracts are usually guaranteed to be tax exempt based on the tax rules when your coverage takes effect. Governments can change the rules but they might compromise and allow existing contracts to operate as before.

Investment Returns

Permanent life insurance plans allow tax-sheltered investment growth. With whole life, the insurer makes all the investment decisions and you get the rewards and penalties for their judgement. With universal life, you pick all the investments and take responsibility for the returns.

The insurer can often remove investment choices from a universal life plan. For example, if the S&P 500 disappears so will indexes based on it. That’s fair but the new indexes might have higher management expenses --- they rarely go down.

The Guarantees

Whole life has the fewest guarantees and is more like insurance on your car or home. You foot the bill for higher claims by others, pricey computer programming (remember Y2K?) and lousy investment returns.

In contrast, term life and universal life insurance routinely guarantee whatever the insurer can:

• premium rates per $1,000 of coverage
• administration expenses
• tax exempt status (under the rules in effect when you got your contract)
• no new conditions or restrictions

Something to think about when you’re back from the movies.

Links

• Check your pizza literacy (new)
• What's worse than fine print? (new)
• The best tax sheltering in Canada
• The four steps in wealth management
• The two drawbacks of investing in life insurance
• How advisors fool you (and what you can do)

Podcast Episode 64 (4:43)

direct download | Internet Archive page

PS The movie coupon expires on a Thursday, which means you can’t see the new Friday releases like A Nightmare on Elm Street or Furry Vengeance. Thank goodness.