#52 What Does RBC Insurance Want From Me

Got a call today from RBC Insurance.

I always listen to these telemarketers to see what they have to offer. It's good to be aware of all the options available. 

RBC often calls with some kind of added service, usually insurance for my credit card or identity theft, but this time it was out of pocket medical expenses coverage in the event of an accident requiring hospitalization.

In a past life, I worked as an insurance broker and an insurance underwriter so I know the importance of insurance. Insurance is purchasing peace of mind that if something happens you will be financially covered.

It's designed to spread the cost of a negative unforeseen event over a group of people rather than just you. If you're house burns down, your insurance company will build you a new house. If your car gets stolen, your insurance company will buy you a new car. And if you get sick, your insurance company will cover the medical expenses. But the probability of any of these things happening is low, and that's why insurance companies can make money. 

A simplified example: If historically 1 in 100 people get into some kind of accident every year and the cost of an accident is $50,000, then the cost of insurance will be $500 per year per person (plus the costs to pay the insurance broker and underwriter and the profit of the insurance company). 

RBC out-of-pocket medical expense insurance

Today's telemarketer was offering out of pocket medical expense insurance in the case of an accident where I was hospitalized. The insurance cost is $0.62 per day, and the payout is $100 a day for every day I'm in the hospital. The total cost would be $226.30 a year.

The way he marketed the insurance was "that the insurance would be worth $36,500 in tax-free dollars", for only $0.62 a day or $18.60 a month. It sounds like a great proposition, but considering the probability of being hospitalized for an entire year is very rare and unfortunate I would not expect (or hope) most people to ever collect the full $36,500.

Consider that a broken leg takes 6 to 8 weeks to heal. And you wouldn't even be in the hospital for that entire time.

But again, ultimately, insurance is designed for unforeseen events. 

In the end, I declined the insurance.

My rationale: "I have enough money to self-insure an expense like this"

I would never hope to need to self-insure an expense like this. But because we have worked hard to Save Money for several years we can self-insure something small like this. In the scenario where I would have to cover $100 a day for additional living expenses for a year, this is easily covered by my savings. 

This is the peace of mind of having savings. Saving helps you save on insurance too. Another reason the rich get richer.

I Don't Decline All Insurance

In this case, it is a potentially small expense that I can self-insure. In the case of my house, I buy insurance 100% of the time. If it burns down, and my neighbour gets burned down because of my house, I want my insurance to pay for that. I can't afford to build two or more houses out of pocket, while also paying for emergency accommodations.

If someone slips and hurts themselves on my property, I can't afford to pay for their medical expenses, that's why I have 3rd party liability insurance on my house insurance. 

When I rent a car, I make sure to use my credit card which has car collision/loss damage insurance because I don't want a short trip to cost me potentially thousands of dollars if something goes awry.

When I travel, I always pay for flights and hotels with a travel credit card with travel insurance to make sure I have flight cancellation insurance, emergency purchases insurance if my luggage is lost or delayed, travel medical insurance if we need to go to the hospital for some reason while abroad.

I see the value of insurance, and I will pay for the peace of mind when I see the value. But sometimes the value of the insurance coverage is low or the price of the insurance is too high or the expected expense is negligible relative to my savings, then I have the peace of mind that I can self-insure and decline the coverage.

Saving Money is like insurance, it gives you peace of mind.

 

Save Money Retire Early is written by Jon Lo, a barely 30 something change optimist, and personal finance guy. I believe anyone can be rich or poor, it's what you save that makes the difference.

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