Money | Retail Practices

Supplemental insurance: Is it really essential?

By : Maryse Guénette
Photo Credit: Ulises Baga (UnSplash)

Accidental death, credit card balances, identity theft…. For just a few dollars a month, you can now get insurance coverage for practically anything. However, you should be aware that there are some gaps in this type of product.

Some insurance offers a broad spectrum of coverage, such as life insurance and disability insurance, as well as automobile and home insurance. Other forms of insurance, which play a very minor role, were the subject of a report by the Union des consommateurs called Secondary Insurance: Do consumers have all the useful information?


Exemptions galore

According to the report, one of the main problems with this form of insurance is the large number of exemptions that appear in the contracts. A case in point: insurance on credit card balances, where an age limit or minimum number of working hours may be imposed on the subscriber.

The problem is that people are not aware of the exemptions. So some think they’re insured but they’re not.”

Sophie Roussin, personal finance analyst at the Union des consommateurs and study lead




According to the researcher, contracts for critical illness and accidental death insurance, products that are frequently offered as a complement to life insurance, are full of exemptions – and those exemptions are often stated in complex medical terms. “They’re simply incomprehensible,” says Roussin. “Even doctors have trouble understanding them,” she says, citing a media report that asked several doctors to comment on exemptions in a critical illness insurance contract.


Virtually useless

Other products, which cover events that are really infrequent, are deemed unnecessary by experts. That’s certainly the case when it comes to life insurance for children. “Logically, children don’t need such a product, because they don’t have either money or descendants. But it’s offered to parents, telling them that if their child were to die, they would be covered if they stayed away from work while they were grieving. But that’s an extremely rare situation,” says Roussin.

Once the child reaches a certain age – 18, 21 or 25, depending on the contract – the product is transferred without verifying the person’s state of health, so even a person with a critical illness may be able to benefit. We know it can be difficult for sick people to get life insurance, so this product does give a child access to insurance once he or she becomes an adult, whatever happens in the meantime. “Here again, though, the risk is extremely low,” notes the expert.

Roussin is also very critical of insurance for identity theft, which she feels has few advantages. “Major cases of identity theft are also extremely rare,” she says. Frequently, what’s offered isn’t really insurance – it’s a credit file checking service, which is already provided free of charge by some financial institutions. Not to mention that it’s also possible to check your files with the credit bureaux on your own.”


Problems with information

The way supplemental insurance is sold also leaves a great deal to be desired. “Advertising for these products makes people believe that an enormous range of risks is covered,” she says. “But that’s not always the case. They’re playing on people’s fears.” In addition, even if these products only cost a few dollars a month, they can wind up being pretty expensive in the end.

It may also happen that promises made in advertising cannot be kept. The researcher points to some allegations that have been made about critical illness insurance. “People are told that with this insurance they can get care and treatment that would not otherwise be covered, or that they can receive medical care in other countries,” she says. “But the amount they can get if they file a claim – generally about $50,000 – isn’t enough for that.”

When insurers sell certain products, they don’t give much information, and they don’t ask for much, either.

Not everyone who sells supplemental insurance conducts an exhaustive analysis of what the consumer needs. They often act more like salespeople than insurers.”

Sophie Roussin

This can have many different consequences. For example, consumers may obtain insurance products they cannot benefit from, or products they already hold through their employer.


Some solutions

Does that mean you should absolutely never take out supplemental insurance? Roussin takes a more nuanced view. “I’ve come to realize that even if there are some gaps in these products, some people appreciate them,” she says. “If it gives them peace of mind and they can afford them, then why not? But all the same, they need to be sure they’re paying for products that suit their needs and that they can subscribe in full knowledge of the facts.”

The Union des consommateurs research studied the existing framework in several foreign jurisdictions and found some inspiring provisions. One involves requiring the insurer to ask questions to obtain the necessary information. “Currently, the consumer is responsible for providing the insurer with all the appropriate information,” says Roussin. “And if they leave anything out, the insurer can refuse to indemnify them. It’s an aberration. If they’d asked the right questions, the consumer would have provided the right information.”

Another solution would be to require insurers to give consumers sufficient information. “In some countries, insurers are expected to give the consumer a standard form that clearly indicates what they’re covered for and lists the exemptions to the contract. That’s what we’re proposing – a two-page document, clearly written.” If consumers had such a document in their hands for each insurance product they’re considering, they would know where they stood and could even compare the policy with different but similar products.

Here are some good solutions that can help to protect consumers.

The study

The major objective of the Secondary Insurance: Do consumers have all the useful information? (Union des consommateurs, June 2019) was to find out whether consumers really get enough information to make an informed choice when they decide to take out supplemental insurance – or decide against it. Union des consommateurs started by profiling the supplemental insurance market and then analyzed five products: credit card balance insurance, accidental death insurance, critical illness insurance, life insurance for children and identity theft insurance. She closely examined each product, paying particular attention to coverage and exemptions, cost, representations and advertising.

Union des consommateurs also sounded out consumers’ opinions, collected statements from consumer associations and talked to financial institutions and other providers of this type of insurance. She explored the regulatory framework in two Canadian provinces (Quebec and Ontario) and looked at legislation in other jurisdictions: the European Union, France, the United Kingdom, Australia, the United States and the state of New York.