To say this is a scam would be an overstatement. After all, it often only costs a handful of dollars a month.
I'm talking about "accidental death" life insurance.
Why is it a financial product to avoid despite its derisory cost?
Paying accidental death
Its name says it, it is a life insurance that pays compensation when death results from an accident.
You can take out such a policy without any other protection. Most often, those who join do so through an "endorsement," an extra attached to a term life insurance policy. This type of protection is common in group insurance plans.
If death occurs after a face-off in the car, for example, the insurer will pay more. Some policies can improve the indemnity even more if, for example, you breathe your last after a public transit accident... Do you know many people who have left this world after a fatal bus swerve?
“These contracts are going to pay out in really rare circumstances and they have a lot of exclusions. An insured person can die as a result of an accident without receiving anything,” points out Caroline Désy, financial security advisor at BGY integrated financial services.
Obviously, this option is paid for by an additional premium, practically a gift to the insurer. Note the irony though. With a bit of luck, you could give up the ghost in the right way!
With a lottery ticket, the odds are probably not better, but if you win, you will enjoy the jackpot during your lifetime.
The need for insurance
Life insurance is not a game of chance, it meets a need. It is used to guarantee financial protection to those who depend on a provider, when the latter leaves. We must assess this need (in dollars) and take out a policy that will pay what it takes to meet it, regardless of the reason for death.
"The need does not vary according to the cause of death, and we must always favor the product that offers the broadest protection," recalls financial planner Denis Preston.
For what it costs, why do without "accidental death" insurance? "It's not good from a financial literacy or behavioral finance perspective. People take out unnecessary insurance. It diverts money that could be used for savings and it develops a mentality of speculation, ”believes Denis Preston.
So if the insurance salesman offers you a "little extra with that", you'll know what to say.