Some of you may remember our past blog called Should I Buy Life Insurance from a Big Box Store? where we outlined the importance of doing your research before assuming associations have the best products and prices on the market. It’s true, a lot of the time an association’s membership includes various discounts on a multitude of products and services…but not always. In that blog, we explored the offering of one store’s life insurance products and prices and compared it to what was available through the open market. It was clear that their pricing was not competitive in both the short and long run.
So why are we revisiting this topic of association plans? Well there’s more to the story than just pricing, and more products than just life insurance. Disability insurance is something many people are attracted to through their associations because it can cost less in their younger years (although more when they’re older!). What most people don’t know about association plans is that they are considered group insurance, which means you do not own or control the policy, and the contracts and pricing are not guaranteed. A large professional association in Ontario recently underwent some major changes on their disability product impacting everyone who currently holds a policy with them. Associations, for the most part, want to provide value to their members, not take it away. So why would the association ever do this?
Group plans involve a company/association/member group asking an insurance company to provide a product specifically for their members. The insurance company agrees to do this with the understanding that the pricing assumptions they use will relate to this specific group rather than society as a whole. Every year, they will measure if their pricing matched the actual claims experience of the plan. If it was better than they assumed, some plans will provide a small refund. If claims were higher, the insurance company will require a change in contractual language and/or an increase to the price. The association is simply the messenger of this outcome.
Our medical advances and societal awareness has expanded more than we could have imagined 20 years ago. Mental illness, cancers, autoimmune diseases…these are all much more prevalent in all ages and cause significant, long term, disability claims. It’s not surprising that disability insurance providers are seeing dramatic increases in claims putting a lot of pressure on their products and pricing. The big difference is some of these providers have contracts and prices that are fully guaranteed, whereas others have the right to make changes. One association has already had to make difficult adjustments…there will be more.
When it comes to protecting something as important as your income, financial stability, family, long term goals, businesses…and on and on…sometimes it’s worth an extra couple of bucks up front to make sure the product you secure now, is the product you have when you need it.