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Mortgage 101 – Are You Underinsured? | November 23, 2023

Are you underinsured? On this special live edition of Mortgage 101, Clinton and Todd dive even deeper into insurance with financial advisor Dan Lomas. They discuss why Canadians need more insurance than they usually have, the application process, the value of the home in net worth and why it’s so important to get an unbiased second opinion.

Todd Veinotte 00:05
And we’re talking about drilling down into insurance. And you mentioned that people are, I think it was 90% underinsured, is that correct?

Dan Lomas 00:13
It’s around 90%. Yes.

Todd Veinotte 00:15
So how would you define underinsured?

Why are Canadians underinsured?

Dan Lomas 00:17
Underinsured, well a lot of people will have a little bit of their insurance, their debt covered, or they’ll have group plans at work where they’ll get one years worth of their salary, some have two. And the reality of it is, if you pass away, you need your debt paid off, if you’ve got a family and children, but there’s that income too, that that person has, if you lose that.

Clinton Wilkins 00:37
I feel that’s the biggest piece.

Dan Lomas 00:38
The biggest piece is the income. And, you know, we all have insurance on our cars, our phones and stuff like that. But we forget that to pay for all that stuff, there’s an actual human being they’re creating revenue.

Clinton Wilkins 00:49
Making money.

Dan Lomas 00:50
And if that person suddenly disappears, how do you feed the family? How do you pay for the kids? How do you pay for education? How do you pay the mortgage payment? How do you pay the car payments? You know, it’s great to have your house paid off with creditor insurance, you still gotta eat, you know, drywall doesn’t taste very good. I used to be I used to be a drywaller. So I know it doesn’t taste very good. And so we need to ensure the revenue that’s coming in, the golden goose. And we don’t do that. And people are way underinsured. They’re not buying nearly as much as they, they really should.

Clinton Wilkins 01:18
And we always talk about life, you know. And, you know, I think the other thing is, and I get these calls from consumers, they call me and ask if they take disability. And I find from us at anyway, such a small percentage of our consumers take the disability, because –

Todd Veinotte 01:35
people think it’s gonna happen to them.

Clinton Wilkins 01:36
They don’t think it’s gonna happen to them. It’s an extra cost. And you know, they’re just so focused, like life, life life, if they’re taking coverage. But the number one call that I get is for people getting disabled, it’s either they’ve had a health issue, or they’ve had an accident. And we’re not talking like they’re permanently disabled. People are, you know, they’re being disabled for 6, 12, 24 months. It’s shorter term disabilities, and we’re getting the calls on and so many people, we have to tell them to be like, you waived that coverage. So I don’t know for Dan, maybe you can speak to it.

Todd Veinotte 02:06
Well, I mean, Dan, is somebody the analogy that I once and I’m sure you’ve heard it, all these, all the analogies being in the business that you’re in that if you had a machine that was printing money in your basement, and it was printing certain amount of money that was covering your bills, and it costs you $50 a month to insure that machine? Well, you wouldn’t think twice about it. Yet that is what you are as a revenue generator for your family. Why would you not spend 50, 75 bucks a month to insure yourself if you cannot work? Right?

Insurance is the first expense to go

Dan Lomas 02:08
Right. But people see it as cost and today’s economy, people are tight. And generally insurance is one of the first things that goes And next thing you know –

Clinton Wilkins 02:47
They want to give up the Netflix. I can tell you that.

Dan Lomas 02:50
And then something happens. And then then what happens? You know, your family sitting there going, what do I do? That’s on death, like Clinton says, what happens if you get into a car accident and you’ve hurt yourself?

Clinton Wilkins 03:00
You might get EI.

Dan Lomas 03:01
You can’t work for, you know, six months or a year, your bills still come in, the creditors still want their payments. The last time I checked, the bank doesn’t let you get away from not paying your mortgage payment, or the car payment, or the kids still want to eat something at dinner. And if you don’t have that revenue, what do you do?

The application process for insurance

Todd Veinotte 03:18
Alright, so what’s the process when it comes to getting disability insurance through a licensed product?

Dan Lomas 03:25
Well, simply you come in or give us a call, and we do an application and figure out how much you earn. And then we can insure, generally, again, up to 66 and a third percent of that because you get that tax free.

Todd Veinotte 03:37
That’d be tax free, right? Yeah.

Dan Lomas 03:39
And we do the underwriting we put a claim in and there’s different types of products, you can get products that cover you to age 65, or just a five year plan. You can get disability plans.

Todd Veinotte 03:48
And if you’re going to 65 and you’re 40, that your income would be indexed to through would it?

Todd Veinotte 03:54
What kind of costs are we talking a month here for a typical, something like a disability fully underwritten product?

Dan Lomas 03:54
In some policies you can buy that rider for indexation, or some people just buy what they’re making at the time. There’s also disability products that cover just debt. So if you’re disabled for a period of time, they’ll cover all your debt payments for that period of time. So there’s a lot of flexibility in there. The key is to come in and ask the questions and go through an actual analysis. See what you really need.

The cost of insurance

Todd Veinotte 04:17
What kind of costs are we talking a month here for a typical, something like a disability fully underwritten product?

Dan Lomas 04:24
It really depends on how old you are, how much you make.

Todd Veinotte 04:28
But people out there I mean, and are might be thinking is this hundreds of dollars a month or is it but it’s general I think if you used if you use kind of $100 a month, I think most people you get a pretty damn good product disability product for that because yes,

Dan Lomas 04:42
you can get a fair bit of coverage there. $100 a month we can get you covered. We might not get you the Cadillac of coverage, but we can get you coverage that will take care of the lion’s share of your bills.

Clinton Wilkins 04:52
And 100 bucks a month like I mean that’s a couple coffees people.

Todd Veinotte 04:55
When you think about it –

Clinton Wilkins 04:56
That’s nothing.

Todd Veinotte 04:56
Right. Right. When you think about it is nothing.

Clinton Wilkins 04:58
And I think people are tight, Todd. Like we talked about this, we talked about interest rates, we talk about the cost of fuel and like groceries. People are tight. But it’s so shocking to me sometimes what people, you know, let go first. You know what I mean? You know, think things like insurance, that’s like the last thing you need to not be paying, or that’s the last thing you should be canceling.

Dan Lomas 05:19
It’s the first thing people let go. And it’s the first thing they regret letting go, if they get hurt.

The value of a home in net worth

Todd Veinotte 05:25
Dan, before we run out of time, let me ask you this, when it comes to net worth, what somebody’s worth, I mean, this is one of the first things you probably do is figure out what net worth. Is the home, some would say that the residence should be included in your net worth, others say that it shouldn’t be. What’s your take on that?

Dan Lomas 05:44
It really depends on what side of the tax bill you’re on. When you pass away, your primary residence is part of your net worth, and you can get probate on that. Some people say your primary residence is not part of your net worth, because you got to live somewhere. The reality of it is, you know, with the way the markets have changed, people have a lot of net worth in their home.

Clinton Wilkins 06:05
It’s sometimes your biggest asset.

Dan Lomas 06:06
You know, there’s a lot of value in people’s homes.

Todd Veinotte 06:09
It’s a huge part of my retirement plan, I’ll tell you that.

Dan Lomas 06:11
But you know, if you have to look at it on how you’re structuring it, if it’s just a home that you’re never going to move out of, and you know, you’re not using the cash out of that asset, then it’s not part of your net worth. But if it’s something you’re going to create a revenue stream from by using different mortgage products or lending products, then it is part of your net worth. So it’s really, it’s kind of a two sided coin there.

Todd Veinotte 06:34
What are your thoughts on it Clinton?

Clinton Wilkins 06:36
I think its biggest asset and families, you know, home like the home is the biggest asset and their portfolio in a number of cases. For me, I’m a little bit more agnostic, that I use the home as an asset, because I don’t have the emotional attachment to the home. I think a bit more of a house and it’s an asset and people buy, sell and trade these so so often. I think sometimes people will buy a home and they’re going to keep it forever, they’re going to pass this home down to their children. But I think the attitude has changed, as the market obviously has changed. And so many people now are using leverage products like a mortgage or a home equity line of credit, to stay in the home, but also potentially, to supplement their income going into retirement.

Dan Lomas 07:16
Yeah, that’s one of the retirement plans that that a lot of people are looking at is using like a line of credit, to supplement their income that, you know, doesn’t get paid off until you sell a house or you pass away. So you can use it that way. So if you’re using it that way, it is certainly part of your net worth. But if it’s just a home where you’re not using it to supplement your income, I don’t really think it should fall in there.

Why you need an unbiased second opinion

Todd Veinotte 07:37
Okay, so when when people are coming into your office, they all get referred to Dan, is that correct?

Clinton Wilkins 07:44
Yeah, unless they don’t want to get that advice or get a second opinion. Every time that we have a mortgage that funds, we offer the clients the option to go and chat with Dan. And it’s so so important, I think whether they take the creditor insurance from us or not to get a second opinion, because I think so many people are, you know, relying on, you know, maybe just their bank to give them financial advice. Or, you know, they’re just, you know, relying on their mortgage broker, really, we are focused on that mortgage, and that mortgage debt and that home equity line of credit, we’re not focused on all of the other things that are involved in people’s net worth and protecting their net worth. So that’s why I think it’s so important to sit down with someone. And you know, the one reason I really like and enjoy dealing with Dan is he is an access to such a variety of different products, but also different companies. So very similar to our business. And I think that’s one of the reasons that we’re so well aligned.

Todd Veinotte 08:40
Excellent. Any closing thoughts Dan, before we let you go.

Dan Lomas 08:45
Clinton said there, I think the important thing is to go deal with somebody who has a variety of access, a broker on the investment and insurance world. If you’re going to a specific institution, generally, those employees have to sell the product. Whereas you’re going to a licensed agent who’s with an independent network like I am, we have access to the whole market and we can pick and choose what’s best for the client. So you want that non-biased opinion.

Todd Veinotte 09:10
And you doing any drywalling on the side still or is that over with?

Dan Lomas 09:14
Just some home repairs.

Todd Veinotte 09:16
So you don’t want us to give your card out your business number and for drywalling?

Dan Lomas 09:21
Not at all. Nope.

Clinton Wilkins 09:22
Just for the financial advice. Love it.

Todd Veinotte 09:25
Thanks. Yeah, thanks, Dan. Thanks for coming in.