Book Review: Insurance Logic by Moshe Milevsky and Aron Gottesman

The third in the "Logic" series by Moshe Milevsky, this time with co-author Aron Gottesman, Insurance Logic explains all the types of insurance for individual consumers and families (i.e. excluding business insurance):

• life insurance,
  
• longevity insurance / life annuities,
  
• health and travel insurance,
  
• disability and critical illness insurance,
  
• automobile insurance and
  
• property / home insurance.
  

The book begins with basic principles and concepts of insurance, then proceeds to the individual types of insurance. Each insurance area has its own chapter, with a summary of key points, a list of references and further reading and a list of key questions to ask when going to shop for insurance. The authors explain and define terminology of such daunting terms as moral hazard and adverse selection along the way when necessary and appropriate. A glossary at the end lists the terms and their definitions. The approach is introductory in that there is no knowledge presumed of the reader but it is not dumbed-down. Authors Milevsky and Gottesman manage the remarkable achievement of making the highly complex subject of insurance clear and logical. One does not feel overwhelmed and confused. The language is careful and precise but not convoluted. There are few numbers and calculations and no price comparisons of individual companies or products. However, one does feel prepared to discuss intelligently with agents or brokers to shop and buy insurance.

The authors are university professors and the advice they give is impartial. That is quickly apparent anyway in the discussion of pros and cons and in their criticisms (governments, insurance companies and consumers all come for their share, though the tone is mercifully more a description of a sad reality than a diatribe of complaint).

Things that surprised me:

• the probability of disability hitting people sometime in their adulthood is quite high, so high in fact that doing something to mitigate the effects with insurance is a very good idea;
• making a number of small claims is worse than one big claim and could result in the insurance company cancelling your policy or refusing renewal;
• car insurance rates vary a lot from company to company for any one driver and the same company might be cheapest for one type of driver and most expensive for another;
• higher deductibles are a good thing for a consumer;
• property crime is rampant in BC compared to other parts of Canada;
• top-producing agents are more likely to engage in deceptive practises with consumers (there's a good question to ask your agent "are you a top-producing agent?"!)
  

Interesting Quotes

• "... purchasing insurance is implicitly a hedge, not an investment." (page xiv)
• "... the credit rating of the company selling you the policy (a life annuity) is extremely important." (p.38)
  
• "... the out-of-country protection provided by public health insurance is insufficient." (p.54) (especially in the US)
• "... disabilities lead to almost half of all mortgage foreclosures." (p.80)
  
• "... insurance policies are extremely complex and difficult for consumers to understand." (p.156) (you're not kidding - can I submit this for the under-statement of the year award?)
• "... most Canadians are solidly against insurance fraud, even though many practise it." (p.171) (by padding claims, apparently)
  

Suggestions for improving the book

• add more content on travel insurance requirements in the USA;
• add more references - though there already are some - for the reader who wants to go to the intermediate/expert level;
• add a table to compare the features and pros and cons of disability versus critical illness insurance;
• update table 12 Minimum Compulsory Automobile Insurance (which is dated April 2004); perhaps a connected website with up-to date figures on all the charts could be created?
• include an annotated sample policy with explanations alongside the actual clauses
  

My take-aways and items for action

• insurance is a valuable and essential part of an overall financial plan, dealing with financial protection
• it is possible to have too much as well as too little insurance
  
• shop around for car insurance rates, it's really worth it - more than 50% difference in quotes worth hundreds of dollars, (or even thousands for younger drivers) are possible
  
• forget insurance on small items, like extended warranties at electronics stores, it's a waste of money
• investigate doing a mortality swap (sounds like a good opening line at a cocktail party - "did you know I've just done a mortality swap?" ;-)
  

Every Canadian adult should buy this book, read it and keep it on the shelf for reference and selective re-reading whenever a new stage in life is reached or a major financial decision looms. The book is that useful and that important. Five out of five stars.

Buy this book at
chapters.indigo.ca