I received a phone call a few days ago from a person that wanted to tell me about a new insurance product that is now available to people that are in a consumer proposal. This consumer proposal insurance protection is designed to make your proposal payments for you if you become unemployed or critically ill or disabled.
I have read over the literature that he sent me but I am not convinced that this product is something I would recommend to our clients for several reasons. As with all insurance policies there are many exclusions and limitations that effect the entitlement and coverage. If you are considering purchasing this type of insurance I would encourage you to make sure that you understand the insurance company’s definition of unemployed, disabled and critical illness. Their definition might be quite different than yours.
A consumer proposal is a great way to settle your debts. As long as your proposal is in good standing you are protected from your creditors and they cannot pursue you for payment. There are many reasons that you may choose to file a consumer proposal over a bankruptcy but often it is because of your level of income. The amount of money you pay in a bankruptcy is directly related to how much you earn, the higher your income the higher the payments which can cause severe cash flow issues. In this scenario a proposal is good option because you can offer your creditors a much lower monthly payment but over a longer period of time, allowing for better cash flow.
If during your proposal you lose your job and are unable to keep up with your proposal payments there are a few things you should know. First of all, your proposal will automatically annul (or fail) once you fall three payments behind, it does not annul immediately upon losing your job. Secondly, your trustee has the ability to approach your creditors and ask them to accept a lower payment for the remainder of your proposal or if you are almost finished your proposal your trustee can ask them to accept what you have paid as full settlement. Lastly, if finding a job at the same rate of pay is unlikely then staying in your proposal may not be a good idea, you may consider filing for bankruptcy.
The insurance coverage that I looked at very clearly indicates that in order to be eligible to make a claim for job loss you have to be laid off from work and eligible for EI. So if you are let go from your job for any other reason or you are not eligible for EI then they won’t cover your claim. Also, if you are eligible, they will only cover your proposal payments for up to 6 months.
I took a quick look at their rate sheet. It seems the lowest monthly premium is $20 a month for very basic coverage but the rates can go up to $60 a month depending on the level of coverage and your age and the amount of your monthly proposal payment. Say you are 40 years old and your proposal payment is $300 a month. Your insurance would cost you between $20 and $30 a month depending on your level of coverage. Seems expensive to me. A better idea would be to pay this additional $20 or $30 a month into your proposal which will benefit you in one of two ways. If you were to lose your job for any reason you would have prepaid your proposal by several months so you skip payments until you find work. If during your proposal you do not lose your job all of the extra payments you have made will enable you will finish paying your proposal much quicker than you originally thought.
Whether or not you buy proposal insurance is a personal decision, but before signing any contract make sure that you understand all of the fine print.