Oran Hall | The value of a family indemnity plan
ADVISORY COLUMN: PERSONAL FINANCIAL ADVISER
QUESTION: What do you think about family indemnity plans?
FINANCIAL ADVISER: A family indemnity plan is a group insurance plan that provides a lump-sum payment on the death of up to six family members for a monthly premium. It is primarily a product for credit union members, but other groups, such as churches, may be eligible.
The six members of a family on a single contract may include the member of the cooperative, who must be under the age of 76 at the time of enrolling, plus family members drawn from the following: the member’s spouse, whether married or common-law; any combination of two of the member’s parents and parents-in-law under the age of 76; and unmarried children under the age of 26. Permanently disabled children of members may be covered for the duration of their lives if enrolled before 26.
There are currently seven coverage options, ranging from $80,000 to $1 million, with monthly premiums ranging from $422.40 to $5,280 per contract. The premium is linked solely to the coverage, unlike other insurance products, which generally also take age into account when determining premium rates. Additionally, the number of persons covered does not have a bearing on premium rates. This is a big advantage of the product.
No medical is required, and no health-related questions are asked, so pre-existing conditions do not bear on participation. Coverage becomes effective on the first day of the month following enrolment, but there is a waiting period of six months before claims can be made. Only claims arising from accidental death will be paid during that time.
No person may be insured through more than one Family Indemnity Plan Certificate in accordance with the ‘Non-Duplication of Coverage’ clause contained in the policy and the member’s family indemnity certificate. In the event of a person being named on more than one certificate, the insurer will honour only one claim upon the death of that person.
A change of insured can be made by the member, or certificate holder, completing the ‘Change of Insured Form’ and submitting it to the policyholder, the organisation the certificate holder is a member of, within days of any change to avoid the waiting period of six months for benefits. Among the reasons making a change necessary are divorce or re-marriage of the member, a child reaching age one or age 26, or the death of an insured. People, therefore, can be removed from or added to the plan.
Members are allowed to change from one plan to another. The plans are labelled from A to G. The change becomes effective on the first day of the month following the date the insured signs the ‘Change of Plan Form’ and submits it to the organisation. There is a six-month waiting period for the higher benefit under the new plan, and any claim made during that period will be based on the original plan, except in the case of accidental death. Of course, the premium increases when the coverage increases. Members may also change their beneficiaries
A member who moves from one organisation to another may retain membership in the plan by completing the relevant form. If the transfer becomes effective before the member completes the six-month waiting period, the member will be subject to the remainder of the waiting period under the new certificate.
Coverage ends when the member ceases to be a member of the policyholder, when a member withdraws from the plan, and when the premium is more than 31 days overdue, that is, when the member does not pay the premium up to the end of the grace period. In the event of a member’s death, insurance under the policy may be continued by any adult member covered by the plan.
An additional benefit is the critical-illness rider of $500,000 or $1 million, which is paid if the insured is diagnosed with a covered critical illness. Members must be under 60 to be eligible, and there is a waiting period of six months, unless diagnosis of the critical illness is a direct result of an accident. Only one lump-sum payment is made for the life of the rider, and critical illness premium payments are refunded if no claim is made by age 75.
The family indemnity plan is quite a flexible and useful product that gives coverage to several members of a family under one contract. It is one option for putting aside funds for final expenses and, being insurance, it is a risk-sharing tool.
Although it eases the pressure for providing funds for the inevitable, it does not remove the need to put aside funds from other sources; the cost of saying a dignified farewell to a loved one is generally not cheap.
Oran A. Hall, principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.