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Is life insurance on the LOC worth it? I was told by my financial advisor that if I were to pass away before my debt was paid off then it would be passed on to my parents to pay off if I didn't have life insurance. However I have a friend tell me that since my parents didn't co-sign they wouldn't be responsible for the debt, and the remaining balance on my LOC would just dissipate. Can anyone confirm which is true? 

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No it doesn't go to your parents since they didn't co-sign. But if lets say you had your name on your parents' house or something like that, then all of your assets would be used to pay down the debt as much as possible (so it may force your parents to sell that house to pay it off, etc.).

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Your financial advisor has given you incorrect advice and I would reassess whether I wanted to have a professional who gives wrong or bad advice. He made a false assumption without getting the facts. Generally speaking, this is called malpractice.

Agreed.

 

Is this a bank financial advisor, or a stand alone financial advisor?

 

Regardless, do your own research and ditch them. Most people do not need a financial advisor at this stage, let alone someone giving faulty information.

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Agreed.

 

Is this a bank financial advisor, or a stand alone financial advisor?

 

Regardless, do your own research and ditch them. Most people do not need a financial advisor at this stage, let alone someone giving faulty information.

Just the lady who helped me set up my LOC at the bank. Not sure if they're formally my "financial advisor".

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Just the lady who helped me set up my LOC at the bank. Not sure if they're formally my "financial advisor".

 

ahh the classic put life insurance on the loan "scam" ha

 

I have commented on this before - the bank effectively already has insurance on the LOC - that is the interest they are charging you (the interest rate of a loan reflects the risk involved, the rate is set to balance out that risk so that overall profit is made - that risk includes the risk of you dying). When you take out and pay for life insurance you have decided to help the bank by covering their risks. Why would you do that? - it makes no sense. Banks know it is pointless but hey if someone wants to buy their insurance they won't stop them as:

1) well money, duh

2) now you are an insurance customer of them - when you need more insurance you probably will go them - more money in the future.

3) you just showed them you know nothing about insurance. Probably means you don't know a lot about personal finance. Which means at some point one of their "skilled" financial advisors will contact and sell you even more stuff later on you probably don't need or shouldn't get (mutual funds with high MER, complex financial products of questionable utility, paid advice you can get for free unbiased, more types of insurance you don't need or amounts of it that make no sense).

 

Banks....not your friend. They are a business and so are all the other providers of services like insurance. You will eventually protect yourself with some personal finance training. You simply have to or you will get ripped off. Seriously. See it all the time with many doctors - including a ton of staff docs.

 

You need life insurance to care for your dependants - people that actually rely you for financial support either now or the future. Right now most medical students have no dependants - no children, no stay at home dependent spouse etc. From a purely financial point of view you could drop dead and no one would care (except for one small exception I will go over). No one has to cover another adults debit unless they agreed to (co-signer). In the case of our LOCs there are no co-signers, so no one but you is on the hook.

 

So for most of us life insurance is a complete waste of time. It would be better if you took that money and put it in a pile. Then light that pile on fire. That way you might get some heat in the winter to cut down on your gas bill, or maybe a bit of light for 30 seconds and save 0.01 cents on your hydro bill. Still more use than the LOC life insurance. 

 

There is one exception - if you die you probably do have expenses related to that - funerals cost 10-20K for instance. It would be nice to have that covered perhaps so your parents or whatever don't have to pay it on top of everything else. However having a life insurance on the LOC wouldn't help with that (money goes to the bank and the LOC is frozen on your death), or even have it go to your estate (then it would just cover the LOC plus you have to wait until the estate clears prior to that money being free which can take a long time and again someone is stuck paying for your funeral). You can however have say  a life insurance policy for say 20K with the beneficiary as your parents to cover things for an insanely low amount per year to deal with this unlikely event (as in less than 20 dollars a year for instance).

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What Scotia offered seemed a bit more logical:

 

-No life insurance (my adviser wouldn't even offer it to me when I asked about it)

-Disability insurance for the amount of the loan so that you're not forced into bankruptcy if you're prevented from becoming a physician.

 

so critical illness insurance? That would would actually make sense. You would still need actual disability insurance on top of that to create a package of protection to cover you from the only thing that actually would get in your way.

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3) you just showed them you know nothing about insurance. Probably means you don't know a lot about personal finance. Which means at some point one of their "skilled" financial advisors will contact and sell you even more stuff later on you probably don't need or shouldn't get (mutual funds with high MER, complex financial products of questionable utility, paid advice you can get for free unbiased, more types of insurance you don't need or amounts of it that make no sense).

 

Probably wasn't smart to tell her that I knew nothing about personal finance and needed advice, ha!

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so critical illness insurance? That would would actually make sense. You would still need actual disability insurance on top of that to create a package of protection to cover you from the only thing that actually would get in your way.

Just checked the contract to make sure. It is critical illness AND disability.

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Well I wish I had seen this thread before I got life insurance with my scotiabank LOC haha.... My advisor told me that most people get it, and that not many people get the critical illness insurance (so guess which one I didn't get). I'm 99% sure he also told me it would be my parents' responsibility to pay off the LOC if I passed away. Damn this sucks haha 

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Well I wish I had seen this thread before I got life insurance with my scotiabank LOC haha.... My advisor told me that most people get it, and that not many people get the critical illness insurance (so guess which one I didn't get). I'm 99% sure he also told me it would be my parents' responsibility to pay off the LOC if I passed away. Damn this sucks haha 

 

so cancel it.  It isn't permanent. 

 

another adviser spouting nonsense. not sure what is worse 1) they know the truth but are outright lying 2) they are so clueless about financial matters they don't know and yet their profession is literally finances. Either way......

 

At the time of life most medical students are at they are VASTLY more likely to be disabled than outright killed. I already now people where that happened (side note I REALLY hate multiple sclerosis). You have to protect yourself against the things that make sense. 

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Just checked the contract to make sure. It is critical illness AND disability.

 

ok now you have to check exactly what the disability part actually means :) Does it pay the interest on the loan if you get disabled? How does it define disability exactly? Does it stack with other disability insurance (like the mandatory PARO one).  

 

kind of thing you have to do once for 30 minutes to get through all the details and that is it for life etc. 

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so cancel it.  It isn't permanent. 

 

another adviser spouting nonsense. not sure what is worse 1) they know the truth but are outright lying 2) they are so clueless about financial matters they don't know and yet their profession is literally finances. Either way......

 

At the time of life most medical students are at they are VASTLY more likely to be disabled than outright killed. I already now people where that happened (side note I REALLY hate multiple sclerosis). You have to protect yourself against the things that make sense. 

 

Yeah, this advisor specializes in these types of LOCs so I have a hard time believing it's ignorance. It's frustrating to feel like you're being taken advantage of - I don't know anything about insurance/banking at all really, and I was pretty up front about that with him from the beginning.. Maybe not the best way to go after all, ha. 

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Yeah, this advisor specializes in these types of LOCs so I have a hard time believing it's ignorance. It's frustrating to feel like you're being taken advantage of - I don't know anything about insurance/banking at all really, and I was pretty up front about that with him from the beginning.. Maybe not the best way to go after all, ha. 

 

No it is ok :)

 

I mean everyone starts off with very little knowledge about this stuff - we don't exactly teach it in school. Just don't stay that way. You just have to acknowledge that and then from there spend a bit of time getting educated. A book or two, and 5-10ish hours is all you really need for 95% (and all the really important stuff) of this for your entire life.

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Well I wish I had seen this thread before I got life insurance with my scotiabank LOC haha.... My advisor told me that most people get it, and that not many people get the critical illness insurance (so guess which one I didn't get). I'm 99% sure he also told me it would be my parents' responsibility to pay off the LOC if I passed away. Damn this sucks haha

Go back and cancel it. Demand a refund or youre going elsewhere. They lied to you. That is mispresentation. They know they get away with it because many M1s are 20 something's with little real life experience in this realm.

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If you attend an Ontario school, for what it's worth, you actually do get a free $100k life insurance policy, which you may as well take to allow for final expenses and leaving something to your parents in case of tragedy, as well as a disability (and I think critical illness - I need to check) policy through the OMA. I took advantage of that, and I do have disability insurance on my LOC because I am in a vastly different place in my life than a typical carefree med student (husband + two, soon to be three, kids.) My insurance needs are very different from those of someone who is not married, has no dependants, and no assets.

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If you attend an Ontario school, for what it's worth, you actually do get a free $100k life insurance policy, which you may as well take to allow for final expenses and leaving something to your parents in case of tragedy, as well as a disability (and I think critical illness - I need to check) policy through the OMA. I took advantage of that, and I do have disability insurance on my LOC because I am in a vastly different place in my life than a typical carefree med student (husband + two, soon to be three, kids.) My insurance needs are very different from those of someone who is not married, has no dependants, and no assets.

 

You are a classic case of someone that does need life insurance - you have dependants and your future income is now I am sure factored into your family's long term plans and should be replaced in some fashion if something bad happens (ha, a part of insurance is always morbid :) )

 

That OMA 100K is generous of them - for most students at some point it is completely consumed by the LOC but still. The OMA is trying to get you to permanently go to them for insurance and offering you that to start with is there approach to do that :)

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