Long Term Disability Insurance

Nortel screwed over their employees who had Long Term Disabilities, because Nortel was self-insuring. No one came to their rescue either, their long term disability insurance did not help.

I have written before about the plight of the folks who were in the Nortel Disability plan (and are now in a bad predicament), but they lost one of their most active advocates in Peter Burns over the weekend. Peter attempted to put a face to the folks effected by the Nortel Disability debacle (because Nortel was self-insured, the disability insurance pay outs became simply another group of creditors).

My connection to this story is that I used this insurance, assuming I was protecting my family, when I worked at Nortel. I was lucky that I never had to test the insurance’s usefulness. I am aware of former co-workers who are now in a much worse financial place because of the January deadline which cut off these folks from the benefits they thought they were purchasing.

Given there are a lot of folks who do worry about the future and attempt to protect their families with disability insurance, they need to find out how this disability insurance actually works. If it is with your employer and they self-insure, you can easily end up in the same predicament as the former Nortel employees.

The insurance looked like it was being run by SUN Life, but in fact they were simply administrators, and it was Nortel who was paying the bills (which was cheaper for Nortel at the time), but now with Nortel being a bankrupt husk of itself, now things are very different. The disability payments got thrown in with the hundreds of millions owed to vendors, customers and partners, and thus were not going to get paid much at all. As of January the pay outs have stopped and now these folks are living on whatever disability income they can get from the Government.

Conclusions

A good example of doing the right thing and still ending up in a bad place. It is important to understand who underwrites your disability insurance. If it is your firm, this is a big issue.

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Following the Crowd is Safe?

A classic rant from 2011. Always ask why the crowd is going in a direction, before following. Following the crowd financially can be an expensive mistake.

Safety is Relative

So you think following the crowd is safe, because you are with others?

Ask a lemming if following the crowd is a good idea.Better still ask a cow in line at the slaughterhouse. Everyone else is going in this direction, it isn’t safe?

As you can tell I have been on a Risk management course. I am now full of pithy comments about risk and such. Just because everyone else is doing something, you must at least ask yourself if this is the right thing for you. This is true when it comes to your money.

Many folks who were badly singed in 2008 with stocks are looking for safer places to put their money. They think Putting Money in Bonds is Safe (or at least in Bond Mutual Funds, or Bond Indexes). Normally bonds are safe(r), but there is a perfect storm right now that makes this less safe.

Everyone in the day thought Nortel was rock solid and safe. One misguided financial media maven Garth Turner was still sending misguided investors back into the killing fields of Nortel even as the stock imploded. I remember people saying, “If Nortel goes down, Canada is going to be in a bad way“, or “The Government won’t let that happen“. It did happen, the majority of the herd were wrong again here too.

The experts are saying commodities and Gold are a safe place to hide against wars and all the calamities of today. I don’t understand these markets enough to feel safe in them, so I am staying out of them. Living in Canada I am effectively already feeling the benefits of commodities and gasoline. The Canadian economy was continuing to grow thanks to Oil and Commodities, maybe I should hedge some other ways to take this into consideration?

For a non-financial example look at the proliferation of tattoos in younger folks, is this the right decision? I have no idea, but my “not following the crowd” comment to my kids is, get into Dermatology, because in 20 years all those butterflies are going to be condors, and their owners are going to want to have them removed (oh and all those folks getting multiples piercings are going to want them filled in too).

The Herd is Right Sometimes

Most of the time, most of the people make mostly correct decisions. This does not mean there should be a blind following on your part, especially when your money is involved. You must ask questions about why your money should be where it is. Why it should go where folks think it should go, and don’t follow simply because everyone else is doing it.

Remember what your mother used to say, “If everyone jumped off the bridge would you follow them?”, kind of like what I did with Nortel.

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Financial Bondage

BDSM in Finances?

No I am not going to change the blog to a financial bondage site (at least not yet).

The metaphor of handcuffs for many of the decisions in life and in our finances is quite apropos. Many of us struggle with decisions that we have made that force us to stay with the status quo in our lives, and here are the types of handcuffs that I think we struggle with every day.

Golden Handcuffs

Mighty Fine Looking Handcuffs

Gold Handcuffs

The first time I heard of this concept was in the glory days of Nortel, where folks had Stock Options in the company, and thus were bound to stay (at least for a short period of time), until those options were exercisable. This was how most high tech companies used to work (not sure how they work now), but the opposite side of those bonds were, that if the Company stock dropped below the strike value of the options, they were no longer very good handcuffs (the analogy I heard was The Cuffs just fell off, and I am out of here).

Other Golden Handcuffs are things like good pension programs, that someone has a great deal of time as a member. That is the story you hear from many Civil Servants is they don’t dare move to the Private Sector because of their Pension benefits and such. These handcuffs are not as binding, if there is more monetary payment used to entice folks away, but still an important impediment to change.

A good benefits package for an employee has been known as a good employee retention program as well.

A low rate Mortgage can be Golden Handcuffs if rates suddenly sky rocket, but I’ll discuss the converse in the next section as well

Nasty Standard Handcuffs

These are the thornier binding programs that will not let us loose (financially) without causing a lot of pain and damage.

Handcuffs

Standard Smith & Wesson Handcuffs

Typically attempting to extricate yourself from these decisions will cost a fair amount of money.

Cell phone contracts are an excellent example of this kind of punitive retention program, where the customer gets a better deal on a phone, but then must stay with their service provider fora period of time. I know many folks (including me) who regret putting on these handcuffs, but now must live with our poor decision (or pay the price of leaving early).

Some might argue that long term Mortgages can be like this as well. As most of my readers know when I bought my first house I paid 11% interest on my mortgage for 5 years, because at the time that seemed like a great deal, but as the term passed, it was obvious that I had made a blunder financially. The only way to extricate myself from it was to either blend and extend my Mortgage or break the mortgage and pay a 3-6 month interest penalty (depending on when I wanted to break it). In the end I ended up leaving the Barbed Wire Handcuffs on for the entire term.

Car leasing agreements are somewhat like this as well, you are paying a lower amount for a car, but it is very hard to break the lease without some severe penalties (depending on your agreement). I don’t lease cars, so I never really understood the attraction for this particular financial bondage device, however, I do know many folks who think it is a great idea.

Thumbscrews

Thumb Screws

Thumbscrews for a Little Extra Motivation

These financial torture devices really are quite despicable, yet some of us gladly stick our thumbs into them without thinking about the long term effects (or thinking it won’t be that bad).

Zero balance credit cards and don’t pay for 6 month credit deals are notorious examples of these financial pain infliction devices. You start off with the best intentions to pay off the balances, but you forget to make a payment, or you simply don’t choose to pay it off and the device starts to inflict pain. You end up paying a much higher interest rate on the complete balance you had, and now you will have problems ever extricating yourself from this financial trap.

The entire low rate mortgage debacle in the U.S. was based on this kind of excruciating financial bondage mechanism.

I hope the only handcuffs you wear are Golden ones. Please make sure you know what your cup of tea is when it comes to these financial bondage devices (better still steer clear of Financial Bondage completely).

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Self Insured Company Disability Plans

More Insurance that Doesn’t Quite Insure

Please note this post is more of a rant than anything else, please treat most of this as my opinion only.

So the plight of the 400+ Nortel employees who have been living on disability insurance, and are about to be cut off from their benefits (in fact they may already be cut off, couldn’t really find a straight answer there), has come to light in the media again (Nortel officially disappeared a while ago, I believe with the last vestiges transferring to another firm).

How can this be, you ask? Nortel and other large companies typically self insure these kind of plans, which means, even though it looks like you have your insurance with a large insurance company (say like Sun Life or Manulife), your policy is held by your employer and is paid out by them (should you make a claim). To the large company it is much cheaper to have the large insurance company simply administer the Insurance Policies, and have the money come from the large company directly (rather than simply paying premiums to the insurance company and have them profit from the programs).

So what is the problem? The obvious issue with Nortel, is that the company effectively does not exist any more, and thus anyone who is owed money through this kind of disability policy is now only an unsecured creditor, and is likely to get very little (if any) more money. The fact that this debt can be dodged by the firm by simply declaring bankruptcy is smelly (in my opinion).

So what can be done? For the folks at Nortel, not much more, they have hammered out a deal to get whatever moneys they can, but as of the cut off date, they will be without income, leaving them few options to live on. For those that have disability insurance with large firms that are currently self-insuring, they should be contacting their MP’s right away to have put in place some kind of protection system for this kind of insurance policy.

There are two pieces of legislation on the books about this topic:

  • Bill S-216 An Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement to protect beneficiaries of long term disability benefits plans (authored by Senator Art Eggleton)
  • C-476 An Act to amend the Bankruptcy and Insolvency Act and other Acts (unfunded Pension Plan Liabilities) (author Wayne Marston (Hamilton-East-Stoney Creek))

That people should talk to their MP about.

Pension reform is needed as well, but these “policies” being held on the companies books as debt liabilities and not like a pension (which is held by an Arms length company, that is funded by the Insuror), puts 1.1 Million people at risk currently (according to the Canadian Life and Health Insurance Association (from the CBC post Disabilty Insurance at risk for 1.1 Million)).

If you are in this kind of disability insurance program, you may be at risk and it would be in your best interest to follow up on this issue.

What really upsets me, is I paid for this insurance when I worked at Nortel, and it was a very expensive premium that was paid for peace of mind, yet the money effectively went into the companies coffers, instead of a safe place in case I needed it?

The worst part of this whole story, is I know people directly effected by this cut off, and they are the ones who need help. We shall see how this shakes out, but if anyone knows more about this, please feel free to comment.

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Quandary on Insurance

Am I Exposing Myself?

Written many years ago, as I was exiting Nortel. Would my group insurance discount with AVIVA disappear? In the end I changed companies, as the rates were cheaper elsewhere. Always shop around.

For the longest time I have been insuring with A Very Interesting Vivacious Atypical insurance company (no that is not their name, but there is a hint in the name I call them), as part of a Group Insurance for Nortel Employees. The rates seemed fine and the one time I had to deal with them, they were fine. Now I no longer am a Nortel Employee what does this mean?

Could my insurance company simply revoke my insurance because I am no longer part of the group? Would they suddenly send me a bill cancelling my discount? Am I at risk?

I decided the best way to deal with this is to be candid and then see what deals I could make if I used a simple full frontal attack. I called my insurance company and asked “I no longer work at Nortel, what does this mean?”, and the first woman I spoke to was quite jovial and jocular about the whole thing and said, “Well I guess since we sent this out to you, we can’t simply cancel your coverage, so you can just continue paying the rate we sent you”. This sounded wonderful, fantastic, so magnanimous and absolutely full of crap. I thanked the young lady and decided to call again on another day.

The second time I called I got a much more dower sounding young man, who honestly answered, “I have no idea what this means, let me go find out”, this made me feel much more confident that I might be getting a real answer and not just an off the cuff comment. The gentleman returned and confirmed what I heard previously, since I already had a quote for my insurance, that is the rate for the coming year. The gentlemen then went further to say that I was not the only person in this position, and his company had not made a statement about what should be done about these policy holders (given the “group” they are in cannot exist much longer). The gentleman then said I should just pay for the policy and that if something changed the company would contact me about what might happen.

From this phone call I can surmise:

  • There is no policy in place yet on how to deal with former Nortel employees in this insurance group, however, I also guess that there are many more non-Nortel employees now in this group than there are actual employees.
  • If the Insurance company in question thinks about it, and sees that I am a good customer they may offer me a similar rate under a different “group” name.
  • There is a degree of risk if I simply renew with this insurance company

It is on my file that I am no longer a Nortel employee, thus there is no “intent to be fraudulent” on my part, but I guess my question would be: How big a risk am I taking by simply renewing this policy given I no longer qualify to be in the “group insurance”?

Comments or opinions welcome.

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