In a career nearing 40 years of selling and marketing, one policy as always remained in my mind as being the worst insurance policy for a person to buy. Currently one of the main products of the insurance companies that offer it, advertises very heavily on television. Whenever when I see a duck on television screaming “Quack, Quack.”, one thought comes to mind. That is of a quack salespeople knowingly selling the worst policy.
The policy sold is referred to as a hospital indemnity policy. Each day you spend overnight in a hospital you are eligible to receive a payment from the insurance company. It pays benefits on top of whatever medical coverage you are already paying for. This is not meeting the true definition of insurance, covering a risk. This is more like playing on a rigged roulette wheel. It is virtually impossible to collect more money than you paid in.
Where is this big financial risk you are covering? If you have a $1,000 deductible on your homeowners policy or a $500 deductible on your car you are taking more of a risk. With the homeowner or car policy, it is sure to cost you money when you file a claim. I have had over a dozen hospital stays, all with good medical insurance coverage. Never once have I had to pay over $100.00 for uncovered out of pocket expenses. Since I never bought a hospital indemnity insurance policy, I also never received extra money from my hospital stays.
The purpose of buying insurance is to deal with risks too high to cover on your own. With so many outpatient surgeries being performed, hospitalization is often avoided. Even when entering as an overnight patient, a lot of other patients will be leaving in one to 4 days. Although rehabilitation may be necessary, this is traditionally provided outside the hospital. Therefore, when you sell a hospital indemnity policy you are cooking your client’s goose or duck.
Let’s say you sell a hospital indemnity policy that only costs $25.00 a month. It is conveniently deducted right from the client’s paycheck. Let us also say the policy pays $200 a day while being overnight hospitalized on a daily basis. Right now your prospect might be young and in good medical condition. Five years later your client requires a 2 day medical stay. The insurance company sends you a check for $400. This is rather silly if the regular medical plan covers all the expenses.. After 10 years, the client would have paid in $3,000 and received $400 back. He or she lost $2,600.00.
Instead if the insurance represntative had sells a $25 a month annuity policy, the client accumulates at least $3,000.00 plus the interest from the annuity. All this using a ten year time perios as illustrated above. Using a very modest interest, the annuity policy should have accumulated to $4,400.00. If your client paid himself or herself $400 for the hospital stay, there would still be $4,000 in gain.
That $4,000 in gain could be used to pay car or homeowner deductibles, prescriptions, or even as savings for retirement. The make-a-quick-buck insurance salesperson that sells a hospital indemnity policy should get a good hard spank. The annuity sales representative should get thanks.
Chances are that hospital indemnity sales represntative that originally sold the policy is probably no longer selling insurance. However, the annuity rep is probably still around, as this agent is selling clients what they need, not what seems easy to sell.