Beware the fine print: Questionable life insurance policies sold by car dealers

Sometimes the devil is in the fine print. Other times, however, you sign up for something that seems perfectly reasonable, only to learn later that the real price is far more than you’re willing to pay. That’s what happened to Bill Namagoose, Executive Director of the Grand Council of the Crees, when he was preparing to co-sign a car sale contract with Amos’ Automobiles Carella Honda for his cousin Harvey Whiskeychan.

On financing papers for a 2013 Chevrolet Suburban, sold for $44,500 (plus over $4,700 in additional fees and add-ons), Namagoose discovered Line 8a, for life insurance on the vehicle. This would have provided, at most, the replacement cost for a new vehicle – some $50,000 – in case of an accident during the eight-year period of the loan on the truck. It would also, in the event that Namagoose or Whiskeychan died before their debt to Automobiles Carella was paid, have paid off any amount remaining of that total debt, whether the full $50,000 or any smaller amount. This deal sounded good until Namagoose looked at the numbers: the price for the insurance alone was $9,543.91, and there were additional credit fees on top of it that added up to a total of $12,147.67.

“Harvey faxed me the material,” Namagoose said. “That’s when I saw that $12,000 charge. It was a really outrageous amount.”

Namagoose said his first thought was to find out of this is what life insurance usually cost. So he approached Sun Life, not explaining the situation, but simply asking what it would cost to buy $100,000 in comparable life insurance over a 10-year period. Sun Life replied, simply enough, that it would cost $12.79 per month, for a total of $1,534.80 – nearly eight times less than the cost of insuring a vehicle worth half that amount through the dealership.

“To me, it was attempted robbery,” Namagoose said bluntly. He confronted insurance salesperson Caroline Nolet, demanding the charge be removed. “She didn’t make a big deal when I asked her to eliminate it. She didn’t fight me at all. But when I talked to the guy before, he said Harvey ‘had agreed to protect his family.’ That’s bullshit.”

Namagoose was, and remains, convinced that such inflated insurance pricing is unfair, and he decided to fight it. Contacting the Quebec Consumer Protection Office, he was told that it was not a consumer affair, and that the Insurance Bureau of Canada would have to look into it.

The Nation contacted that organization, only to be told that they could not understand the contract. We were referred to the National Bank, which provided the financing. However, a representative from the National Bank washed their hands of the issue, saying they did not underwrite the insurance.

Finally, a call to Automobiles Carella settled the confusion. Antoine Sylvestre was the sales representative who sold the Suburban to Whiskeychan.

“We sell that life insurance for Industrial Alliance, and that’s the price [they give us],” Sylvestre told the Nation. “Harvey Whiskeychan said that he wanted to buy a Suburban, and said he has a family. We asked him, ‘Do you want the life insurance and everything?’ He said, ‘Yes, I want the best.’ So we put the life insurance. Then his cousin, Bill Namagoose, told me that he didn’t need it. So we just removed it from the contract.”

Automobiles Carella’s insurance salesperson, Caroline Nolet, said insurance pricing is entirely beyond the control of her dealership.

She explained, “In essence, how it works is, when I enter an amount, for example with Bill his vehicle that was roughly $50,000, I simply click on a tab reading ‘Life Insurance,’ and the life insurance is calculated based on the amount of financing. It’s not an amount that we have access to change.”

Insurance amounts are only determined by Industrial Alliance insurers, said Nolet. “It would be totally impossible, let’s imagine, for me to sell you insurance at $3,000 instead of $5,000. I have absolutely no access to that. I can’t do discounts or anything. All I can say is that you have the option to take it or not to take it.”

Nolet notes that several factors contributed to the surprising cost of insurance on Whiskeychan’s Suburban: it was not only life insurance, but also disability insurance, and insured the full replacement value of the vehicle in the event of an accident. As well, she underlined, the fact that there were officially two owners of the vehicle meant that the insurance was applied to both of them, and therefore cost twice as much.

However, she could not explain why it cost eight times as much to get life insurance on a $50,000 vehicle over eight years than it did to buy life insurance for $100,000 over a decade.

“That’s not how it works,” she said. “We can’t really get started down that path. It’s really not the same product. We’re not talking about life insurance for a house – we’re talking about life insurance for a car, over a short period.”

When pressed to explain the large discrepancy in life insurance prices, she said simply, “It’s a better deal, basically [to buy life insurance from Sun Life].” However, she followed up by appealing to buyers’ sense of responsibility.

“What we ask our clients when we’re selling life insurance is this: do you have life insurance at the moment? If they say no, that’s not good. Because if they don’t, and they die, they leave a debt of $50,000 to their family. By contrast, if the client says yes, I’m going to ask him how much insurance he has. If he only has $150,000 in insurance, but also has $180,000 in debts, there isn’t enough. But if he tells me he’s got $150,000 coverage and insurance on his house, and all that’s left his is credit cards? Then that’s sufficient. It wouldn’t make sense for him to take the life insurance.”

For a Waskaganish vehicle buyer who wished to remain anonymous, this logic was reasonable enough.

“I just got a new ski-doo, and I did the same thing,” the anonymous buyer told the Nation. “I have insurance for the vehicle, but also I have to have life insurance, so in the event that I have an accident or die, I don’t leave anyone with my bill.”

The Waskaganish buyer says he’s experienced in the market, and has similar life insurance covering his MasterCard debts in the case of death. To buy life insurance for a car only made sense, he said.

“I feel insured by it! It’s important for me to look at the risks,” he said. “I’m on the road about 80% of the time because of my work. Every time I’m on the road I have the risk of dying.”

Even the cost of the insurance didn’t trouble the Waskaganish man.

“I don’t have anything to say about the rates,” he said. “It’s only a small amount on a monthly basis, and I think I got a pretty fair deal.”

Namagoose said it isn’t so much the insurance as the inflated cost of it that bothered him. He said he previously held similar life insurance on his line of credit.

“The premiums went down as the balance went down,” said Namagoose. “This is normal, but it’s $1.20 a month, not $12,000 for a car.”

Namagoose said he plans to continue to fight the insurance charge by getting the Quebec Consumer Protection Office to look into the case.

“We’re following up with them and saying it’s a consumer protection matter,” he said, “and they shouldn’t shove it off to the insurance bureau. It’s not an insurance issue, it’s a consumer issue. Our legal counsel is going to give them more information – this is ongoing.”

However, said Namagoose, in light of the fact that Automobiles Carella asserts that Industrial Alliance determines their insurance prices, he says he’ll need to investigate that company’s practices as well.

“Carella is making a serious allegation against the insurance companies,” he said. “We need to know who is the real scammer. If it is the insurance companies, it is a major story which may require the attention of Office of the Superintendent of Financial Institutions.”