Insurance Policies You Probably Donít Need
Some insurance policies are necessary to your wellbeing, security, and financial stability—home, health, auto, life, and long-term disability. Some of these are even required by law. However, there are also narrowly focused single-purpose coverages, which prey on our fear and uncertainty of the future, that are redundant, unnecessary, impractical, and downright wasteful of your hard-earned money—in short, a bad deal.
There are two questions to ask of an insurance policy to find out if it’s a bad deal:
Is the event covered under another broader policy you already have? Or, could you simply increase the coverage of another policy to include the anticipated loss/expense for less money that taking on a separate policy?
What is the policy’s loss ratio? In other words, for every dollar you pay, how much is paid back in claims? Single purpose coverage may pay out as little as 10 to 15 cents on the dollar or less. In comparison, car insurance usually pays out 80 to 85 cents on the dollar.
When considering various insurance policies, you goal should be for balanced coverage: major losses are equally well covered with prudent deductibles.
Insurance policies you can probably live without
Accidental death insurance AND cancer/dreaded disease
This will cover very few, very specific (read: it can be difficult to make a claim) ways you could die accidentally (excluding disease or old age). There’s a good chance your existing life insurance policy will cover most of these events. Your employer also probably offers coverage for any accidental harm or death that happens while at work.
Your best bet is to buy enough term life insurance to cover the majority of most likely circumstances resulting in death.
Most states require a minimal amount of automobile medical coverage as part of your auto insurance. It covers you for injuries or death in an auto accident. You shouldn’t need to carry more than the required minimum because, in most states, your health insurance is secondary to auto medical. This means any additional auto medical coverage will go to letting your health insurer off the hook for the bill! It’s a case of double coverage.
Credit card insurance
This policy pays off your outstanding credit debt should you lose your job, become disabled, or die. This is like paying money each month on a premium to make you feel better about carrying a credit card balance from month to month—it doesn’t make sense. Instead, you should avoid credit card debt altogether (if you’re considering paying more money each month for this coverage, then chances are you have enough money in your budget to pay down and then avoid credit card debt).
Plus, in the case of death, your estate (life insurance policies, other assets) would pay any credit card debt. If there are more debts than total assets within your estate, then creditors can be out of luck—they may never see that money paid back.
Credit card fraud insurance
The federal government enacted a $50-per-card cardholder liability limit on purchases made with a stolen card. That means it’s the most you would ever have to pay if your card was stolen and used to make unauthorized purchases. Many banks, credit unions, and card issuers have adopted a zero-liability policy to keep you a happy customer—so there’s a good chance you wouldn’t even have to pay that $50.
If you buy a product from a reputable brand with a manufacturer’s warranty, you don’t need an additional policy. Plus, with the speed of change in many markets that offer these warranties, like electronics and appliances, chances are the same item will be less expensive or greatly improved by the end of the original warranty.
If you buy flight insurance, it’s like saying, ‘I don’t think I have enough life insurance if I die.’ Just be sure you have a sufficient term life insurance policy and then fly confidently. You can also check to see if any of your credit cards offer automatic flight insurance coverage when you book tickets on the card. Your cardmember agreement might also include car rental insurance, lost baggage insurance, and/or travel accident insurance, to boot!
Identity theft insurance
This is an easy one to turn down because there are federal protections that will leave you paying little to nothing if your identity is stolen. Anyway, 80% of stolen identities involve credit card fraud, and we’ve already pointed out that this will mostly like be handled free of charge by your banking institution or credit card company.
Mortgage life insurance
This life insurance policy, from your mortgage lender this time, pays off your mortgage when you die. Unless life insurance—which would pay this bill anyway—is hard to get because of pre-existing health conditions or advanced age, you really don’t need this. Again, look for a well-priced term life insurance policy to make your mortgage payments after you pass.
Rental car damage insurance
We’ll let you in on a little secret (that really shouldn’t be a secret): you always want to waive the optional coverage at the rental counter. Your own auto coverage extends to a rental car. If you don’t have full auto coverage, your umbrella home-life-auto policy or credit card used to book the car may cover any damages.