14 Totally Ridiculous Insurance You Probably Don’t Need
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You may well be thinking, Gee –I sure need a lot more insurance that I have now! Well, maybe, you do. And maybe you don’t. According to the National Insurance Consumer Organization (NICO), a nonprofit group, fully 10% of the $180 billion or so that Americans spend on insurance is unnecessary.
Remember, the purpose of insurance is to protect your family against financial catastrophe. So you should insure only against losses you can’t absorb without serious pain –not against small losses that you can meet by tapping your savings. Nor should you buy policies that insure you against just one risk, such as dying in an airplane crash or contracting one specific illness. Such narrow policies are usually very expensive for what you get back in benefits.
Among the policies you should spurn –or dump if you already have them:
1. Life insurance for your kids. It’s amazing how many people take out policies for young children’s lives considering how little reason there is to do it. You should insure a person’s life only in order to protect his or her dependents against the loss of that person’s income stream. So unless your kid is supporting you, save your money.
2. Dread-disease insurance. Policies that pay only if you get cancer, for example, cost a whopping $250 or so a year –about the same as your cost for an employer-sponsored health policy that covers virtually every malady.
3. Hospital indemnity insurance. Such heavily advertised policies promise to pay you, say, $75 a day for every day you spend hospitalized. But the typical hospital stay costs $750 a day. And any decent comprehensive death insurance policy should cover hospitalizations adequately. Besides, you may have other medical expenses outside the hospital. What’s more, these policies don’t protect you against medical-cost inflation, because their dollar limit is locked in place.
4. Credit life and credit disability insurance. It’s a rare person who hasn’t heard the credit insurance pitch from car dealerships, finance companies, or banks offering loans. “This policy will make your loan payments if you die or become disabled. And won’t you feel better with that peace of mind?” Probably not –once you realize that credit insurance is usually a crushingly bay buy, costing perhaps $300 on a $10,000 four-year car loan.
About half of all credit-card issuers offer such insurance, too, usually pushed in fliers included with your monthly bill (cost: about 60c on every $100 of your credit card balance each month). The insurance generally pays off revolving credit-card debt if you die, become disabled, or lose your job. But there’s one big problem: The policies generally pays off your entire debt only if you kicked the bucket. If you’re disabled or laid off, they’ll pay just the monthly minimum on your card –typically a puny 2.5% of your balance –usually for no more than a year. Meanwhile interest keeps accruing on the balance.
Instead of buying such insurance, simply beef up your personal emergency savings fund to cover small debts. As for large debts, make sure your life and disability coverage is adequate to cover them.
5. Mortgage protection insurance. Similar to credit life, this type of policy would make your house payments for six to 12 months if you were laid off. But it’s too overpriced to be appealing: premiums usually amount 3% to 4% of your annual mortgage payment.
6. . Builders or real estate agents offer these contracts, which protect you against major defects in your home. Such warranties are expensive, though. Most cost $300 to $500 a year, plus $50 to $100 whenever the company’s contractor visits your house. And they are usually filled with exclusions. Another risk: The builder selling the warranty will go out of business, as more than 12,000 have since 1988, rendering your “insurance” useless. If you’re worried about defects in a house you’re looking at, have a home inspector check it out instead.
7. Extended –service contracts on cars. These complex and overpriced policies (costing about $600 to $2,000 for two to five years of coverage) simply aren’t worth it. They pay if certain big-ticket components in your car break down, which is unlikely during the first few years of ownership.
The same goes for extended-service contracts on appliances and consumer electronics. Such a contract might cost anywhere from $20 to $500 and promise three repairs or replacement if the product breaks within one to five years. But you’re duplicating coverage for at least part of the time: the manufacturer’s warranty usually lasts for three months to two years. Fact is, more than 80% of service contracts go unused.
8. Towing insurance. Typically piggy-backed onto your auto insurance policy, this coverage pays, say, $75 for getting your sick car to a repair shop. But if you belong to an auto club such as AAA, you almost certainly have towing coverage already. Many luxury-car makers also throw in free towing for the first few years of ownership.
9. Collision –damage waivers for rental cars. These wavers, costing from $10 to $15 or so a day, can add 50% to the cost of your car rental. But for most people, accepting the coverage is completely unnecessary: your own auto policy probably covers any car you rent (check to make sure). And some gold credit cards, as well as most American Express cards, automatically provide such protection when you charge your rental car.
10. Flight insurance. You’ve heard it before, and it’s true: You’re 56 times more likely to be killed in a car accident than in a plane crash. So if you don’t buy an insurance policy every time you step into your Ford Escort, don’t do it before you enter the 47. That way you’ll save the roughly $16.75 per flight is costs for, say, $500,000 of Mutual of Omaha life coverage. Moreover, credit-card issuers often throw in free life insurance when you charge an air ticket (at least $100,000 in coverage when you charge your ticket to American Express, for example).
11. Trip –cancellation insurance. If your sciatica flared up just in time to force you to cancel your prepaid vacation last year, you might be intrigued by such a policy, which your travel agent can generally sell you for $5.50 or so per $100 of coverage. Not so fast. The policies usually won’t pay if your cancellation is due to recurrence of an old ailment. And these days most of airlines will let you change the dates of your ticket for a low $25 fee anyway.
12. Rain insurance. Worried about a drizzle dampening your guests’ spirits at an outdoor reception? Worry about this instead: The premium for a rain insurance policy can cost fully 10% of your party’s tab. Better to spend a few dollars on a house cleaner in the event that you have to move the revelers inside.
13. Wedding insurance. The main offerings of these policies, which cost up to $600 or so, are up to $500,000 in personal liability protection (which you should have already under your umbrella liability policy) and as much as $20,000 for non-refundable expenses incurred by a sudden wedding cancellation caused by, say, the bride’s breaking her leg. Unfortunately, the policies won’t pay out in the event that the bride or groom gets cold feet. There are some things in life you just can’t insure against.
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4 Responses to “14 Totally Ridiculous Insurance You Probably Don’t Need”
Good blog. You could also include universal life insurance and whole life insurance. There are only a few instances when these policies make sense.
By
vilkri (Who am I?) on Sep 5, 2008
I agree with most of these, except wedding insurance. It’s not just for the bride breaking her leg. It’s also for things like natural disasters. Ours was about $250. Totally worth it given that we live in earthquake country. I know people who have lost thousands because they had to cancel an uninsured event due to a major earthquake.
By
Aryn (Who am I?) on Sep 12, 2008