Most people cringe at the thought of purchasing insurance. Home, auto, health, life…Where does it end?
A better question is where should it end?
Insurance can be a valuable tool to protect our health, financial future, and property.
Many types of insurance policies are highly recommended, if not mandatory, and well worth the miniscule cost to protect our interests. Unfortunately, there are organizations out there playing into our fear of the unknown to sell us insurance coverage we may not need.
These insurance flops may not be necessary either because the odds are astronomical you’d suffer a loss from the event insured against, or there is another policy you may (or should) already have in place to cover you against the specified peril in question.
Let’s take a look at the top 10 insurance policies you could probably do without:
Also known a collision damage waiver, or CDW, this is not really insurance; rather, a promise from your rental car company stating they won’t make you pay for damage to a rented vehicle. This coverage is actually provided in most personal auto policies (check before you rent) under your liability limits. Additionally, many credit card companies will provide this coverage, up to a specified limit, when using their card for purchase.
2. Life Insurance for Your Children
This is typically sold under the guise that rates can be very low for a child and you may get to keep the low rates throughout their lifetime (and build value if you purchase a whole life policy). Think this one through. The reason the rates are so low is because the odds are slim your child will not grow up to be a healthy adult. The insurance companies make big money, because they don’t pay out many insurance claims (that alone is an indicator it might not be a great value for you). It may be a better idea to start putting money away for a college fund or any other investment account.
Read this one carefully. You either REALLY need flood insurance or your REALLY don’t. Don’t take this article to say flood insurance doesn’t have its place in the legitimate insurance arena. However, if you do not live in a flood plain or near a waterway or coastline, this might not be necessary for you. You’ll probably know if you need flood insurance if your lender requires you to purchase it to get your mortgage approved. A flood certification is part of the loan process. Not sure? Call your lender.
4. Mortgage Life Insurance
You’ve probably received junk mail regarding this type of insurance if you own a home. This falls under the category, “either have or should have” as mentioned above. A good life insurance policy, whether term or whole, already incorporates the cost of your mortgage, in addition to many other bills you will likely leave behind. No need to double up on this one by adding the mortgage life policy. Click here to read more about how much life insurance you should purchase.
5. Private Mortgage Insurance – PMI
If you finance over 80% of the value of your home purchase in one loan, PMI is mandatory to protect the bank or lender against default. PMI can also be avoided by borrowing no more than 80% of the value of your home, or by taking out two concurrent loans, with the first capped at 80% and the second for any amount above that (How to get rid of private mortgage insurance).
6. Credit Card Balance Insurance
Eerily similar to PMI, discussed above, this is insurance you can purchase for something you should avoid in the first place. Look; if you have to buy insurance, which costs you more money, to cover you against money you shouldn’t be spending, you might be making a mistake. Think twice!
Unemployment insurance is already offered by the state you reside in, but this type of coverage (sold as a separate policy) may be necessary for those who earn large salaries, not typically replaced by state provided unemployment benefits. Financial planners will probably suggest you start and maintain a rainy day fund to cover you in the event you lose your income rather than pay more money for insuring yourself against it. We are not trying to beat a dead horse here, but it may be better to save and plan for some negative events than purchase insurance against them (Who pays for unemployment insurance?).
Many in the insurance world share the opinion that this coverage is not necessary for those who are already covered by an existing health insurance plan. The case can be made that PIP is nothing more than health insurance for you while in your car. Speak with your independent insurance agent before cancelling or deciding not to purchase this type of coverage.
An accidental death policy may not be necessary to purchase…as part of your auto insurance coverage. You see, many life insurance policies already include this coverage or offer it as a rider at very little additional cost. You might have seen it referred to as “accidental death and dismemberment” on your life insurance policy.
And it may be cheaper than adding it to an auto insurance policy. Similar to PIP (above) being a “sort” of health insurance for you while in your car, AD&D acts as a “sort” of life insurance coverage while on the road. But it’s better to have a comprehensive health or life insurance policy in the first place!
This coverage is typically mandatory if you lease or take out a loan for your vehicle. Your lender requires it to protect their financial interest in your car. However, if you own your car outright and it’s not very valuable, you might consider dropping this coverage from your auto policy to save some money. It doesn’t make sense to pay for insurance in the event your car is damaged or totaled if you would just purchase a new car rather than fix your existing one.
In summary, insurance can protect your health and financial future, but certain types, discussed above, may slowly eat away at it as well.
It’s important to speak with an insurance agent prior to reducing or removing coverage from an existing policy.
One of the main points of this article should be that it’s important to be informed prior to making insurance decisions. You might find that having good health, life, homeowner’s/renters and auto insurance will cover your needs if you are the “average Joe.”