15 Kinds of Insurance You May Not Need
I don't mean to make light of insurance, though. Many forms of it are quite critical. If you own a home, you'd better insure it, lest a fire or some other catastrophe destroy it. Cars need to be insured, too, as does our health. For many of us, life insurance, disability insurance, and long-term care insurance also make a lot of sense. But think twice before opting for the following protections:
1. Life insurance. Keep in mind that life insurance is designed to protect an income stream. If you have children or any other people who depend on the income you provide, then it's a smart purchase. But if you're single with no dependents, you probably don't need it. It's generally silly to buy it for children, too, as no one is depending on their income. And when you buy life insurance, term life is usually a better buy than whole life. It covers you for as long as needed, such as until your children grow up. Whole life costs more and adds an "investment" element that you can improve upon on your own, through other, less-costly investments.
2. Accidental-death insurance. If you're worried about dying prematurely, look into term life insurance, which will kick in whether you die by accident or disease. This insurance is costly, especially considering that deaths from accidents are very unlikely.
3. Mortgage life insurance. If you want to ensure that your mortgage will be paid off if you pass away, consider buying or boosting your regular life insurance. It will cost less, and the money will help your survivors pay for other expenses as well.
4. Private mortgage insurance. This is typically required if you buy a home with a down payment that's less than 20% of the home's value. If you can pull together a 20% down payment, do so to avoid this. If you can't, look into alternatives, such as opting to pay a slightly higher interest rate on your mortgage, or using an "80-10-10" strategy, where you take out a regular mortgage for 80% of the home's value, pay 10% down, and also take out a smaller loan for 10% of the home's value. If you're currently paying PMI, monitor your growing equity in your home and be sure to have it removed once your outstanding loan falls below the 80% mark.
5. Flood insurance. If you live in a region susceptible to flooding, then by all means buy this coverage. But if you don't, save your dollars.
6. Credit card loss-prevention insurance. Instead of forking over as much as $180 per year for this, relax, knowing that by law, your losses due to theft are capped at $50 per card.
8. Involuntary-unemployment insurance. With our economy still sputtering, this might appeal to many, as it's designed to make minimum payments on your credit card or auto-loan debt if you lose your job. But the money you spend on this could be better spent simply paying down your debt -- and funding an emergency fund. Most of us should maintain such a fund, with enough moola to cover three to six months (or more) of our expenses. Park the money in CDs or money market funds, or some other easily accessible place.
9. Cancer insurance. If cancer or some other disease strikes you, your existing health-care coverage is likely to cover most medical expenses related to cancer. Read up on the details of your coverage before buying any additional disease-specific insurance. Consider it only if the price is right and it covers more than your current policy.
10. Vehicle-collision insurance. This covers the cost of repairing your car if it's in an accident. If your car is old and you can handle buying a new (or used) car should you have to, you may not want to pay for this coverage.
11. Rental-car insurance. This can seem like a handy add-on to your car-insurance policy, but pause a moment to do some math. If it costs you, say, $50 per year, and you end up needing it for five days over a 10-year span, then you will have spent $500 for something that might really cost you just a fraction of that. You'd do far better to just put $50 in an envelope each year, earmarked for rental expenses.
12. Rental-car damage insurance. The rental agency will explain why this is a smart purchase, but do your homework before arriving at the agency. Your regular car-insurance policy might already cover this cost, and some credit cards might cover it as well.
13. Flight insurance. Dying in a plane crash is extremely unlikely. If you're concerned about premature death, look into term life insurance. If you already have a policy, it may well already be covering you against this remote risk.
14. Extended warranties. In many cases, it's worth resisting the salesperson's recommendation to buy these. Most appliances and electronics will not give you trouble, and if you pay to repair those that do, it may still cost you less than buying lots of extended warranties. Consider it only for big-ticket items, where fixing or replacing would be a major hardship.
15. Identity-theft insurance. Identity theft is a real concern these days, but you still might not need this. Your credit card might offer some identity-theft protection features -- call its customer-service number and ask. You can also monitor your own credit record by requesting copies of your credit report from the three major reporting agencies. By law you're entitled to one free review each year.
Never sign up for insurance without thinking through the alternatives. And read the fine print to see exactly how much coverage is being offered and how good a deal you're being offered.
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- The Motley Fool Personal Finance Nook
- The Insurance Information Institute