Top 5 Insurance Policies You Do Not Need
Posted on June 2, 2007
There is insurance for almost everything that involves the slightest amount of risk. After all insurance is defined “as the equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a premium.” I am going to generalize in this post on the top 5 insurance policies you do not need. With that said, everyone’s situation may be unique and there are exceptions, but if researched you will find the level of risk is not worth transferring at times. Other times the risk may already be transferred, but the individual is unaware of existing coverage. Keep in mind insurance companies profit by the inherent complexity of the policies. Fine print, exclusions, and other tactics allow the insurance industry to have a significant advantage. Here are the top 5 insurance policies you do not need:
- Credit Card Protection Insurance. We have all seen the junk mail inserts that show all the reasons you should have credit card protection insurance. The ads typically claim it will pay in the event of job loss, death, or becoming disabled. The reality is this insurance allows the credit card companies to ensure they profit. You pay them extra money each month for the insurance and they get the benefit of knowing their monthly payment will be made. It costs much more than its worth and many times you are already covered by disability insurance at work, life or homeowners insurance. Skip this one for sure.
- Flight Insurance. I do not see this as much as I use to, but still come across it from time to time. I remember flying as a kid and there was a machine at every airport where you could buy a quick insurance policy in the event of a crash. This is playing on people’s fear of flying and is not worth the cost. Some credit cards give automatic flight insurance if you buy the tickets with that credit card. I find it reassuring that it is so unlikely a plane crash will occur that credit card companies are giving flight insurance away for free.
- Rental Car Coverage. This is how the rental car companies make their money. Huge margins on this stuff. Do some research with this to make sure you are protected elsewhere. Sometimes your credit card has protection built in. If not check with your auto insurance and make sure it covers you while in a rental car. The precursor with this is make sure you are covered elsewhere. If not then I would recommend going with full protection to be on the safe side. I have to admit when I worked for a company that I traveled a lot for and they allowed me to expense the full cost of rental car coverage I would obviously buy the stuff, but for my own personal usage I am covered both with my credit card and with my auto insurance provider.
- Mortgage Life Insurance. Not to be confused with PMI or Private Mortgage Insurance, which is required if you do not have 20% to put down on the purchase of a home, and protects the lender in the event you default on the loan. Mortgage Life Insurance will pay off your mortgage in the event of death or serious disability. I get these offers all the time in the mail. Your life insurance policy should be large enough to sustain your beneficiary paying the mortgage. This is not worth the cost as it will only pay off your home which may not be the best idea for your beneficiary.
- Identity Theft Insurance. I know this is becoming more commonplace but not to the point you need to pay a company to insure you in the event your identity is stolen. That is just my opinion though. To make it worse most policies pay only legal fees and some lost wages, but do not pay back the money you lost as a result of identity theft. The better way to mitigate this risk is with prevention. Take steps to ensure it does not happen to you by shredding old documents that contain your vital information, ordering and reviewing your free credit reports, and opting out of credit card offers by calling 888-5-OPTOUT. If you become suspicious that something is wrong you can place a free 90-day fraud alert with one of the credit reporting bureaus. Check with your homeowners insurance as some are beginning to cover identity theft.
The main point of this post is that it is “typically” (there are exceptions of course) not wise to insure against a specific item as narrow as a single flight or a specific credit card balance. It is far better to look at the overall financial picture, insure accordingly, and understand what you are insured againist and what you are not. Never buy insurance from a five minute sales pitch, prior to a flight, or from a piece of junk mail.
Update: Shadox at Money and Such has written an excellent follow up post on the topic of selecting insurance.
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4 Responses to “Top 5 Insurance Policies You Do Not Need”
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The one that always kills me is life insurance on your children. There is one decent reason to have insurance on your children - to ensure insurability in the future. I have a 23 year old cousin with a heart issue - he will always be able to get life insurance because his parents had a life insurance policy on him (probably something like a $10,000 Whole Life policy).
Otherwise, they are a joke. For me, life insurance is to cover the life of someone upon whom others rely. My wife and my daughter rely on me - hence, life insurance is a good idea. No one relies on my daughter for their financial wellbeing. So I don’t have insurance on her.
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