15 Insurance Policies You Don't Need
1. Private Mortgage Insurance
The
infamous private mortgage insurance (PMI) is well known to homeowners
because it increases the amount of their monthly mortgage payments. PMI
is an insurance policy that protects the lender against loss when
lending to a higher-risk borrower. The borrower pays for this insurance
but derives no benefit. Fortunately, there are several ways to avoid
paying for this unnecessary policy. PMI is required if you purchase a
home with a down payment of less than 20% of the home's value. The small
down payment is viewed as putting you at risk of defaulting on the
loan. Put down at least 20% and the PMI requirement goes away.
Alternatively, you can put down 10% and take out two loans, one for 80%
of the sale price of the property and one for 10%, although interests
rates can prevent the economics of this maneuver from working out in the
homeowner's favor.
2. Extended Warranties
Extended
warranties are available on a host of appliances and electronics. From a
consumer's perspective, they are rarely used, particularly on small
items such as DVD players and radios. If you purchase a reputable,
brand-name product, you can be fairly certain it will work as advertised
and that the extended warranty is statistically likely to be
unnecessary. If you spend $5,000 on a giant, flat-screen television, the
policy is still unlikely to pay off, but might make you feel better.
For everything else, forget it.
3. Automobile Collision
Collision
insurance is designed to cover the cost of repairs to your vehicle if
you are involved in an accident. If you have a loan out on the car, the
loan issuer is likely to require that you have collision insurance. If
your car is paid off, collision is optional; therefore, if you have
enough money in the bank to cover the cost of a new car, collision
insurance may be an unnecessary expense. This is particularly true if
you are driving an old car, because cars depreciate so quickly that many
vehicles are worth only a fraction of their purchase price by the time
the loan is paid in full.
4. Rental Car Insurance
Most
auto insurance policies offer additional coverage for the cost of car
rentals, touting it as a useful feature if your car is ever involved in
an accident and needs to spend some time in the repair shop. This may
sound like a good idea, but in reality, most people rarely rent a car,
and when they do, the cost is relatively low and hardly worth insuring
against. Although rental car insurance is relatively inexpensive,
amortized over the course of a lifetime you are still likely to spend
far more than you will benefit.
5. Car Rental Damage Insurance
Many
auto insurance policies already cover rentals, so there's no need to
pay for this twice. Check your policy before you pay. Depending on where
you rent the vehicle, you may also be able to pay a small fee for
insurance on your rental when you pick it up at the rental center. If
this fee is less than what you'd pay for a year in your old policy,
choose the fee over the policy.
6. Flight Insurance
Flight
insurance coverage is completely unnecessary. Despite media portrayal,
airline accidents are relatively rare, and your life insurance policy
should already provide coverage in the event of a catastrophe.
7. Water Line Coverage
Water
companies have made an aggressive push to sell policies that cover the
repair of the water line that runs from the street to your house. The
odds are in your favor that you will never use this coverage,
particularly if you live in a newer home. If you live an average
suburban neighborhood and you do need to repair the water line, the
distance to the street is short, the likelihood of a problem is low and
repair costs are a few thousand dollars or less. The same goes for
policies offered by other utility companies.
8. Life Insurance for Children
Life
insurance is designed to provide a safety net for your
heirs/dependents. Because children don't have heirs to worry about and,
statistically speaking, most kids will grow up safe and healthy, most
parents should not purchase life insurance for their kids. Instead, use
the money that you would have spent on life insurance to fund an
education plan or an individual retirement account (IRA).
9. Flood Insurance
Unless
you live in a flood plain or an area with a history of water problems,
don't even bother buying flood insurance. If none of the homes in the
area has ever been flooded, yours is unlikely to be the first.
10. Credit Card Insurance
Purchasing
coverage to pay your credit card bill in the event you cannot pay it is
a waste of money. A far better idea is to avoid running up your credit
cards in the first place, so you won't need to worry about the bills.
Not only do you not save on the insurance premiums, you'll also save the
interest on your debt.
11. Credit Card Loss Insurance
Federal
law limits your liability if your credit card is stolen. Your
out-of-pocket costs are limited to $50 per card and not a penny more. In
fact, many credit card companies don't even try to collect the $50.
12. Mortgage Life Insurance
Mortgage
life insurance pays off your house in the event of your death. Rather
than add another policy - and another bill - to your list of insurance
plans, it makes more sense to get a term-life policy instead. A good
life insurance policy will provide enough money to pay off the mortgage
and to cover other expenses as well. After all, the mortgage isn't the
only bill your survivors will need to pay.
13. Unemployment Insurance
This
coverage makes minimum payments on your bills if you are out of work,
which sounds like an attractive proposition. A better plan is to save
your money and build up an emergency fund instead. You won't have to
cover the cost of the insurance policy and, if you are never out of
work, you won't spend any money at all.
14. Disease Insurance
Policies
are available to cover cancer, heart disease and other maladies.
Instead of trying to identify every possible disease that you may
encounter, get a good medical coverage policy instead. This way, your
medical bills will be covered regardless of the problem you face.
15. Accidental-Death Insurance
Unless
you are extraordinarily accident prone, an accident is unlikely. Major
catastrophes such as car wrecks and fires are covered under other
policies, as is any harm that comes to you while at work.
Accidental-death policies are often fraught with stipulations that make
them difficult to collect on, so skip the hassles and get life insurance
instead.
