10 Insurance Policies You Don't Need
The types of unnecessary insurance described below have one thing in common They are hugely profitable to insurance companies because less is paid out than with other forms of insurance. Bottom line? Don't let your fears sell you insurance you don't need.
Accidental Death Insurance
While it is true that accidents are the 3rd most frequent cause of death between the ages of 45 and 64, they cause less than 5% of all deaths at these ages. And, for people age 65 and older, accidents cause less than 2% of all deaths. Bottom line? Accidental death insurance is a waste of money. The people you are trying to protect financially would be much better off if you purchased term life insurance. The fact that accidental death insurance is less expensive means nothing for your family if the likelihood of a payout is between slim and none.
It's a gimmick. Most people don't get the types of cancer covered by the policies (skin cancer is usually not covered). But, insurance companies know that cancer is an emotional issue people are very fearful of getting it. Bottom line? It can cost more than $400 each year to purchase a policy with seemingly huge dollar benefits. But your chances of collecting on it are very small. If you are younger than 65, you would be much better off putting those premiums into a regular health insurance plan that covers all medical conditions. If you are 65 or older, that $400 a year will pay the average annual premium for Medicare's Part D prescription drug coverage.
Car Rental Insurance
Collision Damage Waiver (CDW) insurance from a car rental company can nearly double your daily rental charges. Check your auto insurance policy and credit card benefits. You're probably already covered for rental cars. If you are, don't waste your money at the car rental counter.
Credit and Mortgage Disability Insurance
These policies are very popular with the banks and credit card companies that sell them. Why? In most states, they earn up to 40% commission on every dollar of premium you pay.
The policies will pay the minimum installments on your loan or credit card, typically for up to 36 months, if you are disabled according to the terms of the policy. A much better approach would be to maximize the short-term and long-term disability coverage that you can often get at your place of employment. That way, your other expenses can be covered as well as your installment payments. And, comparing the cost of your insurance, the coverage you get at work will cost much less per dollar of benefit than credit and mortgage disability insurance.
Credit and Mortgage Life Insurance
These policies are also hugely profitable to the banks and credit card companies that sell them. But, if you want to protect your family, buy or add to your term life insurance protection. It's much more affordable. You will pay about four times more for credit and mortgage life insurance than you would for the same amount of term life insurance.
Credit Card Fraud Protection
You are already covered. By law, you are required to repay only $50 of any unauthorized charges on your credit card. And, most major credit card companies will even waive the $50 if you tell them about the fraudulent charges, or about your lost or stolen credit card, as soon as possible.
Extended Product Warranties
Sales clerks nearly always push you to purchase extended warranties. But, they typically pay out only 30¢ on the dollar. In other words, the store makes about 70% profit on each one they sell. The odds are stacked against you. Don't waste your money on a warranty that you'll probably never need.
Airport life insurance is absurdly expensive. And, given the extremely low probability of a crash, that's reason enough not to waste your money on this type of insurance.
Hospital Indemnity Insurance
This is sold under various names such as Hospital Cash, Hospital Money, HIP, Hospital Indemnity Plan, etc. In its most basic form, it pays a fixed daily cash benefit for each day you are hospitalized cash that you can spend any way you want. At first, it sounds good a typical cash benefit is $100 a day for every day you are in the hospital. However, this policy is virtually worthless for two reasons.
First, you won't collect much. Hospitals discharge their patients in just a few days quicker and sicker than ever before.
Second, many people with no health insurance buy this policy in the hope that it will offset their expenses if they are hospitalized. The problem is that $100 a day in benefits won't go far toward paying the cost of a hospital stay the average is nearly $1,600 a day and that is just the room charge. It doesn't include doctors' fees, medical tests, supplies, medications, the cost of surgical facilities, anesthesia, etc.!
Credit card companies and other lenders sell this policy to make the minimum payment on your card or loan for 6 to 12 months if you lose your job. You don't need this coverage. Instead, you'll save money by relying on your emergency fund to make the minimum payments. (For more information, click on Emergency Fund.)
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