Don’t Be Suckered into Buying these 5 Useless Insurance Policies


31 October,2011

None of us like buying insurance, but the reality is that insurance can be one way to protect your assets and your finances from disaster. Some insurance policies are needed to protect your assets. Purchasing insurance can protect your home or your car, and insurance that can help you afford the cost of health care or protect your family’s income if you should die, are financial necessities. It might even be worth it to buy disability insurance, depending your situation, and your work.

This is because insurance can help you avoid coming up with the capital to pay for huge expenses. Many of us don’t have enough money to outright buy a new car if we are in an accident. It’s even harder to pay to rebuild your home if it’s destroyed by a natural disaster. In these instances, insurance can help you. You pay affordable premiums over time, and if something happens, someone else provides the capital needed. Insurance is even helpful in health or disability situations so that you aren’t financially devastated by an accident or illness.

However, while some insurance policies are necessary, others are practically useless. Some policies cover items that are already covered by other insurance, or cover problems that can be avoided with some good financial planning. Here are 5 insurance policies that you probably don’t need to buy:

1. Flight Insurance

This is insurance designed to pay out if you should die while flying in an airplane. For those who are afraid to fly, this seems like a good move. However, this type of insurance is actually superfluous. Not only is the risk of death quite low for an airline flight, but if you have life insurance, you are already covered. Your life insurance policy will pay out to your beneficiaries when you die while flying, so there is no reason to purchase extra flight insurance. Ever. Just make sure that your life insurance coverage is adequate for your needs, and you should be set.

2. Car Rental Insurance

First of all, check to see if your auto insurance policy automatically covers this. Many auto policies will cover damage to a rental car if you are driving. Even if your insurance does cover your rentals, it might be a better idea to drop the coverage, since car rentals usually aren’t that expensive.

What is necessary might be car rental damage insurance. However, you probably don’t even need to pay extra for that. Your regular auto policy might cover it already. Plus, many credit cards offer this coverage as a perk. As long as you rent the car with the credit card, you should be covered. Check your card benefits and double-check your auto insurance policy. Between the two, you might already have all the coverage you need.

No need to purchase additional coverage from the rental car company. Instead, sign the waiver declining the insurance coverage and drive with confidence knowing that you are covered.

3. Child Life Insurance

The point of this insurance is to provide you with a payout should your child die early on in his or her life. However, child life insurance isn’t all that helpful since most children don’t have dependents or heirs to worry about. And, even though some child life insurance policies come with a cash benefit for the child when he or she is older (turn in the policy for money that can be used for schooling), you might be better off to just set money aside in an IRA, 529 or Coverdell. The money is likely to grow faster in one of those accounts than build cash value as insurance.

The main exception to this is if your child actually earns money. If your child is an actor or earns money in some other way, and provides support to your family, a child life insurance policy might be a good idea. Otherwise, a child insurance policy is rarely worth the cost.

4. Mortgage Life Insurance

Like flight insurance, this type of insurance coverage is completely unnecessary. Mortgage life insurance is designed to pay off your home mortgage if you die. However, if you plan your life insurance coverage right, the payout should be sufficient for your family to pay off the mortgage.

There is no reason to spend money on this type of insurance policy, which, of course, covers less over time as your mortgage shrinks in size. It can be an expense that takes money out of your own pocket for coverage that won’t matter in the long run. When deciding how much life insurance you need, add up your debt, including the mortgage debt, and make sure your policy is large enough to pay it all off and then provide income for your family.

5. Credit Card Insurance

Any kind of credit card insurance is probably useless. Credit card loss insurance isn’t very helpful; you’re already limited, by federal law, to $50 liability of you lose your credit card and it’s used fraudulently. That means that buying credit card fraud insurance (and many types of identity theft insurance) doesn’t help you much. This type of insurance won’t stop fraud, and any action the insurer would take to help you restore your credit can be done by you — without any cost.

Credit card bill insurance is also unnecessary if you have planned ahead. Pay off your credit card each month, and build up an emergency fund, and you won’t need to worry about whether or not you can make credit card payments if you experience a financial setback. If you never carry a balance, though, the insurance won’t cost you anything, since most credit card bill insurance is based on your current balance.

In most cases, a good emergency fund, or proper financial planning with other insurance policies, can help you avoid the need for these types of extra insurance that will just cost you extra money.