Fear of the future sells insurance. Because we can’t predict the future, we want to be ready to cover our financial needs if, or when, something bad happens. You can buy insurance that covers nearly any risk you can think of — including alien abduction and excessive rain — but that doesn’t mean it’s a good deal.While none of us wants anything bad to happen, many of the potential catastrophes that happen in our lives are not worth insuring against. In this article, we’ll take you through 15 policies that you’re probably better off without.
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. 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.
Wedding Insurance
These policies pay for nonrefundable deposits if the wedding (or other special event) is canceled because of a natural disaster, death, illness, vendor bankruptcy or other problems. Policies generally cost $155 to $550, plus about $185 for up to $1 million in liability coverage, says Katherine Hutt, of the Council of Better Business Bureaus. You may have liability protection through your contract with the vendors, and you may already have coverage for some of these risks through your homeowners insurance.
Credit Life and Disability Insurance
When you get a car loan or open your credit card statement, you may get a pitch for insurance that pays off your loan if you die or become disabled. The coverage looks cheap, but it’s also skimpy — it pays only the loan balance. You should have enough disability insurance (usually through your employer) and life insurance to help pay all of your expenses, not just debt.
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.
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.
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. But in reality, most people rarely rent a car, and when they do, the cost is relatively low and hardly worth insuring against.
Car-Loan Gap Insurance
Gap insurance pays the difference between the amount you owe on your car loan and what your auto insurance company will pay if you total your car. That can be a hefty amount if you have a long-term loan (48 months or longer) and pay less than 20% as a down payment. Lenders often charge a flat fee of $500 to $700 for gap coverage, says Des Toups, managing editor of CarInsurance.com. You may be able to add gap coverage to your auto policy for less than the lender charges for stand-alone protection.
Accidental-Death Insurance
Unless you are extraordinarily accident prone, an accident is unlikely. Accidental-death policies are often fraught with stipulations that make them difficult to collect on, so skip the hassles and get life insurance instead.
