good article
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. Insurance companies understand this fear and offer a
variety of insurance policies designed to protect us from a host of calamities
that range from disability to disease and everything in between. 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.
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.
When Choosing Insurance
There are so many policies to chose from, and they all cost
money. While a certain amount of insurance coverage is necessary and prudent,
you need to choose carefully. In general, broad policies that offer coverage
for a multitude of potential events are a better choice than limited-scope
policies that focus on specific diseases or potential incidents. Before you buy
any policy, read it carefully to make sure that you understand the terms,
coverage and costs. Don't sign on the dotted line until you are comfortable
with the coverage and are sure that you need it.
source :
lisa smith
http://finance.yahoo.com/insurance/article/109906/15-insurance-policies-you-don't-need
