TOO MUCH INSURANCE
Buying insurance is buying peace of mind, or so goes the sales pitch. And while some insurance products are definitely worth their cost, we have identified others that you often can do without. Whether you're looking for auto insurance, life insurance or wondering what coverage you need when renting a car or booking travel, find out what to consider before signing up.
Next time you make a large electronics or appliance purchase, chances are the sales representative will eagerly tell you about the extended warranty you should buy. Consumer Reports points out that this type of insurance is rarely worth the price and that not only are most products reliable, repairs rarely cost what you've invested in insurance.
COLLISION DAMAGE WAIVERS
Rental car insurance is a confusing matter. One optional add-on that's typically presented at the counter is almost never worth the extra money: the collision damage waiver (CDW), which covers the loss of, or damage to, the rental car. Most major credit cards provide this coverage for free as long as you pay for the rental with that card.
EXCESSIVE LIABILITY COVERAGE
Liability insurance provides coverage when you're sued or other legal claims are brought against you. It can be important, and sometimes mandatory (e.g., auto insurance), to hold some amount of liability coverage. Higher limits come with higher rates, though, and there is a point at which the amount you pay for the amount of coverage is not statistically advantageous. With auto insurance, for example, you pay a hefty fee for a high liability limit when less than 5 percent of accidents result in claims that large.
Umbrella insurance protects you with extra liability coverage to supplement your current insurance policies. With some policies, this secondary insurance kicks in only if claims exceed the coverage from your primary insurance. Other umbrella coverage "drops down" to cover losses when the primary insurance doesn't pay in full or cover the contingency. Regardless, an umbrella policy is probably unnecessary unless you've already accumulated significant wealth that you want to protect from a lawsuit. It also may be less expensive to increase limits on individual policies (home, auto, etc.) than to buy an umbrella policy.
Basic policies may have exclusions or limitations that you can cover with a rider that gets you higher limits on jewelry, for example, or coverage for water damage in the basement (where you keep the big-screen TV). Riders are occasionally free but most often come with an added fee. Paying for a rider when you don't really want it is just throwing away money.
Perhaps you want an income rider on your life insurance policy that provides a guaranteed income stream you can turn on later (e.g., at retirement). You may also want an accelerated benefit rider that lets you collect a lump sum if you're seriously injured or develop a serious medical condition. Heads up. Dr. Sterling Jack, president of Colwyn Investments in South Jordan, Utah, has seen cases where the accelerated benefit was voided when the insured person activated the income stream but continued paying for the competing rider. Steer clear of coverages that vie for supremacy.
GROUP TERM LIFE INSURANCE
If you're young and healthy, group term life insurance probably isn't for you, asserts Robert Palidora, a financial consultant for AXA Advisors in Bala Cynwyd, Penn. "The price is based on the age of the group and the assumption is that one-third of the group is not healthy and that some smoke," Palidora explains. Individual life insurance is much more economical. One exception may be the group term life insurance coverage offered by some employers because the cost may be covered or supplemented by the company.
MORTGAGE LIFE INSURANCE
Mortgage life insurance will repay an outstanding mortgage if the policyholder dies. As long as you're paying off your mortgage, the amount of coverage decreases even though the premiums stay the same. (This is why the policies are sometimes called declining or decreasing mortgage life insurance.) Jason Fisher, an independent insurance agent in Myrtle Beach, S.C., says a standard life insurance policy is preferable because it offers a steady death benefit, is more flexible, allows additional benefits (e.g., waiving the premium if you become disabled), and sometimes is cheaper.
Flight insurance provides death and dismemberment coverage while you're traveling by plane. If you already have a life insurance policy this type of coverage is likely redundant. Moreover, the chance of a mishap during a flight is extremely low. As the saying goes, you're more likely to die getting to the airport than flying in the plane — 2,200 times more likely, in fact.
Pet insurance is health insurance for your pet. There are co-pays, deductibles, premiums, and provider networks. In the event your pet gets sick or injured, pet insurance will protect your savings. When Consumer Reports looked at the numbers, though, researchers concluded that unless the breed is predisposed to expensive ailments, you're probably better off stashing some money in an emergency pet fund.
ONLY THE ESSENTIALS
There's no single correct answer for what type of insurance to buy; everyone's situation is different. Joe Moore, a former insurance salesman now living in London, says he buys insurance to protect against financial hardship, but nothing more. And he prefers to keep his insurance clean; e.g., no roadside assistance in his auto policy and no link between his life insurance policy and the stock market.
KNOW THE DETAILS
Regardless what you do or do not buy, the most critical things to know and understand are exactly what you already pay for and how each type of policy works. Your auto insurance may cover rental cars, for example, but might not include "loss of use" coverage, which reimburses the rental agency for the cost of the car being off the road while undergoing repair. If you're having trouble digging through all the fine print, consult with an independent insurance agent (who represents more than one provider) and can help explain things in simple terms.