The 12 Types of Insurance that are Wasting your Money!
Insurance companies aren’t exactly the most upstanding businesses around. To earn their keep, they market insurance to you that are a complete waste of money.
This is all well and good for the discerning buyer, but many people don’t have time to pore over page after page of legalese and end up being coerced into buying coverage they don’t want or need. Even I’ve nearly fumbled over the years after skimming some terms and conditions a little too quickly. Fortunately, you have the option to drop these coverages (many of which are duplicates anyway). Chances are you’ll end up saving a lot of money throughout your lifetime.
Here are the most grossly overpriced and unnecessary insurances that you should get rid of ASAP:
- Credit Life Insurance: This refers to the grossly overpriced life insurance found on consumer loans, which pay off the loan if the borrower dies. The price per thousand dollars of insurance coverage for credit life can sometimes be 25 times higher than what you can get in a much cheaper Annual Renewable Term Life Insurance policy.
- Credit Disability Insurance: An unnecessarily expensive disability insurance that’s also found on consumer loans. It covers the borrower if they happen to become permanently disabled. For some much more cost-efficient replacements, look into increasing your group disability insurance at work. You can also purchase a separate policy for about 75% less than you pay for the original, which will most likely also have a much more liberal definition of disability than credit disability insurance. Paying less for more coverage—what’s not to love?
- Accidental Death and Dismemberment (AD&D): This one is generally found as a “rider” on life insurance policies, and pays double for accidental deaths. It can also be purchased as an individual policy. My advice is to avoid it either way; it’s appealing because of how cheap it is, but almost no one will ever collect. Your real need also isn’t doubled in the case that death occurs from an accident. Not to mention the fact that the coverage itself operates under a loose definition of “accidental”—as an insurance executive explained to me years ago, if lightning strikes your car and it runs off the road and hits a tree, being indirectly killed by lightning means that you died of “natural causes”. Which is, of course, completely ludicrous. If you really must have this coverage though, a lot of credit cards and bank accounts have this included as a totally free perk.
- Charge-guard: Usually bundled with a credit card, Charge-guard is yet another overpriced life and disability insurance. I’ve seen this stuff priced at 25-50 times the price per thousand that you can buy ART (Annual Renewable Term) or other standalone disability policies for. Sure, the sales pitch sounds great over the phone: “It’s only [insert amount of wasted money] per month to cover your outstanding balances!” But it’s just straight-up unnecessary. I would advise to avoid it at all costs, or at least replace it with real insurance policies that aren’t blatantly overcharging you.
- Extended Warranties: Buying extended warranties can often turn out to be a waste of money. My advice is to keep your eyes open instead of buying them for every product you get. For example, a few years back I bought a laptop on Black Friday for about $250. After 13 months of use (and after my 12 month manufacturer’s warranty had ended), the computer died. Considering the price I paid for it, it wasn’t much of a loss. I spent $900 on the replacement and bought the extended warranty because of how the cheap one died. Sure enough, after 37 months of use it died. Although it would normally have been outside the range of warranty (36 months), I got it repaired for free. If I had bought extended warranties on both, however, I would have wasted a lot of money. Moral of the story: don’t buy extended warranties for products that aren’t worth it.
- Automobile Service Contracts: We have the free standard ten-year 100,000 warranty on our Kia Sorento. Need I say more?
- Mortgage Life Insurance: This is life insurance whose term decreases as your mortgage does, promising to pay off a home mortgage if the borrower dies. Just like the aforementioned insurances, you can replace this by buying ART with decreasing term insurance that lasts for the same term as your loan. Less overpriced, more value.
- Accidental Disability Insurance: I saw only a few of these policies when I did financial planning. It’s a gimmicky insurance trying to get you to pay a lot for a little (accidents-only) coverage. Buy disability insurance instead so you’re covered for both illness and injury.
- Air-travel Life Insurance: Statistically, this is a terrible deal. When you have dependents, buy life insurance that covers any cause of death. Besides, your survivors may be able to sue the airline when it’s their fault.
- Automobile medical insurance: Comprehensive health insurance covers your medical expenses making this duplicate yet more coverage.
- Rental car insurance: Ask your car insurance agent if you are covered for car rentals. Most personal car insurance policies cover this and some credit card companies might also save the up to $15 per day fee for this coverage.
- Cancer insurance: Buy term life insurance to collect for ANY disease, instead of this and other piecemeal type policies.
- Electrical Surge Insurance: This is nonsense protection of just $1,000 which costs $25 the first year and then renews for an absurd $48 PER YEAR! You can purchase this highly rated surge protector that costs less than the “protection cost” AND includes up to $200,000 of Belkin Lifetime Warranty protection.
All the above insurances are not only overpriced, but are often included in your disability coverage, life insurance, and health insurance with much more coverage and much less hidden expense. Even plans for things like automobile service contracts or warranties on appliances and electronics are liable to add up over a long period of time and can be saved. Be sure to check your automobile contracts, mortgages, and credit card statements. If you find any of these listed there, you’ll be able to remove them and receive easy refunds instead of continuing to pay for something you don’t need.
Of course, there’s an important caveat to all this: Any or some insurance is better than none at all. If for health reasons you’re deemed completely uninsurable, you might have to bear with the high pricing of some of these in order to maximize the insurance you get, as they are generally available to anyone. While they might be expensive, they’re better than nothing if it means shoring up financial security for you and your family.