Certainly some forms of insurance like health, home, auto, life or long-term disability coverage are probably necessary components to your wellbeing and security. But many people fall victim to fear or slick salesmanship to be convinced of the need to purchase some kind of special insurance coverage that is redundant, unnecessary, impractical or downright wasteful. It sounds good at the time, but in reality many insurance policies cost too much, have an unrealistic deductible or are simply frivolous coverage. You have to ask yourself in each case what the loss ratio is based upon each dollar of premium versus dollars paid for claims. For example, various kinds of credit insurance typically pay out 10 to 15 cents on the dollar versus auto insurance that typically pays out 80% to 85% of premium dollars.
See also: The Most Effective Insurance Policy
Here are my picks for the top 10 most useless insurance policies in alphabetic order:
- Accidental Death Insurance
If you need life insurance, buy an amount that you deem necessary to cover you for all the ways you could die accidentally whether it’s by accident, disease, assault or old age. Accidental death insurance is often referred to as Las Vegas coverage – like a bonus to your heirs if you die in car crashes. Your heirs may have a civil negligence lawsuit to pursue in such cases anyway.
Dreaded disease insurance policies like this cover you only if you die from one or more specific diseases. This is like playing specific numbers on the roulette wheel. Buy a term life insurance policy that covers you for the widest range in causes of death.
New cell phones come with a manufacturer’s warranty covering defects or malfunctions. Consumer groups don’t recommend buying this monthly supplemental coverage due to consumer complaints including “fine print” exclusions, hidden deductible fees and refurbished replacement phones.
By law, most credit card fraud losses are capped at $50 per card with prompt notification, and most banks or credit unions have a zero-liability limit of stolen credit cards. Review your monthly statements regularly. Furthermore, the insurance schemes that offer to pay off of your credit card “balance owed” due to disability or death is better avoided, in favor of a traditional long term disability or life insurance policy.
These “policies” are often sold as a scare tactic that typically provides additional commissions or spiffs to retail sales people. Who can remember which items you bought such coverage for and until when? Why buy an extended warranty from a reputable retailer or manufacturer that should provide a reasonable warranty to begin with? Moreover, with the pace of technological changes, most consumer products, whether appliances or electronics, are greatly improved or less expensive after two to three years.
- Homeowner’s Scheduled Property Insurance
Review your homeowner’s insurance policy carefully as most policies include overall personal property losses in an amount shown as a percentage of the value of the insured home. Singling out valuables as scheduled items, such as jewelry or fine art, typically requires appraisal and documentation, to be worthwhile. Furthermore, such items are often underinsured over time due to the fact you have to periodically purchase higher specific coverage limits for each scheduled item that may appreciate in value.
Federal protections can leave you paying little to nothing if your identity is stolen. Regulators have slapped the ID protection industry several times for deceptive marketing practices. Furthermore, most stolen name, birth dates or Social Security numbers are used to open new credit card accounts or to file a bogus tax return in your name to get a refund. 80% of stolen identities involve credit card fraud or check forgery.
See also: Insurance at a Tipping Point (Part 1)
Private mortgage insurance uses the same sales approach as credit card or dreaded disease life insurance policies. Unless PMI is required by the lender (when you put less than 20% down on purchase), buy adequate term life insurance to cover these kinds of financial obligations. The only exceptions may occur if you are unable to obtain life insurance due to age or illness and want to ensure that your property’s mortgage is paid off at your death.
This often cost more overall than it will pay out due to various terms and conditions as well as exclusions, including inconveniently located designated veterinarians or clinics. Explore any nearby veterinarian universities as well for excellent low-cost medical treatment options.
In most cases, this coverage is provided by other sources such as your own auto insurance carrier, your credit card company or your employer, if you are on business.