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Top 10 Useless Insurance Policies

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.

  • Cancer Insurance

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.

  • Cell Phone Coverage

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.

  • Credit Card Insurance

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.

  • Extended Warranties

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.

  • Identity Theft Insurance

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)

  • Mortgage Insurance

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.

  • Pet Insurance

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.

  • Rental Car Insurance

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.

5 Ways Insurance Supports the Economy

Insurance affects everything, and everything affects insurance. It is generally understood that insurance allows those who participate in the economy to produce goods and services without the paralyzing fear that some adverse incident could leave them destitute or unable to function. However, few people are aware of the extraordinary impact the industry has on state, local and national economies. Here are five ways that happens:

Driving Economic Progress

The insurance industry is a major U.S. employer, providing some 2.6 million jobs, according to the Current Population Survey from the U.S. Department of Labor.

Insurers contribute more than $413 billion to the nation’s gross domestic product.

In 2013, property/casualty insurers and life insurers incurred federal and foreign taxes of about $20.6 billion. Insurance companies, including life/health and property/casualty companies, paid $17.4 billion in premium taxes to the 50 states in 2013, or about 2% of all state taxes.

Investing in Capital Markets

Insurance companies also help support the economy by investing the funds they collect for providing insurance protection. The industry’s financial assets were about $6 trillion in 2013, including $1.2 trillion for the property/casualty sector and $4.7 trillion for the life sector.

In 2013 alone, property/casualty insurers’ holdings in municipal bonds totaled $326 billion, according to the Federal Reserve. Life insurers held $1.8 trillion in corporate stocks and $2.2 trillion in corporate and foreign bonds in 2013, according to the Federal Reserve.

Supporting Resiliency and Disaster Recovery

Property/casualty insurers covered $35 billion in catastrophe losses in the U.S. in 2012 and $12.9 billion in 2013, according to the Property Claim Services (PCS) division of Verisk.

Supporting Businesses, Workers, Communities

Property/casualty insurers pay out billions of dollars each year to settle claims.  Many of the payments go to local businesses, such as auto repair companies, enabling them to provide jobs and pay taxes that support the local economy.

Life insurance benefits and claims totaled $586 billion in 2013, including life insurance death benefits, annuity benefits, disability benefits and other payouts. The largest payout, $249 billion, was for surrender benefits and withdrawals from life insurance contracts made to policyholders who terminated their policies early or withdrew cash from their policies.

Empowering Lenders

Specialized insurance products protect lenders and borrowers, shielding businesses such as exporters from customer defaults and facilitating the financing of mortgages and other transactions. These products include credit insurance for short-term receivables.

Credit insurance protects merchants, exporters, manufacturers and other businesses from losses or damages resulting from the nonpayment of debts owed them for goods and services provided in the normal course of business. Credit insurance facilitates financing, enabling insured companies to get better credit terms from banks.

For the full report from which this article is adapted, click here.