You know that insurance is a
necessity in some cases. By law, you are required to purchase car
insurance, and health insurance can protect against major (and possibly
financially devastating) health problems and costs.
Other types of insurance, like life and
disability, can be very helpful in securing your family’s future,
depending on your particular situation. However, there are plenty of
folks out there ready to sell you insurance that you might not actually
need. While you might gain some protection from these types of
insurance, they may be wholly unnecessary. Here are 5 types of insurance
to think twice about:
1. Mortgage Life Insurance
There are some insurance agents that will
try to convince you that you need mortgage life insurance. This is life
insurance designed to pay off your mortgage if you die before the
mortgage terms are fulfilled. Of course, your regular life insurance
policy will do that as well. Instead of getting a separate life
insurance for your mortgage, make sure that your regular life insurance
coverage is adequate to pay off your mortgage.
Do not mix mortgage life insurance with
private mortgage insurance (PMI). If you do not have 20% for your down
payment, you will probably have to buy PMI to help protect the lender in
the event that you default.
2. Identity Theft Insurance
Because identity theft is such a fast
growing crime, many people are concerned about it. And they should be.
You do need to keep tabs on what is happening with your accounts and
your credit report in order to watch for identity theft. You can set up
security flags on your reports, making it difficult for credit accounts
to be opened in your name. Identity theft insurance can’t actually do
something for you that you can’t do for yourself — free of charge. It
may require some of your time, but paying for this type of insurance is
not required to get adequate protection.
3. Cancer Insurance
My uncle is one of the healthiest people I know, the
poster boy for wholesome living. If he can end up with cancer (and he
had two bouts), anyone can. However, that doesn’t mean that you should
buy cancer insurance. First of all, having cancer insurance can void
some of the coverage in your regular health policy. Second, you need to
be aware that many cancer insurance policies have loopholes in them,
which can prevent a payout. Instead of shelling out for specific disease
coverage, double check your health insurance policy. Make sure it is
adequate for hospitalizations.
Also to avoid: stroke insurance and heart
attack insurance. Like cancer insurance, these types of insurance are
unnecessary, and the conditions likely already covered by your
comprehensive health policy.
4. Payment protection on your credit card
The idea is that if you cannot make your
credit card payments due to death, job loss, illness or disability, this
protection will make minimum payments for you, until the issue can be
resolved. However, it is important to note that certain conditions
always apply — and the protection can get pricey since it is based on
your credit card balance.
Instead of relying on payment protection,
consider a disability policy that includes debt payments. Life
insurance policies should have enough coverage to pay off any credit
card debt you have (in addition to the mortgage). You can also build an
emergency fund to help you prepare for these situations.
5. Collision coverage on older cars
You have to have some sort of auto
insurance in every state (usually liability, so that you can cover
damage you do to property and people). However, once your car gets
older, and has declined sufficiently in value, it might not be worth it
to have collision coverage. Indeed, you will only get what your car is
worth according to a formula, no matter what sort of damage is done.
So do the math. Does the premium for your
collision coverage cost too much for what you could potentially get
from the insurance? Your policy should break down what each portion of
your coverage costs, so you can decide whether comprehensive coverage on
your old car is worth it as well. Set aside money in an emergency fund
to cover costs, or to use toward another car, just in case.
Of course, whether insurance is worth the
money is all based on your unique situation. Do you need the peace of
mind that any changes in your credit report will be flagged
automatically for you? Or can you monitor such things yourself? Just
make sure you know what you are getting for your money before you
blindly pony up your hard earned cash.
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