Insurance to Avoid
Not every product that is offered by the insurance industry is needed
by consumers. This is true is spite of the fact that they may have come
into existence because people keep purchasing these products. This chapter
goes through several types of policies that are now available and gives
you specific advice as to whether or not you should consider them.
Mortgage Insurance
Mortgage insurance is really decreasing term insurance. With each
passing year the benefit decreases as the underlying mortgage decreases
but the premium remains the same because the age(s) of the insured(s)
increases. Generally, the cost of mortgage insurance is higher than the
cost of regular term insurance or even decreasing term insurance.
An additional question of the value of mortgage insurance emerges at
the death of the insured. Is it always in the best interest of the
beneficiary that the mortgage be paid off? There are tax advantages to
having a mortgage and the interest rate on the mortgage will probably be
lower than the rate of return would be on a lump sum insurance settlement.
You may want to invest the proceeds from an insurance policy (at a
favorable rate of return) and not pay off a mortgage (at a low rate of
interest).
Bottom line: have in place the needed life insurance coverage for each
person in the family and don’t worry about mortgage insurance.
Flight Insurance
This insurance covers you during the time that you are flying on a
commercial airline. The real question that needs to be addressed at this
point is not whether you feel safe or not on an airplane but whether the
financial needs of your family will be greater if you die in a plane crash
as opposed to dying in some other way. This, as well as the fact that
flight insurance is very expensive when you look at the length of time you
are actually insured, means that you should not purchase this kind of
insurance.
Have in place a life insurance policy that protects your dependents
regardless of how you happen to die and don’t worry about flight
insurance. Many credit card companies provide “free” life insurance if you
charge the flight to your account and I would recommend that you take
advantage of that provision and leave it at that.
Car Rental Insurance
You need to be covered when you rent an automobile. You will be offered
a policy at the time that you rent a car and it would be helpful to know
at that point if the automobile insurance that you have covers you when
you rent. If it does, don’t worry about the implications of declining
coverage. If you are not covered by your automobile policy, contact your
agent and have it added. It will be much cheaper than buying insurance at
a time when you are renting an automobile.
Cancer Insurance
It does not make sense to buy medical coverage for specific illnesses.
You need to have in place a medical policy that covers you and your family
regardless of how you happen to become ill. It may seem like a good deal
but you are much better off to put your premium dollars to work with a
complete health care policy.
Repair Insurance
After convincing you that you have just purchased the best product on
the market, salespersons now tell you that it may break down in the near
future and that you need to buy an insurance policy to protect yourself
from the cost of repairs. Budget for furniture and appliances. Set aside
what you do not spend for that purpose each month and pay for the repairs
out of that fund.
 Pet Health Insurance
Budget for the health needs of your pets out of your current income.
General Guidelines
Not every insurance product offered is something you need to buy.
Assess the chances that something will happen and what the financial
impact will be. Insure against the things that are relatively unlikely to
happen but will cost a lot when they do. Do not insure against things that
are likely to happen but that are relatively inexpensive. Build your
emergency fund and learn to cover unexpected events from there. |
