Life
Insurance policies you do not need
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Fear of the future sells insurance. Because we can’t predict the future, we want to be ready to cover our financial needs if, or when, something bad happens. Insurance companies understand this fear and offer a variety of insurance policies designed to protect us from a host of calamities that range from disability to disease and everything in between. While none of us wants anything bad to happen, many of the potential catastrophes that happen in our lives are not worth insuring against. In this article, we’ll take you through 15 policies that you’re probably better off without.
1. Private Mortgage Insurance
The infamous private mortgage insurance (PMI) is well known to homeowners because it increases the amount of their monthly mortgage payments. PMI is an insurance policy that protects the lender against loss when lending to a higher-risk borrower. The borrower pays for this insurance but derives no benefit. Fortunately, there are several ways to avoid paying for this unnecessary policy. PMI is required if you purchase a home with a down payment of less than 20 percent of the home’s value. The small down payment is viewed as putting you at risk of defaulting on the loan. Put down at least 20 percent and the PMI requirement goes away. Alternatively, you can put down 10 percent and take out two loans, one for 80 percent of the sale price of the property and one for 10 percent, although interests rates can prevent the economics of this maneuver from working out in the homeowner’s favor.
2. Extended Warranties
Extended warranties are available on a host of appliances and electronics. From a consumer’s perspective, they are rarely used, particularly on small items such as DVD players and radios. If you purchase a reputable, brand-name product, you can be fairly certain it will work as advertised and that the extended warranty is statistically likely to be unnecessary. If you spend US$5,000 on a giant, flat-screen television, the policy is still unlikely to pay off, but might make you feel better. For everything else, forget it.
3. Automobile Collision
Collision insurance is designed to cover the cost of repairs to your vehicle if you are involved in an accident. If you have a loan out on the car, the loan issuer is likely to require that you have collision insurance. If your car is paid off, collision is optional; therefore, if you have enough money in the bank to cover the cost of a new car, collision insurance may be an unnecessary expense. This is particularly true if you are driving an old car, because cars depreciate so quickly that many vehicles are worth only a fraction of their purchase price by the time the loan is paid in full.
4. Rental Car Insurance
Most auto insurance policies offer additional coverage for the cost of car rentals, touting it as a useful feature if your car is ever involved in an accident and needs to spend some time in the repair shop. This may sound like a good idea, but in reality, most people rarely rent a car, and when they do, the cost is relatively low and hardly worth insuring against. Although rental car insurance is relatively inexpensive, amortized over the course of a lifetime you are still likely to spend far more than you will benefit.
