Don’t Waste Your Time (or Money) with These 8 Types of Insurance

Should Fido have his own insurance?

My Insurance Buying Guide is now up! You can access it in the header at the top of any page.

It’s impossible to insure ourselves against every type of risk we’ll face in life. Even if we could, when it’s over we’d be broke. Learning which risks to accept will help your sanity and your wallet at the same time.

Last week I covered 5 types of insurance that make sense for most people. This time I have 8 types of insurance to avoid:

Extended warranties

Retailers like to sell this stuff like hotcakes on everything from digital cameras to office chairs. In fact, this is probably the insurance type you’ll be sold most often on this list. When should you buy an extended warranty? Never. The payout is generally between 9 and 12 cents on the dollar, meaning that for every dollar you pay into these policies you’ll get 9-12 cents in benefits. The other 88-91 cents lines the pockets of the salesperson.

Some people argue that extended warranties make sense for electronic gadgets. But new technology causes electronics to depreciate rapidly, so in the unlikely event your gadget breaks a couple years down the road you’re better off paying out of your own pocket to repair or replace it.

Life insurance for kids

I cringe when I hear about people who waste money buying life insurance on their kids. The purpose of life insurance is to provide a financial benefit to your dependent survivors in the event of your death. Nobody depends on your kids for income, so they don’t need life insurance.

Credit card payment protection

This insurance will make the minimum payment on your credit card if you lose your job, get sick or injured, or die. The cost is based on your balance – the higher your balance the higher the premium. As an alternative, get disability insurance which covers your minimum payments. Building an emergency fund is also a good strategy.

I’ve heard of credit card companies adding this garbage automatically to peoples’ bills each month. So check your statements to make sure you aren’t being charged.

ID theft insurance

Buying insurance to protect yourself from identity theft is reactive. ID theft insurance doesn’t protect you from becoming a victim – it simply pays for some of your expenses (legal fees and mailing letters to creditors) after you’ve become a victim.

But you want to be proactive. There’s a better way to protect yourself, and that’s freezing your credit files. This prevents anybody from applying for credit as if they’re you, and is the best thing you can do to prevent ID theft. It’s easy to do online and costs very little ($30 or less; free in some states).

Cell phone insurance

These policies are supposed to protect you if your phone is lost, stolen or broken. You pay a deductible (usually $50 or $100) and get a second-rate phone to use in place of your original one. The cost? About $5 to $7 a month. The problem is these policies have so many limitations that it’s difficult to make a claim. Most won’t cover you if there’s water damage, for example.

Unless you’re extremely accident-prone, this insurance is unlikely to be useful to you. Most smartphones come with a warranty, so check that first.

Pet insurance

Unless your pet is older and goes to the vet several times a year, skip this insurance. Instead, put the money you would have paid for premiums into a savings account to use if your pet needs treatment.

Home warranties

Home warranties supposedly give you peace of mind if your appliances break and need expensive repair. The typical policy costs $500 a year plus a deductible. But companies that sell this junk think up all sorts of reasons to deny you coverage, and they are notoriously difficult to deal with. You’re only allowed to use their contractors, who may not be able to schedule you in for weeks. Instead, start a home repair fund and give yourself the flexibility to find the best person for the job.

Mortgage life insurance

This is designed to pay your mortgage payment if you die or become disabled. But do you know what banks call it behind our backs? “Croak and choke” insurance. Like credit card payment protection, it only protects the bank. Make sure you have adequate life insurance and disability insurance to cover your mortgage.

Photo by jmpetresort.com

2 thoughts on “Don’t Waste Your Time (or Money) with These 8 Types of Insurance

  1. I agree with everything besides pet insurance- I wrote a post on that a few months back. Depending on the breed, sometimes it’s necessary. My mom didn’t buy it for her bulldog, and she’s spent over $2000 in vet bills in the year and a half since they got her because of the breed’s health problems (and an accident where she tore her ACL). For most mixed breeds it isn’t necessary though. It’s a matter of researching the possible health issues.

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