Seven Types of Insurance That Are Usually a Waste of Money
The choice of insurance coverage is a risk reduction and a bet that a catastrophe will happen (or not happen). Car insurance – at least liability coverage – is mandatory in almost every state , and while homeowner or renter insurance isn’t required by law, your lender or landlord may require it . Health insurance is a profitable investment for many people; you can also buy insurance for your pet, valuables, credit cards, and all sorts of life and death scenarios. But should you?
Whether or not you buy insurance (and how much coverage) depends on your specific needs and risks, and you should evaluate yours before making any decisions, but here are seven types of insurance you can probably skip.
Rental car insurance
Car rental companies will always try to sell you their insurance policies in case you have an accident or otherwise damage your rental car. But if you have auto insurance for your own car, you’re probably already insured , and an extra policy is an unnecessary expense. Many travel credit cards also have car rental insurance as a benefit if you pay with this card.
Of course, check your coverage limits and the fine print of your policy – for example, your U.S. auto insurance may not cover cars rented overseas.
Travel insurance
It’s tempting to add travel protection to an expensive flight, cruise, or hotel booking, and in some cases it can be worth it. But travel insurance has many limitations and exclusions, and you may already be covered for trip interruption, delay, or cancellation, or for lost luggage if you pay for your booking with a Travel Rewards credit card.
If you are traveling domestically, your health insurance may cover any medical expenses that occur while you are away from home, and your homeowner’s or renter’s policy may cover lost or stolen personal items.
Unless you’re traveling the world on a vacation of a lifetime with a complex itinerary and many prepaid and non-refundable activities, travel insurance is probably not needed.
Life insurance
Life insurance is a good investment to replace your income and support your loved ones in the event of your death, but only if you buy the right kind: term life insurance. According to Dave Ramsey , life insurance for life is a scam. Lifetime plans are expensive, confusing, and ultimately don’t offer the value you pay for.
Mortgage life insurance
Mortgage life insurance pays for the remainder of your mortgage if you die. A term life insurance policy offers this coverage and more, so a separate policy for your mortgage may not be worth the investment. Plus, insurance premiums don’t decrease as you pay off the loan (and you still need less coverage at that point).
Critical Illness Insurance
You can get insurance to cover specific—and costly—medical problems, such as heart attack, stroke, cancer, and organ transplants. Although these policies are relatively inexpensive, they are only useful in limited cases , benefits can be limited, and each additional medical condition you want to cover costs more. A good health insurance plan combined with a health savings account and disability insurance (if you are well under 65) may be enough.
Burial insurance
Funeral insurance is a type of life insurance that covers funeral expenses and other expenses after death. Some experts say it’s predation because insurance premiums are expensive compared to benefits paid. A term life insurance policy or end-of-life savings account is probably the best investment for most people.
Extended device warranty and insurance
You can buy an extended warranty – an add-on offered by a retailer – for many home appliances and electronics, but this is usually a waste of money. Many products already have a manufacturer’s warranty, and any decent quality product from a reputable company likely doesn’t need additional coverage. The same goes for insurance policies for your phone or other devices. Typically, you end up paying more for coverage than you would have paid out, and your credit card may actually cover the theft or damage .