Three Insurance Policies to Skip

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InsuranceLong time readers of Bargaineering probably recall that I don’t have collision or comprehensive insurance on my car. It’s a decision that paid off with my first car and one that I’ve stuck with on my current car. While it helps that I don’t drive very often (I work from home), it’s a financial risk that I’ve decided to take on and certainly not an insurance policy I recommend you skip.

There are, however, plenty of insurance policies out there that I am comfortable suggesting that you skip. Here are just three of them:

Extended Warranties

You might not think that extended warranties are insurance policies but they are – they protect your products. Are they worth it? They usually are not worth it because you are almost always protected by another means, especially if you pay with a credit card. Many credit cards double the manufacturer’s warranty for up to one year, it’s a feature you’re already paying for.

If you really love extended warranties because you don’t mind paying for peace of mind, don’t buy it at the store. You can almost always buy it from another provider for far less. The general rule of thumb is that you shouldn’t pay more than 15% of your product’s value when buying extended insurance and you should only get it on things that you use a lot or move a lot (like cameras and laptops).

ID Theft Insurance

Identity theft is a big problem nowadays and fixing a case of identity theft can cost you a lot of time and a lot of money, but the solution isn’t in buying identity theft insurance. Identity theft insurance is sold by financial institutions, like your local bank, and by ID theft insurance specialty companies, like Lifelock. In most cases, they are simply doing things you can do yourself for free. My guide on do it yourself identity theft protection can give you a head start.

Mortgage or Credit Card Life Insurance

Some life insurance companies offer a benefit in which they will pay off your mortgage or a credit card balance in the event you die. These insurances are often more expensive than a comparable term life insurance policy, which pays a set dollar amount in the event of your death. I’ve always believed that when it comes to insurance, don’t try to profit or play games – let life insurance cover any outstanding liabilities and make sure your family isn’t put in financial jeopardy.

Are there any other insurance policies you think people should skip?

(Photo: alancleaver)

{ 19 comments, please add your thoughts now! }

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19 Responses to “Three Insurance Policies to Skip”

  1. Wilma says:

    My car is paid for but I’m not brave enough to take collision off my insurance. People drive like idiots. They’re ALWAYS too much in a hurry to stop at red lights or can’t drive the speed limit or they pull out without looking. The playing with the cell phone while driving issue is really out of hand. I would love to go out for a day with a video camera filming some of this stuff making sure to get license plate #s on the video and send the film to every insurance company out there asking them if any of these drivers is on one of your policies. What a great idea for a new reality show.

    The other insurances I’ve never bought. Your right in that they’re a waste of money.

    • Anthony says:

      If someone hits your vehicle, they are liable. With that said, I keep collision on my car, too.

      For a small premium, I protect myself from doing stupid things.

      • Texas Wahoo says:

        “If someone hits your vehicle, they are liable. With that said, I keep collision on my car, too.”

        That’s not very helpful if they don’t have insurance or speed off.

        • Jared says:

          I believe that when the other driver is uninsured/underinsured or does a ‘hit-and-run,’ then Uninsured Motorist coverage would kick in. This is a separate coverage that is usually far cheaper than Collision.

          • Anthony says:

            Agreed. There are other types of coverage for that scenario. Collision is not required if someone else hits you and runs.

          • Texas Wahoo says:

            Uninsured motorist property damage coverage is usually limited to a low number (like 3.5k). So you’ll be covered, but not fully.

  2. Anthony says:

    Good post, Jim!

    I wholeheartedly agree about extended warranties. I *used* to have an extended warranty policy on my cell phone through my provider. Most cell phone manufacturers have a one-year warranty. My cell phone provider gives me a full upgrade every 18 months. Therefore, I’m paying for a warranty that is only good between 12 months and 18 months.

    Mortgage life insurance is definitely a rip-off. The one policy I looked at started at $200,000. The death benefit gradually decreased to $0 after 30 years. The premium was $30/month. It was actually cheaper to get a flat $200,000 30-year. I don’t understand the logic here…

    • billsnider says:

      Consumer Reports always rfecommends skiping extended warranties. If the item is to break, it will happen within a short time after use.

      Bill Snider

  3. In the same vein as the extended warrantied. travel insurance may also be something that can be avoided. Depending on the method of payment, and this is one of the reasons I personally like credit cards, insurance may already be a benefit to the individual.

    The extended warranties are pure profit for the stores, since a majority of the policies never get used (I used to work retail in college so I know first hand since that is what they would tell us).

    I never liked the so called “identity theft protection” rackets. Like you said, Jim, people can protect themselves on their own without spending the ridiculous fees charged by protection and monitoring services. In addition to your list, I have also compiled my own guide to self-protection called Don’t Let Yourself Become a Victim: A (Fairly) Comprehensive Guide to Protecting Your Identity

  4. STRONGside says:

    I recently refinance my mortgage and have been getting offers for mortgage insurance EVERY DAY for the past three weeks. They fool you because they send it in official looking letters from your lender, when they are in fact, only sales ads. Drives me crazy, as I have no intention of buying a policy to cover something my life insurance policy will pay off.

  5. billsnider says:

    I would also add whole life. If you are young and have a family, term gives you more protection.

    Bill Snider

  6. Rob says:

    There are actually two types of “mortgage” life insurance. One is offered by the lenders and the other type is typically universal life that’s planned to be used to cover the mortgage… but can technically be used in any way the beneficiary wants. The lender type is really in the lender’s best interest as they will get the money and pay off the loan they gave you. The latter can be used to pay off the loan, to buy “time” to keep the family in the home by paying the monthly mortgage, or whatever.

    Term and employer based insurance should never EVER be relied on. I speak from personal experience. If you lose your job, you lose your employer’s life insurance benefit. Term is betting that if you die, it will be within the next 10 or 20 years or whatever the term length is.

    The other gotcha with term is that at the end of the term you have nothing. But, you are then older and your chances of having health ailments is now greater (weight, diabetes, cholesterol, etc) which makes you a bigger risk and less insurable.

    In my case, I relied on my employer’s benefit. I began a new family and didn’t think much about life insurance because I was healthy. Then in 2007, at 36 I was diagnosed with cancer. Thankfully I’m in remission now, but no insurance company will touch me. When they will, I can’t even come close to affording the premium.

    I would be in the same boat with term. If my term expired next year, I couldn’t get a new policy at all and there’s no way people can afford the extensions if available.

    There’s a lot of misunderstanding in the insurance biz, which seems to be perpetuated by shady salesmen out to get a quick buck. The best thing to do is to try and find a reputable one to really explain what the options are and the the pros and cons are.

    • Courtney says:

      When you’re older why do you need life insurance anyways? Presumably your mortgage is paid off and your kids are out of the house. A 70-year old living off their investments doesn’t need life insurance. That’s the whole point of term life, to cover you for a term during which someone relies on your income and therefore your income would need to be replaced. Once your income is no longer relevant, then so is the insurance.

  7. freeby50 says:

    Cancer Insurance : You’re better off with just regular health insurance and disability coverage.

    Flight insurance : These are the policies sold for a single airline flight. THe risks of crashing are sooo small that paying for such insurance is like buying a lottery ticket. You should have term life insurance instead.

    Pet Insurance and Home warranties can also be poor deals, but there may be exceptions out there.

  8. Jason says:

    Hehe, I like these although I don’t think that I have the guts to get rid of comprehensive/collision! So many of these policies just play on the publics’ fears of the unknown, and it reminds me that insurance companies will only ever offer an insurance policy if its profitable for them on an actuarial basis.

    @billsnider: Agree on avoiding whole life for most people. No wonder that agents push them since they make ~80% commission on it.

    There are a four other life insurance policies from this list that I’d recommend avoiding too. Mortgage is already mentioned here but some of the others are: cancer, flight accident and accidental death.

  9. Mike says:

    I think in some instances dental insurance can be priced so high that it really isn’t worth the price. I know of families that pay $150/month in premium and only get their two cleanings per year.

  10. cdiver says:

    I don’t buy extended warranties any more but have in the past. I had a tv go bad a month after the manu’s warranty expired, luckly I had the extended warranty/

  11. skylog says:

    thank you. i have hated the “extended warranty” for as long as i have ever heard of the idea.

  12. Vince B says:

    I currently work with a reliable fellow who has taken care of my life insurance, long term care insurance, business succession (my family owns a small business) planning, employee benefits structuring.

    Like everyone else out there, I hated dealing with insurance guys based on the bad taste left in my mouth by those I have almost or actually previously done business with before I met my current insurance advisor.

    I have had nothing but great feedback about him from business partners, family and friends that I referred to him.

    Email me if you want to contact him directly. He is a real standup guy.

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