7 Insurance Policies You Shouldn’t Waste Money On

Have you ever stopped to think about how many types of insurance are available? You can get coverage for virtually any situation you can envision. Some forms of insurance are valuable and necessary. Others seem to be simply another way to spend money that could be better spent on the necessities of everyday living. As a responsible person, you’re determined to protect your family, but with so many insurance policy options it’s hard to pin down what’s essential and what’s superfluous. With any type of insurance policy, you’re paying a small amount up front to make sure you’re protected in case a problem arises. If it does, your insurance kicks in and you breathe a sigh of relief. However, in a lot of cases you’d probably be further ahead putting your money in a savings account. Following are seven insurance policies you shouldn’t waste money on.

Ballard's
Creative Commons License photo credit: MGShelton

Unemployment Insurance

Not to be confused with unemployment compensation, which is a government program that pays a portion of a person’s regular earnings when they are out of work, unemployment insurance is a private insurance policy you could take out that would make minimum payments on your bills while you’re not working. On the surface that may seem like a reasonable choice, but unless you’re self-employed, it’s more than likely a redundant policy.

Credit Card Insurance

Many people who take out credit card insurance believe the policy will protect them by paying off their credit debt entirely in the event they’re unable to meet their financial obligations. That isn’t true, and unfortunately a lot of people have found that out the hard way. Credit card insurance will generally pay only a portion of your monthly bill, usually the minimum amount that is due. The bulk of the debt remains on the books as interest builds, and there are a lot of limitations on exactly what the insurance covers and what it doesn’t. You may be far better off to put the money for the credit card insurance premium towards paying down your outstanding credit card debt.

Flood Insurance

Unless you actually live in a designated flood plain, where flood insurance is required, you will probably never need to be concerned about flooding. Of course there’s always the possibility of an unprecedented natural disaster, but chances are you’ll simply be spending money that could be used for something else.

Children’s Life Insurance

Since your child’s health and welfare are among your primary concerns, you want to make sure you supply them with everything they need. Life insurance isn’t among their needs, because a life insurance policy is designed to provide financial protection for an heir or dependents. In the case of a child, having an heir shouldn’t be a concern. Instead, put that money aside for their future education.

Rental Car Insurance

Paying for rental car insurance is usually a waste of money because your regular automobile insurance policy usually covers rental cars. Even if it doesn’t, or provides only minimum coverage, you will undoubtedly use a credit card for your rental car. In most cases your credit card company will provide rental car insurance for no additional charge.

Mortgage Life Insurance

This type of insurance is designed to pay off your mortgage in case you pass away. It would give your dependents the peace of mind of not having to worry about paying off the mortgage. In most cases you would be better off buying a term life insurance policy with a big enough payout to cover the mortgage and provide for your family’s future. Instead of making two payments that would essentially cover the same thing, consider paying a few dollars more a month on the term policy.

Extended Warranties

In the opinion of a lot of people, an extended warranty is nothing more than a complete waste of money. If you purchase a quality item in the first place, you can be relatively certain the warranty that’s included will be sufficient. If you’re truly concerned the DVD player or HDTV you purchased will give up the ghost immediately after the manufacturer’s warranty expires, you’d probably be better off if you put a little bit of money aside each month to cover the cost of repairing or replacing the items rather than relying on the extended warranty.

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Comments

  1. says

    I wish we could get flood insurance. We live in a flood plain and since we have had flooding you can no longer get flood insurance. It really sucks.

  2. Jon S says

    It may make sense to have life insurance on a child if a parent or guardian cosigns or guarantees a loan for a child such as student loans.

  3. says

    I never knew that credit card insurance only paid the minimum of your bill if you lose your job or become disabled, etc.. while building interest builds. That’s good to know; however, I have cut up my credit cards to avoid unnecessary debt and any risks such as finding this out too late. Thank you for the article!

  4. says

    Life insurance on a child can make sense. Many parents find themselves devastated after the loss of a child, sometimes to the point they can no longer work. Life insurance would take the pressure off of having to work a straight 40 while coping with the largest loss of your life. It would pay bills, pay for counseling sessions, etc.

  5. Mark says

    Flood insurance can make sense for those not on a flood plain because of the nature of what insurance companies call “flood damage”. As an example: I live on a small hill nowhere near a flood prone area however I had the misfortune of having the sewer system backup into my finished basement. Because we did not have flood insurance the insurance company would not cover the damage…lucky for me it was the fault of the town and they paid the bill but I made sure to add flood insurance to my policy in case it ever happens again.

  6. says

    I really liked this article, Jessie! I agree with all of your examples except the last one where I have to quibble — but just a bit! While extended warranties are more often than not a bad deal, there are certain times it really *does* make sense to buy them — even for electronics on rare occasion; it all depends on individual circumstances. The trick is to think about whether you really need one *before* you get to the checkout stand, where you may be pressured or tempted to make a wrong and hasty decision.

    All the best,

    Len
    Len Penzo dot Com

  7. Reggie says

    The best time to buy life insurance is when someone is young. I have seen people become uninsurable as young as 10 when diagnosed with juvenile diabetes. It will never be cheaper, you will NEVER pay the face value into the policy and whole life policies build dividends with interest rates higher than you will find anywhere. I can’t imagine why everyone wouldn’t buy life insurance on their children or grandchildren. Just my two cents.

  8. Matthew says

    I can understand your point about not a child not having heirs to leave money to and unless your son or daughter is a child actor, you’re probably not relying on their income for your family. That said, a small amount of insurance to cover final expenses doesn’t seem to be an outrageous thing to me. The purpose of any insurance is to protect against unexpected and financially costly events in our lives. We have a small amount that costs maybe $35 a year and we know that if something terrible happens, we won’t have to worry about that particular aspect of things. A previous comment also addresses the ‘future-insurability’ aspect of buying coverage for a child and I believe that’s a legitimate benefit of coverage.

    I wouldn’t devote a lot of resources to life insurance for a child but I disagree with your premise that it’s a total waste.

  9. Chris says

    Seems to me that buying whole life insurance at a young age would allow you to purchase a much smaller policy and use the dividend reinvestment option to buy more insurance as years pass.

    • says

      That could be extremely wise Chris! Especially if the person of young age is in good health, prices don’t tend to increase until low to mid 30′s! Although, it varies.

      • Chris says

        i’m planning to buy a 20 pay participating policy for my soon to be born child. $30/month for 20 years gets me a $25,000 to start that will always be there and can be passed on to them when they are older. After the 20 years the policy is ‘paid up’ and requires no further investment. All dividends will be reinvested in paid up additions which grow the size of the cash value of the policy (which results in more dividends) and the size of the death benefit. I’m able to start the policy 2 weeks after birth, so my kid will never have an issue qualifying for insurance. You never know what the future has in store for us.

        • says

          Chris we defined “young age” differently. I’ve got some thoughts on what may be a better use of your money if you’re interested in a short dialogue. Give me a call and we can discuss the good and bad of your current plan. Call and ask for Don – 678-715-9671

  10. maddie says

    Miss T. – I live on a hundred year flood plain and am required by my mortgage to have flood insurance. That policy costs $981 a year. I wish I DIDN’T have it–between the seemingly endless droughts and the farmers sucking the aquifer dry and the distance between my house and the piddly little river…well, it seems excessive. And, like so many insurances, the deductible is high. I get the feeling those of us who are required to carry policies are subsidizing those who should have policies. Heck, I pay more in rural California than residents in New Orleans pay for flood insurance. Figure that out!

  11. says

    Flooding is the second most common natural disaster in the United States, costing Americans an average of $4 Billion each year. Even if you are not deemed to be in a flood zone, the endorsement is of value.

    More than 25% of flood insurance claims came from areas that weren’t in a flood zone.

    You may be fine without the coverage, but the risk is very real and home flood insurance shouldn’t be considered a waste of money!

  12. says

    In some case of Children`s Life Policies, the future premium is waived and paid by the company, if something happens to the parents. I do not think, you should avoid these policies. Yup, there are better ways of investment like Term Insurance +MF, still you can not completely ignore it.

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