Most insurances are designed to protect us from unexpected damages for a small premium. While certain insurances are warranted, there are others that we need to take a closer look at and decide if we really need them. The fear of the unexpected prompts people to sometimes take extra precautions in the form of purchasing additional policies that may be seldom useful. The following is a list of eight insurances that most people can do without.
1. Private Mortgage Insurance
Private Mortgage Insurance (PMI) is required if you purchase a home with down payment of less than 20% of the home’s value. This insurance reimburses the lender if you default on your home loan. Although it sounds like a great idea to buy a home without having to save for a down payment, the cost of PMI insurance averaging around 1.5% to 1% of the entire loan adds a significant chunk to your monthly payments. Additionally, your heirs don’t get any benefit from this should you suddenly die, as the lending institution is the sole beneficiary of this policy. PMI payment amount may not be tax deductible; it is hard to cancel and may take several months to process of cancellation. Saving for the required down payment to avoid PMI insurance is always a better bet.
2. Extended Warranties
Extended warranties are available on almost all appliances and electronics but are rarely used. By purchasing a reputable, brand-name product, you can be fairly certain it will work as expected. By investing a few extra dollars on a branded item, you can avoid the expense of an extended warranty. Besides, most items come with their own warranty for at least a year or sometimes longer.
3. Rental Car Insurance
Some auto insurance policies offer additional coverage for the cost of car rentals. This may sound good, but most people rarely rent cars, and when they do, the cost is relatively low and hardly worth insuring against every month. Rather, it would be a good idea to purchase insurance offered by the car rental company for the duration of the rental. Although adding rental car insurance to your auto policy is relatively inexpensive, you may be paying a significant amount over time. Moreover, most credit card companies offer free rental car insurance if you pay with your card. Check the fine print on your cards to see if you qualify.
4. Flight Insurance Policies
Flight insurance coverage is completely unnecessary. Airline accidents are relatively rare, and your life insurance policy already provides coverage in the event of a catastrophic event. This insurance is also often offered free by most major credit cards. However, do not confuse this insurance with Trip Insurance that can be bought at the time of reservation that will extend coverage for cancellation of the trip for specific unforeseen and covered reasons.
5. Water Line Coverage
Water companies have made an aggressive push to sell policies that cover repairs of the water line that runs from the street to your house. If you live in a newer home, the odds are in your favor and you will never use this coverage. For this reason, this is one such policy that you can entirely do without.
6. Life Insurance for Children
Life insurance is intended to provide a safety net for your heirs/dependents. Because children don’t have heirs and are generally expected to have a safe and healthy long life, purchasing a life insurance policy for the kids is unnecessary. This money can be better used to fund a college or put away towards retirement, both of which will help in the future. Check out Damon Levine’s Blog on Life insurance and Annuities on InsuredMine.
7. Flood Insurance Policies
Before you decide to buy a flood insurance policy, you should check to see if your home is within the flood hazard map that outlines flood risk areas. Unless you live in a flood plain or an area with a prior history of water problems, you don’t need to buy flood insurance. However, it is important to note that your typical home insurance policy does not cover flood damages.
8. Credit Card Insurance
It is a waste of money to purchase coverage to pay your credit card bill in the event you cannot pay it on time. A far better idea is to cultivate the financial discipline to avoid running up your credit cards. You will not only save on the premiums for this unnecessary policy, you’ll also save the interest on your credit card debt.
Being insured protects you from the unexpected, but purchasing policies that are never used or having redundant coverage for the same things is a waste of money. Insurance companies and insurance agents try to do all they can to sell a variety of policies. But as an empowered consumer, it is your responsibility to know the pros and cons of purchasing any policy. With useful tips and help from our informational blogs, you will be able to make better choices for your family and property.