Insurance is a useful tool to cover risks, if applied wisely. If not, then it is the equivalent of throwing your money away. Even worse than throwing your money away, these frivolous insurance policies can leave you with a false sense of security.
Less useful policies tend to offer very narrow single-purpose coverage, overlap with existing insurance policies, or have virtually non-existent chances of occurring (such as the proverbial tidal wave insurance in Kansas). Here are five examples:
- Life Insurance For Children – From a payout standpoint, it does not make much sense to buy life insurance for your child. There are no dependents that require support or assets to protect for heirs.
The only reason to buy life insurance for a child would be a whole life policy that your child can take over when they come of age. Then, later in life, he or she will probably be able to pay the premiums out of the built-up cash value. Even so, there are more cost-efficient ways to handle life insurance coverage.
- Credit Card Insurance – Your liability is already limited by Federal Law to $50 for theft and fraudulent use of your credit card. Other types of credit card insurance pay off your bill in case of death or disability, replace damaged or stolen items purchased with the card, and cover your minimum payments for some time in case of job layoff. These usually come with restrictions that make claims difficult to file, and are often covered under different kinds of insurance.
Besides, your money is better spent applied to paying down your card balance – although it is best never to charge more than you can pay at the end of the month anyway. - Mortgage Life Insurance – These policies are designed to pay off your mortgage if you pass away. While this sounds useful, a good life insurance policy should be able to cover the mortgage if it is handled correctly.
In addition, mortgage life insurance is one of the few policies that actually become less valuable over time, as you make your payments and reduce your overall mortgage amount. It may not be very useful in the earlier stages of your mortgage, but it is downright silly to carry such a policy toward the end of your mortgage term.
- Flight Insurance – Sold everywhere from travel agencies to airport kiosks, these policies pay out if you happen to die while in an airplane. As with mortgage life insurance, your life insurance policy should already cover you in this situation. Even if this were not the case, the risk of death on a commercial flight is absurdly low – far lower than the risk you take on your trip to the airport in a vehicle.
- Rental Car Damage Insurance – After a long trip wedged in the middle airplane seat between two screaming children or sumo wrestlers, you may be too tired to think about declining the inevitable request for rental car damage insurance. Try to summon the energy to do so.
You are most likely covered under your existing auto insurance, your credit card, or both. Many major brand credit cards contain rental car coverage as one of the perks. However, it is probably worth double-checking with your credit card issuer and auto insurer just to verify the coverage – there may be some fees that are not covered.
Make sure you know what you want to do before you arrive at the counter, because your fatigue could be worse on the next trip.
The only reason to buy optional insurance is to be compensated if a worst-case scenario occurs. Make sure that the insurance you’re paying for will pay you at the end.