You Can Skip These 7 Types of Insurance (and Save Money)
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Insurance is one of those facts of life. In many cases, you need insurance to protect yourself from the unexpected. By paying small premiums, you can avoid big expenses down the road when a catastrophe happens.
However, although insurance is an important part of asset protection, not every policy is the right move. Here are seven questions about insurance coverages you may have asked yourself — and why each could be a waste of your hard-earned money.
In this article
- Do I need collision insurance?
- Do I need life insurance for my child?
- Do I need rental car insurance?
- Do I need credit card insurance?
- Do I need wedding insurance?
- Do I need an extended warranty?
- Do I need mortgage life insurance?
- Bottom line
Do I need collision insurance?
Collision insurance is one of the many types of car insurance. With collision insurance, you’re protected if you have an accident that involves another vehicle or an object, such as a tree. If you have collision coverage, your insurance company will pay for your car to be repaired or even replaced, even if the accident is your fault.
But if you’re wondering how to save money on car insurance, one of the easiest ways is to drop collision coverage. This won’t work if your car is leased or if you still have a loan on it. Most companies require you to carry collision and comprehensive car insurance if you have an auto loan or if you’re leasing the car. However, once you’ve paid off your loan, and the car is older, you can reconsider whether you need collision coverage.
Look at how much you’re paying in insurance for your car, and consider how much it would cost to replace the car. Although your state may require you to have liability car insurance coverage, collision isn’t always necessary. If you can replace your car with money from your emergency fund, or if you think that you can get a different car with a relatively low car payment, it might be worth it to drop your collision coverage and save some money.
Do I need life insurance for my child?
In 2018, about 27.8 million life insurance policies were purchased in the U.S. — some of those were likely purchased for children.
Although life insurance can be a way to help you financially protect your family in the case of your death, there are very few instances in which life insurance on a child makes sense. Because life insurance is about overall financial protection for the family, a policy for a child might not be the best use of money. Unless your child is bringing in a significant portion of your household income, life insurance might not make sense.
Instead, if you’re worried about funeral expenses for the unexpected death of a child, consider adding a life insurance rider to your own policy to cover the death of the child. I have a rider on my policy designed to help offset costs if my son dies. I hope he doesn’t, of course, but the rider is much less expensive than a separate child life insurance policy and will cover what I need it to.
Another exception is if your child has health issues that might impact their ability to get life insurance later. If you get life insurance for them early on, and then pass the policy payments to them when they reach adulthood, they can maintain that coverage. However, most people are able to get affordable life insurance when they’re in their early twenties.
Do I need rental car insurance?
When you rent a car while on vacation, you’ll be asked whether you want to pay for insurance on the car. It might seem like a good idea. After all, what if you make a mistake and wreck the car while driving it? You don’t want to be on the hook for the price of replacing the rental car. The good news is that you might not need rental car insurance.
First, check your own auto insurance policy. In many cases, you’ll get the same coverage, even when driving a rental car. Contact your insurer directly if you’re not clear on what your existing policy covers.
Next, check your credit card benefits. Some credit card issuers offer rental car insurance. At least, you can often get coverage for damage to the car. For example, maybe you’ve dropped collision coverage from your own auto insurance policy, but you want collision coverage in the event of a wreck in your rental car. One of your credit cards might cover this as long as you turn down the rental company’s insurance. You do need to reserve and pay for the rental with this specific credit card in order to get the insurance coverage benefit.
So before you pay for unnecessary car rental insurance, check to see whether you have coverage from other sources first.
Do I need credit card insurance?
Some credit cards offer the option of purchasing balance protection. This protects you in the case of various life events that prevent you from paying your balance or making payments. For example, if you have balance protection insurance from your credit card when you die, your estate won’t have to pay off your balance — it’s already covered. Additionally, credit card insurance can also make payments on your behalf if you lose your job.
In general, the cost of this insurance is based on your outstanding credit card balance. For example, you might pay 99 cents for every $100 of your balance each month. So, if you have a balance of $2,000, you’d pay $19.80 for your insurance that month. You’d also pay applicable taxes on top of the insurance cost.
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You probably don’t need this insurance if you have the right amount of life insurance. Your life insurance policy will pay off your balances. Additionally, if you run into hardship, many credit card issuers have forbearance options and can set up payment plans for you without charging you a monthly fee. For example, during the coronavirus pandemic, credit card issuers have been helping customers with their payments.
Do I need wedding insurance?
Wedding insurance is designed to cover you if the big day has to be postponed or canceled. After all, most people spend a lot of time saving up for a wedding, so it’s enticing to protect your money and effort.
And with the COVID-19 pandemic on everyone’s mind, many people might think this is a good time to have wedding insurance. However, if you read some of these policies, you’ll find that family emergencies and bad weather might be covered, but global pandemics are not.
Some venues require you to get liability insurance for special events, such as weddings, so you might have to spring for liability insurance regardless, just in case someone is injured during your celebration. However, the type of insurance that covers cancelation or postponement might not be necessary.
Instead of getting this insurance, consider asking about the cancellation policies of the venue and vendors. With vendors, such as those that provide flowers and food, you might be able to work out a credit if you still use their services at a later date. For the venue, find out when you need to cancel without losing your deposit. Also, weigh the cost of the insurance against the non-refundable deposit. You might come out ahead by just losing the deposit rather than buying the insurance.
Do I need an extended warranty?
Many products come with manufacturer warranties that protect the item for a set amount of time. If the product breaks during that time (due to manufacturer defaults, not to accident or loss), you can get it repaired or replaced.
An extended warranty is designed to go beyond the standard manufacturer’s warranty. For example, you might buy a small appliance with a one-year warranty and then be presented with the option to get three-year protection for an additional cost.
In many cases, though, paying for an extended warranty is unnecessary. First, most serious problems with a product will be exposed during the regular warranty period, especially if you regularly use the item. Next, many credit cards offer extended warranty protection. Check your card benefits to see whether you get extra coverage when you buy an item with that card. You might discover your credit card already adds an extra year to the manufacturer’s warranty. This is what makes some credit cards good for making large purchases.
Be especially wary of anyone who calls you offering an extended warranty long after the purchase of the item. In many cases, you could find yourself subject to high-pressure sales tactics to buy something that is overpriced and ineffective.
Do I need mortgage life insurance?
Mortgage life insurance is a separate life insurance policy designed to pay off your mortgage if you die before the mortgage is paid off. It seems like it might be a smart idea, especially if you have an expensive house. However, the reality is it could be completely unnecessary.
For the most part, the way that life insurance works is that it is designed to pay off any debts you have. Rather than getting a separate mortgage life insurance policy, it makes more sense to review your overall life insurance needs and just buy adequate coverage. In many cases, it’s possible to buy an affordable term life insurance policy large enough to pay off all your debts, including the mortgage.
The added benefit to using a regular policy instead of relying on a separate mortgage policy is that your life insurance beneficiaries will get the extra if you pass on later, when the mortgage is smaller or even gone. But because mortgage insurance is tied to the mortgage, your beneficiaries might not get anything after the mortgage is paid off.
There are many types of insurance coverages. Many policies, such as homeowners and car insurance, can help you avoid financial ruin if something major happens to destroy an expensive asset. Some insurance, like life insurance, is about providing financial security to your family after you’re gone. Knowing these expenses are covered can offer peace of mind.
However, there are other policies that are little more than a waste of money. Depending on your situation, your existing insurance coverage might be sufficient or you might even be able to self-insure by building up an emergency fund. The right insurance is a smart move that can help you make the most of your money, so shop around and make sure you get the appropriate coverage for your individual situation.
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