Top 6 Insurance Policies You Probably Don't Need

Insurance policies are designed to protect consumers from devastating loss. The idea with auto, health, home, and life insurance is to pay a little bit now to avoid paying a lot later. For some policies, the opposite is true and many consumers may find themselves paying a lot now for very little in return. Here are six insurance policies you might want to avoid.

1. Private Mortgage Insurance

To anyone who has ever purchased a home, the game of private mortgage insurance is well known. Private mortgage insurance (PMI) is an insurance policy that protects the lender against loss when lending to a higher-risk borrower. This insurance is required for buyers who don’t put twenty percent down, but if you put at least twenty percent as a down payment this insurance can be avoided. Providing a small down payment shows the lender you are at risk of defaulting on the loan and PMI is required. The best way to avoid this, even if you don’t have twenty percent in cash is to put down 10% and take out two loans, one for 80% of the sale price of the property and one for 10%. While interest rates may make this solution less appealing, it is an option to avoid paying for an insurance policy you don’t need.

2. ID-theft insurance

Identify theft is on the rise across the country and so are insurance policies claiming to protect you against it. The average identify-theft protection services charge $120 to $300 a year and claim to take care of everything if your identity gets stolen. The truth is, they mostly monitor your credit, notify you if something happens and then will provide support as you fix the problem yourself. You are still left with the legwork, time, and stress of regaining your identity while this “insurance policy” may reimburse you for long distance phone calls or postage stamps at most. Instead, be proactive and protect your information by placing a freeze on your credit reports at Equifax, Experian, and TransUnion, and monitor your bank and credit accounts regularly.

3. Rental Car Insurance

Every time you rent a car you’re offered the ability to purchase an additional insurance policy. While this sounds like a safe route to go the cost of renting a car is relatively low and most people on vacation or business end up driving simply to and from the airport without much in between. Travelers have the ability to avoid rush-hour and high traffic areas and aren’t a high risk for accidents. Therefore, a rental car is hardly worth insuring.

4. Flight Insurance

Flight insurance is often offered right before boarding a plane and will provide your beneficiaries money if you die in an airplane crash. This is not travel insurance which may be beneficial to purchase in the case that you end up cancelling your flight for personal or health reasons. Another answer for flight insurance is term life insurance. The additional flight coverage offered is completely unnecessary. Despite media portrayal airline accidents are relatively rare and a regular life insurance policy should already provide coverage in the event of a catastrophe.

5. Life Insurance for Children

Life insurance is designed to provide a safety net for dependents. Because children don't have dependents there is typically no reason to insure them. Insurance plans offered through Geber and other baby-focused companies have relatively low pay-out rates and the fine print makes it difficult to make a claim with these types of plans. A better choice for children is to put that money into an education plan or other savings plan for future expenses. That way, the money is still being set aside for the child’s future. In the unfortunate event that a child passes away these funds can be used for funeral expenses as well.

6. Credit Insurance

There are a number of different credit insurance options but all follow the same basic idea: that they will pay your credit card bill in the event you cannot pay because of death or disability. The truth is in the event of death, if you are the sole owner of the credit card the company may attempt to collect via a probate claim, but they cannot claim funds from surviving relatives not listed on the account. In the event of disability, claims are often denied because of a pre-existing condition or how the policy defines “disabled.” A far better idea is to avoid running up any credit cards in the first place so you won't need to worry about the bills. This method saves on unnecessary insurance as well as high interest rates.

Insurance is important to protect individuals against catastrophe. When choosing which insurance policies to pay for, go for the more broad policies that offer coverage for a multitude of potential events rather than limited-scope policies. Many consumers would prefer to be protected against anything that might or could happen, but many of the potential catastrophes that happen in our lives are not worth insuring against. When selecting a policy, always read the fine print and understand exactly what you’re paying for and what is and what is not covered before signing on the dotted line.

By Matt Reynolds - Google+

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