Insurance Policies You Don't Need
By Ric Edelman
Insurance is the one product we all love to hate. You pay thousands of dollars in premiums each year for health, dental, optical, auto, homeowner, life, disability, long-term care and umbrella liability coverage.
You might hate paying those premiums, but it’s smart to pay. Still, there are lots of insurance policies that you shouldn’t buy. Here’s a rundown:
Private Mortgage Insurance: You pay for PMI if, when you’re buying a house, your down payment is less than 5% (sometimes, less than 20%). If you fail to make your payments, the policy pays off -- but it pays the lender, not you or your family. Thanks to rising home values, you might now have 20% equity in your home. If so, ask your lender to cancel this insurance, which can easily cost you hundreds of dollars per month.
Mortgage Life Insurance: If you die, this policy pays off the remaining mortgage balance. Bad idea, because the money goes to your lender, not your surviving family. And the premiums are high. Replace this policy with a term life policy, and name your spouse or kids as the beneficiary.
Flight Insurance: The odds you’ll die in a plane crash are remote, making this policy a waste of money. Think you never buy it? Better check with your credit card company, because some automatically bill you for the coverage when you buy a ticket. Even without this coverage, if you die in an accident, the airline is likely to compensate your family. But that’s not the point. You should have enough life insurance to provide for your family no matter the cause of your death.
Accidental Death: Death is death: As noted above, your family does not need more money because you die in an accident instead of an illness. And proving that you died of an accident -- and not a heart attack from stress following the accident -- can be difficult.
Cancer Insurance: Ditto to the above. You want life and health insurance that pays, regardless of the diagnosis.
Credit Insurance: If you die, this pays off your credit cards. Drop this. It is extremely expensive. Besides, you’re not supposed to carry balances from month to month. Even if you do, cards in your name do not automatically become the obligation of your survivors. And if you fear they are, just get term life insurance, which is less expensive.
Children’s Life Insurance: Do not buy a separate policy on each child. Instead, add a child rider to your own life insurance policies. For $25 or so per year, you’ll get enough to cover final expenses. And never buy life insurance as a means of saving for college. Instead, establish a 529 College Savings Plan.