Monday, February 16, 2009

14 Useless Insurance Policies

Posted By: Michael Collins

When Shakespeare observed, "What fools these mortals be," he easily could have been referring to our tendency to buy unnecessary or downright useless insurance.

Granted, some insurance coverage is absolutely necessary, including home, health, auto, life and long-term disability. Ignore these at your peril.

But on more than a dozen policies -- especially narrowly focused single-purpose coverage on things like accidental death, cancer, credit card fraud and mortgages -- we simply fall victim to fear and salesmanship and purchase coverage that is redundant, unnecessary, impractical or downright wasteful.

"All of the single-purpose insurances turn out to be a bad deal," says Gail Hillebrand, senior attorney for Consumers Union.

"You have to ask what the loss ratio is, which is for every dollar taken in, how much is paid back out in claims? It's quite common in various kinds of credit insurance for it to be 10 (cents to) 15 cents on the dollar and even less, as opposed to your car insurance, which turns out to be paying 80 (cents to) 85 cents on the dollar. It just illustrates how bad a deal it can be."

What's worse, 19% to 25% of us overpay for insurance by purchasing coverage with zero or low deductibles, according to a recent study, "Why Do People Buy Too Much Insurance?" by New York University professors Zur Shapira and Itzhak Venezia.

"It was kind of surprising," says Shapira. "Almost always, you should get a high deductible rather than a low deductible."

Jack Hungelmann, a veteran Minneapolis insurance agent, risk management consultant and author of "Insurance for Dummies," says our tendency to buy too much and/or frivolous coverage is the norm rather than the exception.

"You want a balanced program so that all the major losses are equally well-covered, with prudent use of deductibles," he says. "Most insurance programs I audit are out of balance."

Ready to trim your insurance costs? Here, in alphabetical order, are 14 policies you can probably scale back -- or live without.

1. Accidental death insurance
Accidental death covers you in some, although by no means all, of the ways you could die accidentally -- that is, perishing due to something other than disease or old age.

However, chances are your existing life insurance policy will cover you in most of those events anyway.

Accidental death falls under what Hungelmann calls "Las Vegas coverage," because the odds of it happening are slim.

"Don't waste your money on that," he says. "If you need life insurance, buy enough so that it covers all circumstances. Don't buy just for certain scenarios."

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