“Insurance is meant to protect against the really big stuff that rains down on you,” says Fair Oaks, California, insurance agent Alan Canton. But Canton and other agents know that not all insurance policies are created equal. Here are six policies they say aren’t worth the money:
1. Accidental death and dismemberment
Free or low-cost policies offered by employers usually cover accidents involving death or dismemberment, so there’s no need to buy it on your own, says Joan Antoniello, vice president for personal and corporate insurance planning at Weiser Capital Management.
And while the average $15-a-month cost is low, the premiums add up ($180 and more a year) — money that could be better spent on adding some other type of insurance, she says.
2. Comprehensive and collision coverage for old cars
Of course, you want to keep your car insured (it’s the law in most states), but beyond the minimum requirements, there’s often no need to get comprehensive and collision coverage for a car with a very low Kelley Blue Book value, says Joel Ohman, a certified financial planner and the founder of the website carinsurancecomparison.com. Collision covers the cost of replacement and repairs after a typical car accident, while comprehensive takes care of events like fire, theft, vandalism, and falling objects. The latter coverage is often required by lenders, but once the car is paid off and the car’s value has dropped, many people forget to stop paying for it, Ohman says.
A good rule, he adds, is that if collision and comprehensive coverage cost more than 10 percent of the car’s value, turn down both types of coverage.
3. Car-rental insurance
If you already have car insurance, don’t buy it at the car-rental counter, says CPA Steve Elliott. Your existing policy should cover you if something goes awry. There are times when car-rental insurance may make sense, however. Ray Martin of CBS MoneyWatch.com points out that while your existing car insurance or credit cards may already cover a rental car, it’s a good idea to opt for the insurance if you’re driving outside the country or have high deductibles for personal effects stolen from the rental car.
4. Mini-med insurance
These “limited benefit” health insurance plans have been blasted by Congress for offering very little coverage to policyholders. Often these policies are sold to people who can’t afford major-medical insurance, such as part-time or migrant workers. McDonald’s, which offers these plans to tens of thousands of workers, recently argued that many of its employees would likely have no health coverage if it weren’t for these plans.
Buyers should know that these policies are best used for minor cuts and scrapes. And while most of them don’t carry a deductible, they do have spending caps, so anything beyond a $10,000 surgery likely won’t be covered, says Canton. Typically, mini-med policies cost $25 to $100 a month.
5. Divorce insurance
Larry King may have wanted to get this coverage, but for most people, the cost versus benefit doesn’t make economic or emotional sense, says Justin Reckers, a certified financial planner. Do you really want to start a marriage by planning for failure?
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The website WedLock Divorce Insurance makes it sound reasonable, saying almost half of all families go through divorce every year and end up below the poverty line, losing 77 percent of their total net worth. The site even has divorce-probability and divorce-cost calculators.
According to Reckers, WedLock sells coverage in units, with $1,250 in coverage costing $15.99 per month. Policies mature in 48 months, meaning benefits won’t be paid until after four years as a way to discourage people who are contemplating divorce from buying the insurance and quickly collecting. Buying the maximum $1 million in coverage will cost $614,016 in premiums by the time the benefits are payable after 48 months.
6. Mortgage life insurance
Mortgage life insurance is basically life insurance meant to pay off a home in the event of a tragedy. However, mortgage life is typically 200 to 300 percent more expensive than term life insurance.
If you had a $100,000 mortgage, for example, you would spend two to three times more on mortgage life insurance for that amount than you would if you bought a term life policy for $100,000 in coverage for 30 years. And with mortgage life insurance, the money typically goes directly to a mortgage lender, not to your family. It may make sense, however, for people who have a medical history that makes term life insurance prohibitively expensive.
Published in Reader’s Digest June / July 2011