The Insurance Industry Wants You Scared
Insurance companies profit from fear. They create products for every imaginable scenario, many of which are statistically unnecessary or duplicated by other coverage you already have. Here are 5 common insurance products that most people do not need.
5 Insurance Policies to Reconsider
- 1. Extended warranties — Retailers make 40-80% profit margins on extended warranties. Most electronics fail within the manufacturer warranty period or last well beyond the extended warranty. Credit cards often double the manufacturer warranty for free. Save the money
- 2. Credit card payment protection — Costs 0.85-1.35% of your balance monthly. On a $5,000 balance, that is $50-$67/month for coverage that is difficult to claim. Build an emergency fund instead
- 3. Accidental death insurance (AD&D) — Only pays if you die in an accident (about 6% of deaths). A proper term life insurance policy covers death from ANY cause and costs about the same. Get term life, skip AD&D
- 4. Mortgage life insurance — Decreasing term policy that pays the remaining mortgage. But a regular term life policy gives your family cash they can use for the mortgage OR anything else — more flexible and often cheaper
- 5. Insurance on children lives — Children do not have income to replace. The emotional appeal is strong, but financially, there is no income loss to insure against. Exception: if you need coverage for potential funeral expenses, a small policy is fine, but large policies are unnecessary
Insurance You DO Need
- Health insurance — Non-negotiable. One hospitalization without insurance can cost $50,000-$200,000+
- Term life insurance — If anyone depends on your income. 10-12x annual income
- Auto insurance — Legally required. Get adequate liability (at least 100/300/100)
- Homeowner/renters insurance — Protects your biggest asset or all your belongings
- Umbrella insurance — If you have significant assets ($500K+), $1M umbrella policy costs $150-$300/year. Protects against lawsuits above your auto and home policy limits