Life is risky, but that doesn't mean you should pay for insurance policies and warranties you don't really need. Don't let fear affect your finances.
Imagine you’ve flown into town to attend a friend’s wedding. You’re driving down the highway in a rental car, dog by your side, chatting on your cellphone.
Insure all that and it’s possible that you and your friend have wasted hundreds of dollars.
Do you buy travel insurance? Rental car insurance? Pet insurance? Cellphone insurance? And did your friend buy wedding insurance?
Life has risks, and paying to protect yourself makes sense – health insurance to cover big hospital bills, for example, or homeowner’s insurance to cover catastrophe. But in the video below, Money Talks News founder Stacy Johnson tells you about five types of protection that you shouldn’t buy, at least without careful consideration. Check it out, then read on for more insurance and warranty products that often aren’t worth the money…
Here’s more information on what Stacy was talking about, plus a few other types of protection you don’t need…
1. Identity theft insurance
Identity theft insurance doesn’t protect you from becoming a victim of the crime, or sometimes even replace money lost. The insurance only covers some of the expenses you accrue dealing with identity theft – like the cost of mailing letters to your creditors and maybe some legal fees. And it costs $20 to $100 per year – plus a $100 to $1,000 deductible, according to MSNBC.
Instead of paying for extra insurance, see if your credit card company offers identity theft recovery services. Some companies, like American Express, help you free of charge.
If your card doesn’t come with it, you can still protect yourself. The Federal Trade Commission has a list of steps to take if you’ve been victimized by identity theft on their website – like placing a fraud alert on your credit report and canceling affected credit accounts.
2. Extended warranties
Almost anything you buy these days has an extend warranty option: appliances, electronics, even lawn mowers. According to CBS News, extended warranties cost an average of 15 to 25 percent of the purchase price. So if you buy a $900 TV, that’s around $225.
Problem is, not all repairs are covered by extended warranties and you may have to cover shipping costs even if they are covered.
But if you’re still considering an extended warranty, do the math first. Call a local electronics repair shop and ask how much they charge to fix a common problem with whatever you’re buying. If the price quote is less than the cost of the extended warranty, buying one doesn’t make sense.
3. Home warranties
Fidelity National Home Warranty says buying a warranty will cost $200 to $400 on average. For that money, it’s supposed to cover the cost of repairing big-ticket items like a dishwasher, AC unit, plumbing system, and electrical wiring.
But some consumer advocates say they’re full of exclusions, and the repair you need may not be covered. As he explained in the video above, Stacy once had a home warranty. When his refrigerator broke, the warranty didn’t cover the repairs. Because the coils were dusty, the company claimed he hadn’t properly maintained the refrigerator, thus voiding the coverage.
4. Pet insurance
I’ve written about my dog before – specifically, how I use nine websites to save hundreds on his food, toys, and medicine. But I was unsure about getting pet insurance, so I went online and requested a few quotes. The cheapest coverage I could find was “emergency only” for $11 a month through the ASPCA. Full coverage cost $90 a month for a healthy, young dog.
The cheapest plan covered emergencies like a broken limb. The most expensive plan included an annual vet checkup and some medications. But no plan covered everything. I was still going to have to pay out of pocket for dental cleanings, grooming, and some illnesses. Genetic conditions and cancer also weren’t covered.
While some people swear by pet insurance, others swear at it. So if you’re going to get a pet policy, be very clear on the details.
Vet care is expensive, but you have other options. We’ve written before about Ways to Keep Your Pet Away From the Vet. Also check out the Humane Society’s Having Trouble Affording Veterinary Care? article for a list of resources.
5. Cell phone insurance
Unless you’re accident-prone, cell phone insurance isn’t likely to pay for itself. The insurance costs an average of $5.64 a month, according to the Los Angeles Times, and most plans have exclusions – like not paying for water damage or dropped phones. If you do have a covered repair, you’ll pay a deductible depending on the price of your phone. (The deductible for my Android would be $100.)
If you have a smartphone, you probably have a manufacturer’s warranty that already covers replacements and repairs. HTC has replaced my phone three times without charge – no insurance needed.
6. Wedding insurance
My friend just spent $26,000 on her wedding – which included the venue, dress, photographer, caterer, and everything else that goes into the perfect wedding day.
She could have purchased wedding insurance to protect some of those things. The insurance typically covers some types of cancellations, companies going out of business before the wedding, and liability for guests. But it would have cost $320 to $420, according to USAToday.
Instead, she booked through reputable companies, charged purchases to her credit card to get reimbursement protection, and used her homeowners insurance to cover the wedding rings and gifts.
When the wrong flowers arrived, her credit card company issued her a refund. She didn’t need extra insurance. You probably don’t, either. Before buying this type of insurance, read more about what’s typically covered and what’s excluded. Then read the fine print.
7. Travel insurance
What if you travel overseas and there’s a natural disaster? Or civil war breaks out? Some travel insurance might help you safely evacuate the country, but few policies would reimburse the cost of your lost vacation.
Basic travel insurance covers your expenses should you get sick or have an accident while on vacation. But it won’t cover you should a health or weather issue force you to cancel your trip. For that you’ll have to purchase a more expensive plan that offers cancellation coverage.
According to Bloomberg Business Week, a basic plan costs 5 to 7 percent of the purchase price of your vacation. A plan that includes cancellations costs 40 percent more.
Travel insurance isn’t always a bad deal – depending on your age, health and where and when you’re going (e.g., the Caribbean during hurricane season) cancellation or other types of coverage might be prudent. But before you buy, see what your existing policies will cover. Your health insurance might cover you in other countries, and some credit card companies provide free insurance for travel. Ask before you leave.
If you do buy travel insurance, always read the fine print. The San Francisco Chronicle recently reported on an elderly couple who had to cancel a trip after purchasing $10,000 of cancellation coverage. They were denied any reimbursement because they failed to purchase enough insurance for the entire cost of the trip: $10,074. (After the paper intervened, the company agreed to reimburse them.)
8. Rental car insurance
When you rent a car, the company will try to sell you a “loss damage waiver.” For about $19 a day, according to Autos.com, you’re protected if you wreck the rental.
But you’re probably already protected. If you have full coverage insurance on your own car, it may cover your rental as well, although many policies won’t reimburse the rental car company for “lost use” of the rental car while it’s being repaired, as well as administrative and other fees.
You might also be covered by your credit card company, if you rent the car on that card. Check with your insurance provider and your credit card company before you buy rental car insurance. But when you talk to your card company, be sure and tell them the specific vehicle you’re renting. For example, virtually no credit cards provide coverage for pickups or other types of trucks.
Bottom line? Buying protection is one thing – but paying too much or paying for protection that might turn out iffy is something else. Carefully consider these and all types of insurance, and always read the fine print. And don’t forget to check credit card coverage. Find the card that’s right for you on our credit card page.