At its best, insurance helps protect against events that could send your finances into a death spiral. Crucial products include insurance against serious car crashes, the loss of or damage to a home, and the loss of income due to death or disability.
Other products? Many offer little value, or they’re filled with exclusions and caveats. Following are some potentially dumb insurance buys:
1. Identity theft insurance
Federal law limits your liability from credit card fraud. So, even if a thief uses your credit card, you’re off the hook if you report the theft promptly. According to the Federal Trade Commission:
Under federal law, the amount you have to pay for unauthorized use of your credit card is limited to $50. If you report the loss to the credit card company before your credit card is used by a thief, you aren’t responsible for any unauthorized charges.
Most card companies go a step further and offer $0 fraud liability.
Report a debit card missing within two business days after you realize it’s gone, and you are liable for no more than $50 in stolen money. Wait longer to report, and you could be responsible for up to $500 — or might even face unlimited liability, the FTC says.
Repairing your credit and damage to your identity can be time-consuming and costly. But the National Association of Insurance Commissioners says identity theft insurance only offers so much protection:
Identity theft insurance cannot protect you from becoming a victim of identity theft and does not cover direct monetary losses incurred as result of identity theft. Rather, this coverage pays for expenses related to reclaiming your financial identity, such as lost wages, attorney fees and documentation reporting.
Alternative: Protect yourself before you’re hit. Monitor your bank and credit accounts regularly. Get three free annual credit reports. If you think your identity has been compromised, place a 90-day fraud alert on your credit file. Finally, weigh the pros and cons of freezing your credit.
2. Travel insurance
Travel insurance can be confusing. There’s protection against canceled trips, interrupted trips, medical expenses and many other risks. Policies vary in quality and in coverage. Some cover many eventualities. Others insure against a single risk, like a medical evacuation.
Travel insurance can be a waste of money when if your policy is riddled with exclusions, or you choose a policy that doesn’t cover the risks you are likely to encounter.
However, Money Talks News founder Stacy Johnson notes that there are situations where travel insurance makes sense. To find out more, check out “Ask Stacy: Should I Buy Travel Insurance?”
Alternatives: You may already be covered for some of these situations through your homeowners, life, auto or health insurance. Credit cards also may offer some forms of travel insurance, such as for lost luggage, theft and life coverage.
3. Dental insurance
If you have dental insurance through work, you’re golden. If you have to buy your own policy, however, don’t buy it thinking you’ll collect thousands of dollars’ worth of implants or other complex treatments. Your policy might just pay 50% for oral surgery and restorative care. It may not cover cosmetic dentistry at all.
Alternatives: A discount dental plan can get you discounts ranging from 10% to 60% on all of your dental visits and procedures. Other options for cheaper dental care include charitable clinics and dental schools.
4. Children’s life insurance
Adults buy life insurance coverage for themselves to provide for their families in case they die. Arguments in favor of taking out life insurance on children include locking in insurance for them at a young age in case it becomes impossible or too expensive to insure them later because of illness or playing high-risk sports. Some advocate coverage for possible funeral expenses.
But unless the family depends on the child’s income, there’s no need to insure his or her life.
Alternatives: Save for the child’s education or open an investment account for him or her. If necessary, you could use those funds to pay for death expenses without giving a penny to insurers.
5. Collision coverage on an old car
The collision portion of your auto insurance policy pays for repairing or replacing your car when the crash is your fault.
Older cars lose value fast. That means the premiums costs for collision coverage might not be worth it if your car is especially old.
Do not, however, drop your auto liability insurance. That coverage generally is mandated by law. If you hit someone else, you’ll need it to pay the other driver’s costs.
Alternative: Take the amount you normally would spend on insurance premiums and put it into a savings account to help pay for your next car.
6. Rental car insurance
If you have full insurance coverage on a car of your own, you probably don’t need rental car coverage, no matter what the person behind the rental car counter says.
Alternatives: Make certain you are covered under your own auto policy. Your credit card also may have coverage if you pay for the rental with the card.
7. Extended warranties
Whether you are buying a TV, computer or hedge trimmer, chances are the sales associate will suggest you purchase an extended warranty. In most cases, you don’t need it.
Products seldom break during the two-to-three-year period after the manufacturer’s warranty and service plan expires. And the repairs can cost less than you might think, according to Consumer Reports.
Consumer Reports also says stores keep 50% or more of what they charge for these contracts, which is a considerably larger profit margin than they make selling the product. In some cases, the salesperson also gets a hefty cut of every warranty sold.
8. Home warranties
Consumers frequently expect more than these plans deliver and end up frustrated. Read “Should You Buy a Home Warranty? How to Judge for Yourself” for a breakdown of the pros and cons of home warranties. Hint: There are few pros.
If you decide to go with a warranty, read the fine print to see what’s really covered.
9. Pet insurance
Most people consider pets to be part of the family. Veterinary bills can be high, and insurance can be a good call in certain circumstances.
“There’s no magic formula that will tell you if it’s right for you and your pet,” according to the American Veterinary Medical Association.
The AVMA suggests you talk to your veterinarian about the general health of your pet. The age of the animal is also a factor.
If you do opt for pet insurance, first take a look at the AVMA’s guidelines for pet health insurance policies.
What’s your experience with insurance offers that crop up in day-to-day transactions? Share with us in comments below or on our Facebook page.
Marilyn Lewis and Hiram Reisner contributed to this post.