Insurance policies to avoid: No need to cover your kids, your cruise or your clunker
Filed under: Insurance, Kids and Money
When it comes to insurance, people often think that it's better to be safe than sorry, but often wind up spending more money than they should on coverage they don't need.
Besides wasting money, consumers sometimes don't buy enough coverage that they do need – and don't realize it until a disaster such as a flood occurs. Consumers also pay too much in premiums by keeping their deductibles low, even though they could afford the out-of-pocket expense if they filed a claim.
"The basic rule of insurance is to cover your big risks in life, and those would include your life, your health and your home and your car if you have one," said Greg Daugherty, executive editor of Consumer Reports, in an interview. "You can insure just about anything that you want."
People can take simple steps to save money on insurance, such as shopping around for the best deal. Companies also give discounts to customers who buy more than one type of coverage from them. The key thing for consumers to do is to make sure that they have coverage that's both comprehensive and geared toward covering catastrophic events that would cause economic hardship, such as the death of a spouse.
But the more exotic types of insurance are probably not a good idea for most people because their coverage isn't comprehensive and does not include situations that are catastrophic enough to cause severe economic hardship, according to Robert Hunter, director of insurance for the Consumer Federation of America. Here are a few of the more common types of insurance that Hunter and other experts believe people should avoid:
- Life insurance for children – While losing a child is about the toughest thing that a parent can experience from an emotional standpoint, by and large it does not lead to economic hardship. "No one is depending on the baby's income or the child's income for continued survival," Hunter says. "Economically, it's not an appropriate thing to do."
- Cancer insurance – One company selling these types of policies advertises that it provides "essential coverage against enormous risk." Both Daugherty and Hunter disagree with that sentiment, arguing that it's wasteful for consumers to protect themselves against dying in a particular way. "If you are killed, to your family it's a big loss however you are killed," Daugherty says. "You don't need to protect against any particular way of getting killed. You are much better off having a good insurance."
- Accidental death – Unless someone is in a particularly dangerous profession such as a stunt man, this type of insurance isn't needed. Moreover, most people don't die from accidents, making it unlikely that a person's heirs will ever see the money. Experts recommend a comprehensive life insurance policy instead. "You wouldn't buy toothpaste a squeeze out of the tube at a time," Hunter says.
- Travel insurance – Most people don't need coverage to protect against a trip cancellation unless they are seriously ill and are worried that a recurrence of their disease may hamper their trip plans, Hunter says. This coverage might be worth it for people who are planning a particularly expensive trip that would be difficult to reschedule otherwise.
- Whole life insurance – Most people are better off buying term insurance rather than whole life, which includes an investment component that people can borrow against. "We're solidly on the side of term insurance for most people," says Daugherty, adding that people need to make sure that a spouse who doesn't work outside the home is also covered because his or her death would "create a financial need on the part of the family."
- Insurance against inconveniences – Rain on your vacation or the loss of a pair of contact lenses may be annoying, but they are hardly the end of the world. Nonetheless, there are policies available for these situations, Hunter says.
- Identity theft – Consumers are increasingly worried that someone will steal their confidential information online. Consumer Reports, though, recommends that people regularly check their credit reports, which are available for free, instead. "We haven't been impressed with what we have seen so far," Daugherty says.
- Insuring your clunker – It makes no sense to have comprehensive and collision insurance on an old car that's not a classic. The insurance company will only give you the official Blue Book value of the vehicle if it's totaled in an accident, says Carolyn Gorman of the Insurance Institute of America.
- Extended warranties – These are often a waste of money. Most electronics goods of decent quality will not fail while they are under warranty. "We think they are generally not worth the money," says Daugherty of Consumer Reports.
- Payment protection insurance – These policies will pay your credit cards or mortgage payments if you become ill or lose your job. Instead, people should make sure that they have enough money saved for a rainy day.
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Reader Comments (Page 1 of 9)
2-26-2008 @ 6:49AM
Celeste Gettings said...
Unfortunately, I had the cancer policy and I used it. It DID pay what my health insurance left-- the remaining 20%. When my health insurance questioned me owning a cancer policy, they informed me in writing, if I didn't cancel the cancer policy, they would cancel my policy. I could have one or the other. Extremely unfair since I had paid on this cancer policy for over 30 years. I did cancel it as I couldn't afford to loose the primary policy. I still feel that no insurance company has any right to making anyone cancel their cancer insurance. As it is, I now have a 20% remaining balance that is mine. Doesn't sound like much but when a cancer surgery is over $5000--it is alot to a single woman who can only work a part time job due to health restrictions.
Reply
2-26-2008 @ 7:25AM
Ron said...
I would get an attorney and sue the health insurance company...
They do not have any clauses that would say you can't have a cancer policy.
Most cancer policy's pay along with health insurance period. If they do have this clause make them show it to you in your policy.
You may have just hit the lottery!
2-26-2008 @ 8:56AM
LKL said...
I suggest contacting your state insurance commission regarding this ordeal. If you have not committed fraud and have paid all premiums I don't think they can do this to you.
2-26-2008 @ 8:54AM
frnci said...
UNfortunately, somewhere in the fine print, this is covered. I had two health insurance policies (one from my workplace and one from my husbands workplace). They fought each other so long that I wound up paying the bills myself. I wish the insurance companies were obligated to tell people this before they sell policies. This is a very dishonest practice.
2-26-2008 @ 8:55AM
Eugene said...
I have Walmart Emp Insurance which is pretty good and covering my cancer, etc. without a hitch. Walmart sells and promotes AFLAC cancer insurance which I use and love. The best most responsive insurance company I have ever worked with.
2-26-2008 @ 9:32AM
Lee said...
They can not tell you to drop a suplemental policy. However as I understand it is against most state regulations for you to be reimbursed for more than 100% of your loss eg. surgical procedure or hospital bill. True supplements like AFLAC do not reimburse they pay $100 or $200 per day you are in the hospital. It is paid directly to you and you can use it any way you want. You can not however have two Major medical policies. The primary will pay your bills and the second will pay nothing. Obviously a waste of money and your primary will suspect fraud. Get a supplemtal policy. Does anybody read their policy?
2-26-2008 @ 9:24AM
Rick Ford said...
This is a prime example of why we need a national single payer universal health insurance system (medicare for all) and get rid of the health insurance companies altogether. I'd rather pay a 5% payroll medicare premium (rather than the 30% of my income I pay for insurance premiums) and get full coverage with no deductibles or co-pays, than pay these predatory insurance companies another dime. Call your Congressman to support HR 676 (the Medicare for All Bill) and visit www.sickocure.org.
2-26-2008 @ 9:50AM
Lee said...
Rick Ford, You are in Fantasy land friend. 5% payroll tax to start perhaps. Yeah, I remember the good old days when we were only going to pay a small tax to finance the Spanish American War in 1898. Yeah 5% for 100% coverage makes perfect sense. Wait a minute I need another toke.
3-04-2008 @ 11:24AM
Gary Steinman said...
Contact your state's insurance superintendent and file a complaint against this insurance company.
2-26-2008 @ 10:24AM
dave said...
This guy is a complete moron. I was in the life insurance business for awhile and to say that you dont need whole life or protection for your children is insane. The reason that protection for the children is important is very simple. Obviously you're not depending on the income of the child, but some people dont have 8-10k to put towards a child's funeral if god forbid that happened. That money would be there should your child be sick (like my friend's is - his 2 year old has brain cancer) or die in an accident.
Lastly, to say you don't need whole life at all is also completely ridiculous. Term is only temporary insurance, and the price goes up after a certain time. If you get sick during that time and have to get another term, you may be declined. With whole life you won't have to worry about that. It's all about money and preference, but still, to completely say you dont need it is irresponsible.
2-26-2008 @ 11:34AM
pat said...
You should have investigated that further. Some six dollor a hour clerk probably thought that the cancer policy was a full blown major medical policy. In that case they do require you have only one. A cancer policy is a supplemental policy to anyone's major medical coverage. I've been in the business 27 years and never heard of such.
2-28-2008 @ 9:16AM
Ray said...
Celeste, file a complaint with your state's insurance regulatory agency. They will call on the carpet the health insurance company.
2-27-2008 @ 1:34PM
RAY LEVESQUE said...
THATS B.S. It is against the law for an insurance company to require you to cancel a policy that pays above and beyond what they pay. They cant even force you to cancel a policy that pays the same benefits. I would contact an attorney and have him look at your policy. Ive been in the insurance business for 23 years and have never heard of such a thing. Medicare requires people to cancel there suplemental plans if they purchase a medicare advantage plan. However, at the bottom of the page that says this it says they can not force you to cancel the supplement as it is against the law and it will not effect your benefits if you do not cancel. It is more of an issue for the agents to follow so they do not reccomend having double coverage to get double commissions.
2-27-2008 @ 5:58PM
Celeste Gettings said...
Thank you everyone for your comments. The cancer insurance was a supplimental insurance. I reported it when I applied for the new health insurance. Nothing was said at that time about me needing to drop the cancer policy. It did not "double dip" on any of the claims. It merely picked up the 20% that the health insurance left me to pay. I had never used the cancer policy until 2006 when I was diagnosed with breast cancer. Up to this time, I paid a premium every 3 months ( for over 30 years) for this coverage and felt that I was well covered in the event that I would ever have this diagnosis. My health insurance company has changed my thinking and now I question my "complete" coverage---and I certainly question the insurance agent who sold me this policy. Had I known that I would have to pay the balances on surgical biopsies, surgery, hospital expenses and now mammograms, I doubt if I would have aquired this insurance. As it is, with this diagnosis now, this insurance is the only one I can afford and I can NOT afford to drop it.
2-28-2008 @ 8:12AM
john said...
I suggest everyone watch the pay per view or dvd (sicko), it will give all a better perspective on where HMO'S originated from, why they came into existance, and why we need universal health care, a real eye opener, but will leave you scared and very angry! Dont delay watching this documentory. I am one of these people they term un insurable, and even if I was able to achieve ind health ins, most of my claims would be denied. I have worked hard since age 14, only to end up this way. I still work F/T even with all my medical problems. Watch this documentory! John
2-28-2008 @ 2:10PM
Jim said...
As a certified financial planner for 22 years, the fact that people read this and trust your ridiculous statements about life insurance on children and whole life policies is sad to me and is the reason why many clients I meet with are in bad situations. They buy cheap term, with no permanent coverage and when that term expires, they are asked to pay about 10 x that premium, which then goes up every year from there, forcing these people to cancel all of their coverage. Conveniently for the insurance company, people pay in for all those years and when they actually do get older and more likely to die, the coverage becomes extremely cost prohibitive. I have seen it hundreds of times. A whole life policy with a strong company, builds cash value, has NUMEROUS tax advantages and grows by MORE than your premium GUARANTEED after about 3 years. It is a great deal and even better when parents start these policies for kids when they are young, due to lowest possible cost of insurance and even protect the future insurability of their children. These days, with children's diabetes and other diseases increasing so dramatically, it is a very god idea. I also have clients that take advantage of the tax deferred cash value accumulation to help pay for college tuitions. So, I could go on all day long, but after reading this nonsense about whole life and childrens policies being a waste, I NEEDED to actually educate people reading this crap to what these policies are really used for and the downside to owning JUST term insurance.
3-08-2008 @ 8:15AM
Elizabeth said...
Celeste - I am so sad for your trouble. I can tell you don't have an Aflac cancer policy ... and I can tell the guy that wrote this article doesn't know about what cancer supplemental insurance can really do. It's not for dying ... it's to help you LIVE while you are getting teatment.
When I got breast cancer, Aflac paid me tens of thousands of dollars all the way through my treatment and they paid quickly. I was able to pay my portion of medical bills and all of my house bills too.
Now I am well and my Aflac policy is still in place ... they can't drop me so if I have a reoccurence they will pay again! Be careful when buying cancer coverage ... and make sure to get AFLAC. They are the best company. My local agent event even came to the hospital to make sure I was doing okay and she brought me a duck. What service!
3-08-2008 @ 10:30AM
Fred Jones said...
Dear I wouldnt have told them a anything. It is none of their business. And legally they cannot not force you to cancel the other policy and you could have had a very very stong case against them in court if they had canceled your main policy.
3-08-2008 @ 10:29AM
Carol said...
The Company that told you that is more than likely wrong. Most Cancer policies are supplemental insurances. These are designed to pay you and not the doctors and hospitals. Deductibles, co-pays and the 20% that you have to pay can run into an amount that the average person would never be able to repay, much less pay for normal living expenses after missing work from being sick. You may have actually been dealing with someone who really did not understand what type of policy that you had. When a family member has cancer it not only affects the sick person but also the spouse who misses hours/days of work caring for the one who is so sick they are unable to get out of bed. If the spouse cannot do it they have to hire someone or get another family member who is missing work. It is bad enough being SICK but to be broke
3-08-2008 @ 11:41AM
David said...
The author of this article is full of it and he does
not have a clue on what he is talking about.
I have life insurance on both my children and it is whole
life. They both have GUARANTEES that provide
income and death benefit for life. Why should they
need TERM Insurance and loose all their money?
Cancer insurance provides money to fill in the
gaps that major medical does not cover. Who pays
all the bills when you get sick or hurt? Get a real job!!!