[MoneyGuy]

Originally Posted by Fozzie_DeBear

Good thoughts...do you have a link to that article MG? (Or if you want to keep your identity secret can you paste the highlights?)

Because you asked so nicely.

Smart Money

Insurance you probably don't need

By MoneyGuy, CFP
Most of us pay hundreds or thousands of dollars a year for insurance. It’s a major expense, and usually not one we like to pay.

Some forms of insurance are essential, but some are unnecessary or cover a risk that’s so low that it’s simply not worth insuring against. Here are some types of insurance coverage that you probably are better off not purchasing, or where there are better options:

1. Extended warranties: An extended warranty provides some protection in case your product fails after the manufacturer's warranty runs out. They’re popular for electronics, partly because sellers aggressively push these little money makers, particularly on electronics. They can easily add 30 per cent to your cost. Most electronics provide a one-year manufacturer’s warranty and the extended warranty usually provides an extra year of protection. Instead of the extended warranty, pay for the purchase with a gold or platinum credit card, which generally doubles the manufacturer’s warranty at no additional cost.
2. Trip cancellation: Unless you have an indication that you may have to cancel a trip, this is not money well spent. Imagine a cruise ship with 2,500 passengers, all of whom bought cancellation insurance. Some will make a claim, but the vast majority will enjoy a trouble-free vacation and save a few hundred dollars that they can use for their next vacation. Overe many years of traveling, you’ll likely spend less money not buying this insurance.
3. Mortgage insurance: Where do I start? Let’s say that you insure a $200,000 mortgage and died owing $75,000. The insurer may pay off the mortgage. Sound good so far? Well, generally the premiums you paid when you owed $75,000 are the same as on $200,000. As your debt reduces, you’re overpaying on the unchanging premiums. Notice that I said the insurer “may” pay the claim. Mortgage insurance is underwritten at the time of claim, not at the time of application. A typical application asks about four simple questions. Answer all of them NO and the insurance is approved. However, the company fully underwrites you if there is a death or disability and can deny the coverage if you fail to meet their underwriting criteria. A number of claims have been denied because of this form of underwriting. The better option is to include your mortgage insurance with your life insurance coverage. Don’t forget disability coverage.
4. Children: Life insurance is intended to protect surviving family members if a bread winner dies. You insure assets, not liabilities. Our children, as much as we love them, are financial liabilities. Generally, don’t insure children.
5. Older cars: Consider dropping collision and/or comprehensive coverage on an older vehicle with little value. If it’s totalled, you'll recover only the vehicle’s book value, which is often less than you think. It’s generally not cost-effective to insure a car worth less than 10 times the amount of your premiums, according to the Insurance Information Institute. For many vehicles, this is after about six years. Understand that if you eliminate this coverage, you'll have to pay for your own accident repairs or replacement if your car is stolen.
6. Creditor insurance: Take a loan and you’re asked to insure it against death or disability. These are generally poor – and expensive - policies. Instead, include an extra $25,000 in your life insurance coverage to cover any loans you’ll have over your lifetime. This is much cheaper than separate, inferior policies. Then the bank person asks you to take this coverage, you can smile and say, “Thanks, I’ve already taken care of that.”
7. Car rental: Rent a car and you’re encouraged to add extra insurance to cover damage beyond the standard coverage. You can probably save the $10-$15 a day as your own auto policy may cover car rentals; if not, then you can get this coverage with certain gold and platinum credit cards.

Some forms of insurance are terribly important. Imagine a 35-year-old man with a wife at home raising three children. If he dies or suffers a prolonged disability, his insurance can keep his family from financial ruin; if you need it, insurance is one of the best purchases you’ll ever make. Similarly, it would be monumentally stupid to drive your car without proper liability coverage.

Don’t forget disability coverage. We’ll consider life insurance, but often neglect the risk of a disability, which can be far more financially devastating than the risk of death.

I’m a huge believer in insurance when it’s needed. However, some forms of insurance are poor choices for the consumer. Choose wisely.