Monday, January 21, 2013

People Need to Avoid Being Conned By Money-Wasting Insurance

In these still tight times, people are using every means possible to try and stretch their precious dollars - especially in an environment in which money is nearly free to banks, and Fed Chairman Ben Bernanke doesn't consider rising food, fuel or drug prescription costs as part of real inflation.

Still, it's amazing that even when people cut every corner imaginable in their budgets, they manage to get conned into purchasing insurance policies they don't need. I must confess that it's happened to me before and that's why now - before committing to anything that's going to extract regular deductions from my bank account, I look several times at it. Such was the case when two days ago I received a letter highlighted in red ink that:  You are responsible for your home’s water line protection!

The cost was thereby given as something like $12 a month, which of course, might be subject to regular rate increases.  In such a case, the letter assured me, if a water line ruptured near my home and my basement was flooded, the repairs would be covered. However, on reading our recent revised home insurance contract, I saw that such coverage was already included. It would have been a waste of money.

Nonetheless it's a new gambit to dredge up more moola. Evidently, water companies in particular have made an aggressive push to sell policies that cover the repair of the water line that runs from the street to your house. The odds are in your favor that you will never use this coverage, particularly if you live in a newer home. If you live an average suburban neighborhood and you do need to repair the water line, the distance to the street is short, the likelihood of a problem is low and repair costs are a few thousand dollars or less. The same goes for policies offered by other utility companies.

But water line repair insurance is merely one of a flock of bad or redundant insurance deals (I won't call them scams, only that they're unnecessary.).    Here are some others readers may wish to flag:

Flight insurance : This coverage is completely unnecessary. Despite media portrayal, airline accidents are relatively rare, and your life insurance policy should already provide coverage in the event of a catastrophe

Car Rental Damage Insurance: My wife got trapped into buying one of these when we were in San Francisco in September for my cancer treatment. The policy added something like $200 to our rental car costs for 5 days. Many auto insurance policies already cover rentals (as she learned later, for hers)  so there's no need to pay for this twice. You need to check your policy before you pay, and ignore all the scary "exceptions" the rental car agent is sure to toss up to instill fear to get you to buy.

Extended Warranties: Again, time and time again, we've been suckered into purchasing these, usually for DVD players or computers. Obviously, companies have made them available on a host of appliances and electronics, mainly to enhance profits. The sad truth for most of us?  They're rarely used, particularly on small items such as DVD players and radios. If you purchase a reputable, brand-name product, you can be fairly certain it will work as advertised and that the extended warranty is statistically likely to be unnecessary. If you spend $5,000 on a giant, flat-screen television, the policy is still unlikely to pay off, but might make you feel better. For everything else, forget it.

Private Mortgage Insurance: Fortunately, we learned about this one before purchasing our first home 12 years ago! I had already done loads of reearch and found this infamous private mortgage insurance (PMI) is well known to many homeowners because it increases the amount of their monthly mortgage payments. PMI is an insurance policy that protects the lender against loss when lending to a higher-risk borrower. The borrower pays for this insurance but derives no benefit, nada. I found that we could avoid it by paying 20% down on our home, and that's what we did!

Credit Card Insurance: I cannot tell you the number of times I've been bombarded by credit card companies to plump for this unnecessary insurance! In each case, by virtue of what I already knew, I flat refused. Purchasing coverage to pay your credit card bill in the event you cannot pay it is a waste of money. A far better idea is to avoid running up too high amounts in the first place. Also, nearly every major credit card has existing policies in place to cover lost or stolen cards, even if some rogue hacker runs up bills - such as what happened to me 4 yrs. ago when I made a purchase on a false front site (made to look exactly like a genuine business site), and someone tried to buy a ticket to Beijing!

Flood Insurance: We live in an arid region of an arid state known as Colorado. The precip the past six months where we live has been about 1.5". Yet we keep getting flood insurance offers! The truth? Unless you live in a flood plain or an area with a history of water problems, don't even bother buying flood insurance. If none of the homes in the area has ever been flooded, yours is unlikely to be the first.

Life Insurance for Children: Life insurance is designed to provide a safety net for your heirs/dependents. Because children don't have heirs to worry about and, statistically speaking, most kids will grow up safe and healthy, most parents should not purchase life insurance for their kids. Instead, use the money that you would have spent on life insurance to fund an education investment plan.

Mortgage Life Insurance:This insurance is supposed to pay off your house in the event of your death. Rather than add another policy - and another bill - to your list of insurance plans, it makes more sense to get a term-life policy instead. A good life insurance policy will provide enough money to pay off the mortgage and to cover other expenses as well. A better plan is to pay off your mortgage before you retire, counter to the advice of most finance gurus who insist you're better off not doing so and investing instead in the stock market. I don't think so!

Accidental-Death Insurance: I made the mistake of buying one of these 15 years ago. Then I later read the fine fine print that it could only be paid if I croaked at sea, i.e. if an ocean liner sunk, or if I was involved in a train wreck, i.e. when a train I was on crashed into another. Fortunately, I'd only paid $1 for the policy, so I guess the moral is "you get what you pay for". On the other hand, unless you're extraordinarily accident prone, any accident is unlikely. Major catastrophes such as car wrecks and fires are covered under other policies, as is any harm that comes to you while at work. Accidental-death policies are often fraught with stipulations that make them difficult to collect on, so skip the hassles and get life insurance instead.

Unemployment Insurance: This coverage makes minimum payments on your bills if you are out of work, which sounds like an attractive proposition. A better plan is to save enough money to compile an emergency fund, say three months' worth.

Cancer Insurance: Ironically, I received several offers for this before I was diagnosed with prostate cancer. In each case, I examined the literature and decided the insurance was redundant because what was offered was already covered under Medicare, Part B or Part F (supplemental insurance). I suppose, however, that if the Reepos ever get in and Paul Ryan's voucher plan for Medicare is ever put into place, one might find this useful.

As in the case of protecting yourself with passwords, forewarned is forearmed. Don't make the mistake of buying insurance you don't need and making a gamble with your hard earned money you may later regret!

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