Insurance: When’s Enough, Enough?

Not too long ago seems like everyone had more insurance than they really needed. Actually, I’m guessing that’s still the case, too. That’s because you can’t go anywhere without some insurance company barking about different forms of insurance, and unfortunately, most of it’s unnecessary. I mean, do we really need credit insurance, or ID-theft insurance, or accidental death insurance? No. We don’t. Sure, it’s pitched as only costing from 20 to 200 dollars a year. But still it’s unnecessary and only helps the people selling it. Think about it. If people really collected on these types of insurance—filing claims–then no one would be selling it because all they’d do is lose money paying out money! So all this week here, I’ll help you sort through all the complexities of which insurance you should have, and which you should dump.

If you no longer need a big death benefit because your kids have left home, your spouse has died, or the mortgage is paid-up, dump that term policy or replacing it with a smaller one. And for gosh-sakes, rid yourself of that terrible whole-life insurance policy! It’s called whole life, because that’s where your money goes: in a hole. You may want to recalculate you insurance needs using any of the online calculators. There’s some at Fidelity.com also over at SmartMoney dot com. What are some other ways to save? Pay premiums annually instead of quarterly or monthly. Insurers often charge a 10% to 50% surcharge without disclosing the fact. But never cancel a policy before getting a new one. Medical tests required by new insurers before issuing a new policy could reveal a health problem, that could send your premium soaring.

These are tops on my list for oversold insurance. New products and insurers are hoping to capitalize on a person’s fear of an illness. No surprise they market that with health-insurance and health-care costs. And policies of this type are even popping up now in the workplace, as a worker-paid benefit offered by employers. However, policies like these don’t pay a benefit unless you get the specific conditions and treatments spelled out in the policy. And there are a ton of policy exclusions and exceptions, and that’s not good. Especially after the insurance has grabbed your cash for all those months and now is looking for way to weasel out of paying. Instead, I suggest you get comprehensive health and disability insurance and forget about it.

These are sometimes offered as an add-on to a life policy. In my opinion, they’re a rip off. Come-on! Accidental dismemberment? Like, if I got my arm torn off in a car door, I really need to insurance the chance of that happening! Basic life and disability insurance covers a person no matter how they die or become disabled. That’s good. You’re covered. So these Accidental dismemberment policies or riders as they’re called, look at the stats: only one in 3,000 deaths is accidental. Also, stay away from buying life insurance on your kids or grandkids. Life insurance is for income replacement. Period. Regardless of what the commissioned life insurance salesman is saying. Plus chances are, your kid isn’t bringing in any household income for the family. So don’t insure them!

There is another way that insurance is misrepresented to the public and that is as an investment.  The pitch goes like this: Put x dollars of premium into the policy annually, depositing more than the actual insurance costs, and the excess will be a type of future investment fund for you.  First of all, most of the excess money you put in will get eaten up by large commission charges.  Secondly, in the future when your money really starts to accumulate, it will be there to pay for the higher insurance costs as you get older.  If you borrow it out of the policy, it will reduce your death benefit and may cause the policy to collapse, leaving you with no insurance and  taxes to boot.  Some investment.