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Insurance you DON'T need
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Allocate your insurance premium dollars to policies that protect you from financial devastation.

Below are examples of policies that protect creditors or divert dollars to protect assets you can afford to replace on your own.

Private Mortgage Insurance
Lenders usually require PMI when you put less than 20% down on the purchase of the home. The policy does not protect you—it protects the lender should you fail to repay the note. Normally, you can cancel Private Mortgage Insurance once your home’s value has appreciated enough and/or you have paid down the loan enough to have 20% in the property. Certain products, like FHA, may have slightly different terms.

The VA offers loans to qualifying veterans with 0% down on the purchase of a home. This program involves a "prefunding” fee which is rolled into the home loan. It is roughly equivalent to PMI as it protects the lender by insuring 25% of the loan’s value. The prefunding fee is waived for those with a 10% VA disability rating.

Extended Warranties
Retailers make a lot of money selling consumers insurance on the products they sell. Because these appliances and electronics, etc. are generally reliable and likely have a warranty from the manufacturer, these policies rarely pay out. On larger goods such a policy may give you peace of mind.

NOTE: As much as I dislike this type of insurance, I did purchase an extended warranty once from Circuit City. In order to sell the policy, they gave me a healthy discount on the cost of the TV—so negotiate. Incredibly the policy paid off because the color tube went out—I know I am dating myself—and they did come to my home to fix it. I would have been covered under the product warranty, but would have had to transport the TV to the store. (And it was heavy!)

Extended Warranties: Should You Take The Bait?

Automobile Collision
If you are still paying on your car, the lender probably requires you to carry collision insurance, which covers the cost of repairs to your vehicle if you are involved in an accident.

This protection may not be cost effective if you are driving an older car. Due to depreciation the value of the car may not make it worth paying for this coverage.

I consider not carrying collision coverage to be a great reason to drive an older vehicle.

Rental Car Insurance
This pays for a rental while your car is being repaired after an auto accident. It clearly is not necessary if you have another vehicle to drive. Weekly rentals are usually quite reasonable, so crunch the numbers to determine if it is worth paying extra for this benefit.

Car Rental Damage Insurance
Rental companies make a lot on this protection. Usually your auto insurance policy covers you if you have an accident in a rental car. Check with your insurer. You can even add this protection last minute… as I did with a simple phone call to my insurer while driving a rental car out of the garage on a recent vacation.

Life Insurance for Children
Odds are overwhelming that your children will survive you. The thesis behind owning most life insurance is to protect future income. Given that you do not depend on your children financially, you do not need to insure their future earnings. These premium dollars are better directed to a college fund or your own retirement. That said, if you don’t have sufficient financial resources, you may want a small policy to cover the cost of burial. Your employer may provide this at little to no charge—and often without underwriting.

Mortgage Life Insurance

This coverage pays off any outstanding mortgage balance should you pass. It is, in effect, an expensive decreasing term policy that protects the lender and may leave you underinsured. Instead, do a life insurance needs analysis and purchase enough protection to pay off all creditors as well as provide for your loved ones. This may be an option for those who can’t get life insurance elsewhere. Although inadequate, better than nothing.

Flight Insurance
Really? If you need life insurance, you need life insurance… not because you are flying somewhere!

Accidental-Death Insurance
Again, determine what your life insurance needs are and buy adequate protection. What is the point of a "bonus” if you die due to an accident?

Credit Card Insurance
As you know, we don’t like debt. We like insurance that protects creditors even less! Instead, direct the premium dollars to paying down your balances.

Credit Card Loss Insurance
Federal law limits your liability to $50 if your credit card is stolen. Most won’t even try to collect that. If you can’t afford $50, you should be looking for a second or third job—not reading this website!

Water Line Coverage
Like anything else, if a problem arises… you will wish you had this coverage. But the reality is, according to the internet, these problems are rare. While repair costs can be several thousand dollars… this is not a financial catastrophe. Before purchasing consider the cost of the premium vs. the cost of repairs.

Flood Insurance
It is stunning that those who live in areas prone to hurricanes and other natural disasters don’t have flood insurance. But do you need it if you don’t live in a flood plain or an area with a history of water problems?

Unemployment Insurance
This policy covers minimum payments on your bills if you find yourself unemployed. A better option is to build up an emergency fund to use in these circumstances.

Disease Insurance
Policies are available to cover specific illness, such as cancer and heart disease. Rather than trying to identify and cover specific illnesses, a good overall health insurance plan is usually the best option.

Insure for the catastrophic. Direct "saved” premium dollars (that would have gone to buy protection you don’t need) to build wealth.

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