insurance

14 useless insurance policies

7. Extended warranties 
Why would you buy a two-year extended warranty on a new 42-inch plasma TV when the manufacturer's warranty covers it already?

NYU's Shapira says the answer has to do with what psychologists call framing, our state of mind in the moment of decision.

In this case, the risk of ending up with a suddenly useless $1,000 TV, however remote the possibility, seems greater than the $40 for the additional coverage.

"Companies like Circuit City make a fortune on the warranties they provide," he says, "even though in today's reliable consumer electronics market, defects are only going to happen once in 10,000, or whatever."

8. Flight insurance 
Statistics show that your chances of perishing on a commercial flight are far less than on the freeway, yet people still insure against it.

"Flight insurance is definitely not worth spending money on," Hungelmann says. "If you buy flight insurance, what you're really saying is, 'I'm scared to death that I don't have enough life insurance if I die.'

"What you should do instead is buy a cheap term life policy."

9. Flood insurance 
Forget flood insurance unless you live in a floodplain or have a walk-out basement.

Why?

"Because hardly anything is covered down there except the furnace and appliances; all the carpeting and personal property is not covered," Hungelmann says.

The chances of a 100-year deluge shorting out the washer and dryer in a walk-out basement are remote at best.

10. Life insurance for a child 
The purpose of life insurance is to provide for your family and loved ones after your passing. Although you can insure the lives of your children, why would you?

It's backward; the chances are far greater that they will outlive you.

Instead, use that money to buy an extra $50,000 term life policy on you, not them.

11. Mortgage life insurance 
Mortgage companies like to offer homeowners life insurance policies that pay off the old homestead when you kick the bucket.

"It's the same question: Who do you want your money to go to when you die?" says Hillebrand. "In a few cases, if you are older and sicker and regular life insurance is going to be hard to get or more expensive, you might want a mortgage policy. But short of that, I wouldn't recommend it.

"What you really want is well-priced term life to protect your family."

12. Optional group life insurance 
Optional group life coverage can be a lifesaver for those whose health has rendered them uninsurable.

But there's the rub: If you are a healthy nonsmoker, being lumped with that high-risk pool can wipe out any cost savings you might have realized with group coverage. What's more, should you leave your job, you can't take it with you.

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Explore a term life policy first before you sign up. To find the right policy for you, check out InsureMe, a Bankrate company.

13. Rental car damage insurance 
Everybody has been there: You stand at the rental car counter and the clerk asks, "Do you wish to waive the optional coverage?"

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