Have you ever seen someone use an umbrella indoors?
I know I haven’t. The mere thought of it is a little silly, to say the least.
It’s because the odds of you getting wet indoors is usually VERY, VERY low and, even if it did happen, it wouldn’t be the end of the world by any means.
Unfortunately, this is how many people use certain types of insurance coverage.
I wrote a post a few weeks ago about some of the types of insurance you need. As a follow up, in this post we’ll talk about 7 types of insurance coverage you can probably do without.
So, let’s get started!
1. Cancer insurance
With the advent of Obamacare, you really shouldn’t need “specific disease” insurance, such as cancer insurance. In most cases, these things are likely covered under your regular health insurance policy.
The odds of you actually utilizing a policy like this, therefore, are incredibly low.
With that said, it’s always wise to double check your particular policy to make sure you’re covered!
2. Accidental death and dismemberment insurance
Usually, term life insurance combined with a good long-term disability policy is a better bang for your insurance buck than these policies.
Even if your case is the exception, rather than the rule, make sure to read the fine print to check for conditions and exclusions and then weigh the costs vs. the benefits.
3. Extended warranties
I’ll admit, this one has some gray areas.
In most cases though, extended warranties don’t make sense for the consumer from a financial standpoint.
If you’re fairly risk averse, then consider “self-insuring” by taking the amount you would have spent on the extended warranty and stick it into a savings account designated for that purpose.
Over the long run, your bank account (and your net worth!) will likely thank you!
4. Cell phone insurance
If you’re worried about dropping or breaking your phone, investing in a good protective case (i.e. Otterbox, etc.) is all the insurance you should need!
If you’re not convinced, take the money you would have spent on the “insurance” and stick it in a savings account each month.
I’m guessing that over the course of 5-10 years, you’ll realize at some point that cell phone insurance is a heck of a deal…at least it is for the companies selling it!
And let’s be honest, if replacing your cell phone would devastate you financially, then you own the wrong cell phone.
5. Life insurance for children
Any time someone loses a child it is emotionally devastating and just the idea of it is pretty scary.
My wife and I lost our first child through a miscarriage after 12 weeks of pregnancy, so I can certainly relate to that fear.
Financially, however, paying for a child’s funeral will not usually be catastrophic to your financial situation, therefore, most of my clients can afford to “self-insure” for this risk.
And if you do happen to go through the unlikely, but devastating event of losing a child, many funeral homes will greatly reduce or eliminate the funeral costs if finances are tight.
6. Mortgage life insurance
Mortgage life insurance is a life insurance policy that’s only stated purpose is to pay off your mortgage in the event of your death.
Since this type of insurance is usually costly compared to a good term life insurance policy, skip the mortgage life and opt for term.
Not only is term usually a better deal from a cost standpoint, it will also help your beneficiaries pay off other debts, provide for lost income, pay for college, etc.
7. Short-term disability insurance
If you have a fully funded emergency fund (3-6+ months of living expenses), then you shouldn’t need short-term disability insurance.
As with most insurance policies on this list, many people who can afford to “self-insure” for this risk through an emergency fund end up paying for coverage they really don’t need.
What usually happens is that a slick insurance salesman at work convinced them that if they were injured, the world might end if they don’t have short-term disability insurance.
The reality though is that most folks should self-insure for this risk by taking the money you would have spent on this coverage and adding it to your savings account (notice a trend here?) until you have an adequately funded emergency fund.
8. Most products that mix insurance with investing
Insurance is a good thing and investing is a good thing, so, if I combine the two, it should be great.
At least that’s usually the case with certain life insurance policies, annuities, and other “hybrid” insurance policies where insurance is mixed with investing.
Most of the time, the same problems these fancy products and policies help solve could be solved in other ways, at a much cheaper cost.
Never say never…
Does this mean you should NEVER own these types of insurance policies or products?
Of course not!
For example, if the coverage is thrown in as a free benefit by your employer or your credit card company, then feel free to take advantage of it!
But odds are good that over the course of your lifetime, the costs of the types of policies listed above will FAR outweigh the benefits.
With that said, everyone’s situation is unique and knowing what types of insurance are right for your situation can be a pretty daunting task!
It’s important to partner up with an independent financial advisor (like SageOak) who will work alongside your insurance agent to give you an unbiased opinion and make sure you have the right type and amount of insurance coverage at the right price.
No one wants to be “that guy” who uses an umbrella indoors.
And the right financial advisor will help you avoid doing exactly that!
Want to talk more about your current insurance plan and whether or not you should make any changes?
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