What coverage should you have?
With all the bills you pay for feeding, dressing, educating, parenting, and entertaining your kids, insurance can seem like another burden on your strained family budget. But the checks you write for homeowners, life, and medical coverage serve an important purpose: They help secure your financial future.
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The same cannot be said for a lot of other insurances. Companies will try to sell you policies for almost everything from vacations to identity theft to life insurance for your child. In most cases, buying these plans is a waste of money. By just saying no, you'll save a bundle without giving up on your peace of mind.
collision insurance
If your car is at least five years old, there's a good chance you can do without a collision policy, which pays for repairs to your own vehicle. Let's say your old warrior has a book value of $1,700 and you pay $500 per year for collision insurance with a $1,000 deductible. If you total the vehicle in an accident, the policy will only pay out $700—barely more than what you pony up each year. Check your car's book value at nadaguides.com. If the annual collision premium exceeds 10 percent of the amount you can sell, it makes sense to dump the policy. And if you have a new car that's still under warranty (check your owner's manual), take a pass on mechanical-breakdown insurance—you're already covered.
travel insurance
Leave out those airport kiosk life-insurance policies that cover you in case of an accident. At around $60 per person per trip, they can seem like a tempting bargain. But as long as you have a term or whole life policy, you do not need the additional coverage. Also read your credit-card agreement: Some companies offer complimentary life coverage if you buy airline tickets with their card.
Think carefully before deciding to invest in trip cancellation insurance. While these policies seem like a smart investment—especially if you're paying upfront for a great vacation package—they're pricey (adding 9 to 12 percent to your travel cost) and won't reimburse you if you need to. Will cancel due to a work conflict or an illness that is believed to be pre-existing. For total protection, you'll need to spring for a comprehensive policy that can cost up to 18 percent of your trip. If it helps you sleep better at night, move on right away. "Just don't buy it from the same agency or supplier that booked your vacation," says Peter Greenberg, author of Tough Times, Great Travel. A reputable third-party insurer will protect you if the company fails before you can take off or travel.
credit-card balance insurance
This type of policy will pay off your credit-card debt if you become ill, become disabled, or lose your job. Looks good, doesn't it? But if you are unable to work, most disability policies pay enough to take care of your bills. And if you're temporarily unemployed, setting up an emergency fund to cover three to six months' worth of household expenses is a far more cost-effective protection, says Jean Chatzky, author of Make Money, Not Excuse. Instead of spending about 10 percent of your monthly balance for this insurance, you're better off using the money saved to pay off any credit-card debt.
credit-card theft insurance
If you get a call or e-mail from someone offering to sell credit-card loss-protection insurance for a nominal fee (perhaps $100 per year), hang up or press Delete. That person can claim that if someone steals your card, you will be liable for all fraud charges. But it's simply not true. Federal law limits consumer credit-card liability for unauthorized charges to $50. No wonder the Federal Trade Commission calls this type of insurance an outright scam.
identity theft insurance
It's a scary statistic: 10 to 15 million Americans have their identities stolen every year. So if you're a victim, it may seem like a no-brainer to pick out a $50-per-year policy to cover your costs. But first know what you are buying. This coverage does not cover money taken from your bank account by the thief. It only reimburses expenses you incurred in restoring your identity, such as phone calls, copy fees, and lost wages (if you need to take time off work to clear your good name). Many of these policies also exclude attorneys' fees, says Adam Levine, president of Identity Theft 911, a fraud-resolution company based in Scottsdale, Arizona. Also, it's possible that your homeowners policy already includes identity-theft protection.
Some policies just suck you up
long term care
This insurance protects you and your children from the rising cost of elderly care, if you have to go through your golden years.I need care at home or in a nursing home. This is a great policy - no if you're under 40. "By the time you buy until age 50, the premium should remain between $400 and $1,000 per year," says Marylee Driscoll, a columnist for ltcmonth.com.
Life insurance for children
The purpose of a life policy is simple: to support those who depend on your income or to take care of them if you die prematurely. So why do insurance companies keep sending you ads offering cheap life insurance for your child? Throw these come-ons out with other junk mail, and use the money to bolster your family's finances instead. "Saving for college and for your retirement is one of the best steps you can make for your kids," Chatzky says.
extended warranty
When you buy almost any appliance, you're likely to get a hard sell on a service contract that covers the cost of the repair. That's because these contracts are a huge money maker (for the seller), not a worthwhile investment (for you). These policies can cost up to a third of your purchase price, and they often do little more than duplicate the warranty you already have. Many don't even cover the specific parts that are most likely to break. Plus, many high-end credit cards (like gold and platinum) automatically double the manufacturer's warranty when you use them for purchases.
There are exceptions: For large consumer electronics that are heavily used and that require repair within three years (such as laptops, PCs, and refrigerators), extended coverage probably makes sense. Shop for the best deal (they vary widely in length and terms), and, as a rule of thumb, never pay more than 20 percent of a product's purchase price for an extended warranty.
rental-car insurance
Check with your auto policy and credit-card company before your next trip. You may find that one (or both) already provides all the personal-liability and collision-damage coverage you need. If so, you may be able to deduct the additional $15 to $30 per day rental companies are dying to charge you.
Still, you'd better read the fine print of the contract first. Some major rental-car companies (including Thrifty and Dollar) have recently begun charging renters who get into an accident to cover the depreciating value of the car and loss of use. Your automobile insurance or credit-card company may not pay these charges, leaving you stuck paying a portion of the bill. So you have to decide whether it is worth the calculated risk.
critical coverage
Avoid canceling or withdrawing these policies even if money is tight.
You know how expensive medical insurance is (an estimated 46 million Americans can't afford to get coverage). If you and your spouse do not have access to an employer health plan, visit healthinsurancefinders.com for the least expensive coverage options in your area.
Landlord or tenant' If you have a mortgage, you must have protection in case your home is damaged by fire, hurricane, or theft, or someone on your property is injured and sues you. Always buy a "replacement cost" policy that covers the total cost of rebuilding your home or replacing your property. And if you rent, don't rely on your landlord's insurance to protect you. His policy covers only the building itself. If flood, storm damage, or theft occurs, renter's insurance will cover the replacement cost of your damaged or stolen goods.
Auto While nearly every state requires drivers to have basic liability coverage, make sure you purchase a policy with a minimum limit of at least $100,000 per person injured and $300,000 per accident, as well as property-damage liability coverage. At least $50,000 (to pay for another driver's repair bill). If your ride is less than five years old, get comprehensive auto insurance, which pays for the repair or replacement of your vehicle if it gets stolen or damaged by hail, floods or high winds.
If you didn't apply at the time of marriage, fill out the paperwork as soon as you have a child. Stay-at-home moms also need life insurance: If something happens to you, your spouse will need extra money to pay for childcare and additional expenses. A 20-year term-life policy—which lasts until your children are old enough to support themselves—is more affordable than a whole life or cash-value policy; The latter two have investment components that increase annual payouts.
Disability statistics don't lie: As a young parent, you are more likely to have a disability as a result of an illness or accident than to die. So it is important to ensure that you will have a steady stream of income in case you are suddenly unable to work. smart a"Even if your employer provides it as part of your benefits package, you may need a Supplemental Disability Policy to make sure you don't care," says Jane Bryant Quinn, author of And Simple Financials. that your total payout equals 60 to 70 percent of your potential lost income." Strategies for busy people.
Originally published in the May 2009 issue of Parents magazine.
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