Risky BusinessInsurance is a tricky business as you are essentially paying to protect yourself from something that may or may not occur. But does a future full of endless possibilities require that we insure ourselves against each and every one?
While the answer to that question isn’t simple, Brian Smith, Insurance Edge adviser to American Express, does acknowledge many Americans end up with coverage that they don’t need since they often have it already.
For example, married couples often end up with overlapping extensions in their life and health insurance policies, particularly when neither reads up on what’s included in separate policies. Additionally, consumers can opt for policies that aren’t worth the expense.
“Sometimes, buying as much insurance as possible isn’t the best advice,” Paul Berger, a Florida insurance attorney who focuses on disaster law, says.
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Risk AssessmentHow can you tell if you’re under- or over-insured?
“At least look at your insurance policy and read it,” Smith says, explaining that you should pay close attention to the exclusions, which tell you what is not covered under a particular policy.
Second, consider consulting a qualified, licensed insurance agent, who may be able to answer any questions you may have.
And finally, be wary of any insurance offered by a third party, such as traveler’s insurance offered by the online search engine that you used to book a trip, for example.
Of course, some necessary insurance policies are easier to spot than others. Basic homeowner’s insurance, for example, is not something people wisely forgo.
MainStreet takes a look at some insurance options to determine what’s worth the price.
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Rental Car InsuranceVERDICT: Skip it.
Most people are insured against accidents in a rental car through either their own auto insurance policy or through their credit card contract, provided they use that card to pay for the rental and decline the collision damage waiver when reserving and picking up the car. Also, this might go without saying, but by the name on the credit card has to match the person driving the car, if and when there is an accident.
Visa offers rental insurance to all its cardholders while American Express has only one card, the Delta Skymiles Option Card, that does not offer the benefit. Mastercard and Discover, meanwhile, offer rental insurance to elite members. According to Credit.com, most plans cover vehicles rented up to one month, and cover up to $50,000 of damage or loss
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Trip Cancellation InsuranceVERDICT: Skip it, especially if the flight didn’t cost that much to start.
“Most trip cancellation insurance costs $15 to $25,” Berger explains. “For a $100 flight, that’s 10% to 15% of the total cost of the trip.”
Berger also points out that most trip cancellation policies stipulate that travel accommodations be canceled for medical reasons if they are to be reimbursed. This makes them useless to frequent fliers prone to rescheduling business trips. The one caveat is if you are going on an expensive cruise or taking an exorbitantly pricey flight. Otherwise, “dollar for dollar, it’s just not worth it,” Berger says.
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Flood InsuranceVERDICT: Get it.
Flood insurance is typically excluded from most standard homeowner’s insurance policies. You have to opt in, and pay extra, to protect your house from a flood, an additional cost many homeowners not living in a flood zone tend to forgo.
But Berger warns that flood insurance, which is relatively inexpensive in low-risk areas, may actually be worth it. Consider the massive 2009 flood that occurred in Atlanta, an area considered at the time to only have a .02% chance of flooding.
Check out this MainStreet article for more information on how to insure against disaster.
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Extended Warranty Insurance
VERDICT: Skip it.
Similarly, extended warranties are covered under many credit card agreements. Capital One, for example, doubles the original warranty time period and duplicates the coverage of the original manufacturer's warranty up to a maximum of 12 months on most items you purchase, as long as you purchase the product with your card and properly register the original warranty as required by the manufacturer.
Additionally, Consumer Reports reported last year that most extended warranties cover just a one- or two-year window beyond the manufacturer’s standard one-year warranty, and can sometimes exceed the cost of any repairs that become necessary.
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Kids’ Life InsuranceVERDICT: Skip it.
Some insurance brokers may try to sell families life insurance for their children by pointing out that the policy would cover the costs of a funeral in the event of an unfortunate death. However, while these policies may in fact fund a $5,000 to $10,000 funeral, a death before the age of 20 is highly unlikely, and the money that parents often pay for a policy does not add up over time.
In fact, Berger says, young singles may also want to consider holding off on purchasing a policy.
“The general rule of thumb is that if you don’t have dependents, you don’t need life insurance,” he says.
Check out this MainStreet article for more information on whether or not life insurance is right for you.
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Collision InsuranceVERDICT: Maybe.
“Collision insurance for a vehicle that is low in value is not worth the price,” Smith says, explaining that you should opt out of this car insurance extension if either the deductible or the yearly premium surpass the cost of the car.
Similarly, car collectors may not want to insure any autos they’re not taking on the road recreationally under a standard auto insurance policy, as collectors or specialty insurance can protect the vehicles for much less.
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Earthquake InsuranceVERDICT: Depends.
Homeowners who live in high-risk areas, such as California, should definitely add this to their homeowner’s policy. However, earthquake insurance, which covers both property and belongings, tends to carry a high deductible, generally ranging between 2% and 20% of the replacement value of a house. This means those living in high-priced houses in low-risk areas may have some number crunching to do before deciding on the extension.
Berger cites one client he had in Massachusetts who realized, after doing the math, that the only way his policy wasn’t a complete waste of money was if every inch of his house was demolished in an unlikely quake.“He decided against the insurance,” Berger says.
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