Don't Buy Add-On Insurance

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Car rental companies make a ton of dough on add-ons like rental and travel insurance, but consumers might as well throw their money out the car window for all the good insurance does for them. That’s the view from the Consumer Federation of America, which is out with a new report stating that any add-on insurance is a waste of money.

In today’s economy, stating that anything is a “waste of money” is a serious claim. With Americans being extra careful about their spending, any added expense (or worse, any wasted expense) is to be avoided.

Does add-on insurance fit into that category?

The CFA certainly thinks so. Add-on insurance is defined by the CFA as buying insurance from those selling products -- such as cars, homes, furniture, electronics, and travel -- who also try to sell you a related insurance product. Think of a rental car company trying to sell you “temporary” auto insurance on that Chrysler Sebring waiting for you at the Fort Meyers airport. Or a travel agent who insists you’re your cruise to Cancun warrants an insurance policy.

“In our experience, insurance offered to you in conjunction with the sale of other products is often not needed, or if it is, can be purchased much less expensively from other sources,”  said J. Robert Hunter, CFA’s director of Insurance and former Texas Insurance Commissioner and Federal Insurance Administrator. “When you find yourself buying insurance you did not plan to buy, watch out. The person selling the insurance usually is being paid a commission or other financial inducement which drives up the price, making the insurance relatively expensive.” 

The CFA says that many global manufacturers are in on the gambit, too. The group says that companies team up with insurers to sell insurance for products like cameras or cars that can add some financial heft to their bottom lines. But when “reverse competition” kicks in, the CFA says, insurance prices can go sky high as manufacturers often award their insurance contracts to insurers who offer the highest kick-backs. Adds Hunter; “In some instances, reverse competition can more than double the price of the insurance.”

What can consumers do to avoid getting caught in the “kickback” trap? Job one, the CFA says, is to ask yourself three questions:

1. Do I really need this insurance? 

2. If so, do I already have coverage in my normal insurance policies, like life, health, disability, home and auto insurance?

3. If the answer is “no,” then ask if there are other less expensive options.  An insurance company or agent may be able to identify them.

Also, make it a priority to avoid specific kinds of insurance, as the CFA puts credit insurance, or insurance that pays for a product you bought on credit in the event of your demise, home title insurance, travel insurance, and auto collision damage insurance from car rental firms at the top of the list of types of insurance to avoid.

If you feel you can’t pass on add-on insurance, the CFA urges you to take your time with the decision, read the fine print on your insurance policy  (to see if it offers the specific coverage you’re looking for), and, above all, don’t “succumb” to high-pressure sales pitches from companies who may not care whether you get the coverage you need – just as long as they get their bonus commissions.

Your best bet: If you really need travel insurance, or car rental insurance, don’t buy it at the point of sale. Instead, approach your insurance company and check your options. In many cases, you might be covered already. If not, your insurers can offer you some decent coverage.

Nobody wants to waste money in this economy. But add-on insurance peddlers don’t see it that way.

It’s your job to see that they do.

Click here to see Mainstreet’s roundup of other, often unnecessary, insurance expenses.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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