The TV commercials where shoppers pick policies from off the shelf aren’t far off the mark from today’s market for financial products. You can insure your dog’s health or even Troy Polamalu’s hair. Given the right circumstances, many of these financial products are useful. However, not all financial products are created equal, and some provide little benefit for your family.
It’s not always easy to spot insurance that is useless. Sometimes it feels good to buy policies in order to alleviate fear and doubt that comes with uncertainty. These types of “feel good” policies come with a steep price tag and can easily cost you hundreds of dollars.
Life Insurance for Children
The purpose of life insurance is to replace income and cover expenses should someone in your family pass away. It makes sense to cover parents who are working. Parents hold down the job, collect their paycheck, and pay the bills. However, covering children does not make much sense.
Since your child is not working, there is no income to recover and no fixed expenses that need to be paid in their absence. There are funeral costs that would need to be covered. However, if you are going to be spending money every month for 18 years, you are better off saving up for those expenses on your own and placing it into an emergency fund.
Some extended warranties do provide good protection in the event your expensive electronic devices break down. However, these plans are often overpriced and not worth the extra coverage. If you are paying more than 25 percent in replacement cost by taking out an extended warranty, you might as well save up your money to buy a new gadget in the event something breaks.
Rental Car Insurance
Stop paying for car insurance you don’t need. If you have car insurance on a personal vehicle, then you can pass on the supplemental plan that the rental car company offers. That’s because most car insurance policies already cover rentals. If your policy already covers you, the only time you should worry about rental car insurance is when you are renting special types of vehicles. Standard insurance policies do not always cover luxury rentals or recreational vehicles.
Credit Card Protection
Credit card companies care about collecting on your bill every month. That’s why they sell insurance policies to help cover your credit card balance in the event that you lose your job or become ill. All you have to do is pay about 1 percent of your card balance every month and should you become unemployed, you can skip payments on your credit card for a few months.
However, you still will need to pay off your balance down the road and interest will still accrue on your account throughout the period you are not making payments. The only benefit to these policies is that you will not be assessed late fees on your account. It’s a benefit you can probably get for free, if you are proactive. Should you find yourself in an economic hardship, you don’t need credit card protection. You just need to ask for forbearance.
Credit Card Fraud Protection
Identity theft is common and can be challenging to resolve should you become a victim. Credit card fraud protection plans were designed to take advantage of this unfortunate situation. These plans offer protection against fraudulent purchases in the event that your card is stolen or used without your authorization. What most consumers do not know is that the law already affords broad protection from fraudulent use. In fact, losses are limited to $50. And many card companies have free, zero liability policies, giving you complete protection.
Billions of dollars are spent by families every year, needlessly purchasing these types of policies. Don’t be one of them.
JP is the author of the money blog My Family Finances, a site dedicated to helping families make wise financial decisions. He is also an MBA and works in corporate finance.