While insurance can seem like a waste of money, there are certain types of insurance that are important. It’s rare that you actually get any benefit from making those monthly insurance payments. After all, how many times has your house been struck by an earthquake or a catastrophic fire? It just doesn’t happen very often, but sometimes it does.
On the other hand, there are several types of policies that don’t make a lot of sense for most of us.
Insurance you might want to consider purchasing:
1. Homeowner’s or Renter’s Insurance. If you own a house, your investment in your home and possessions is worth protecting. If you have a mortgage, you’re probably legally obligated to carry insurance. Renter’s insurance is very inexpensive since it only covers your belongings and not the building itself. That’s your landlord’s responsibility.
* If you have automobile insurance, your insurance company will often offer homeowner’s or renter’s insurance at a discount. It’s worth asking about.
2. Life Insurance. Think about carrying a life insurance policy if anyone else is dependent on your income. Even if you don’t have a family of your own, it would be considerate to have enough insurance to cover your funeral costs.
* Most employers offer some sort of inexpensive life insurance.
3. Health Insurance. It’s nice to be able to see a doctor any time you’re sick or injured. Health insurance is expensive, unless you have a very generous employer. Health insurance, though, is a definite necessity to cover the expenses of a major medical emergency. Most of us cannot afford the huge bills from hospitals or prolonged medical treatment.
* The most advantageous policy will depend upon your current health and age. There are many options to match your budget and needs.
4. Disability Insurance. Will you have any income if you’re unable to work? It’s possible to receive social security payments, but that can take months and it certainly won’t cover the rent, mortgage, or other bills.
* Disability insurance restores a percentage of your income, typically 50-80%, depending on the policy. Most policies will pay as long as you’re unable to work, up to age 65. Others are designed to pay for 5 or 10 years, regardless of age.
* As long as you have disability insurance, your financial situation doesn’t have to change dramatically if you’re unable to work.
Carrying all these insurance policies can be expensive. You may be able to offset some of the cost by avoiding other types of insurance you’re unlikely to need.
Types of policies you might want to consider avoiding:
1. Credit Insurance. This is designed to pay your credit card bills upon your death or disability. It may pay all of your balances or a portion of them. This insurance is expensive and often unnecessary.
* If you have life insurance and disability insurance, you’ll be fine. Credit card balances are unsecured debt anyway. That’s the risk the credit card companies take.
2. Pet Insurance. Most experts suggest setting aside a few hundred dollars each year for pet care. Careful examination of several policies shows that few pet insurance policies will pay out more than the cost of the premiums.
3. Child Life Insurance. The whole point of life insurance is to provide for dependents. Your children are unlikely to have any. Put the funds toward a college savings plan instead. If anything unexpected happens, you’ll still have money available.
There are a few other policies that rarely make sense: flight insurance, ID-theft insurance, and dread-disease insurance are just a few.
Insurance is a necessary part of a secure financial situation. It may seem like a regular waste of money since you may never see a payout, but that’s not true. Insurance is a cost-effective means of hedging risk. If you ever need it, you’ll be glad you have it.
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