Avoid buying insurance that you don't need. Chances are you need life, health, auto, disability, and, perhaps, long-term care insurance. But don't buy into sales arguments that you need other more costly insurance that provides you with coverage only for a limited range of events. It's always preferable to acquire broad coverage. Here's a rundown of coverage that you can probably do without:
- Rental car insurance. You probably don't need rental car insurance, despite the often-vigorous efforts by the rental agent to sell you this costly coverage. Most personal auto insurance covers accidents involving the car you rent for personal use. In addition, most major credit cards also cover rental car damage when you use a credit card to rent the car. Check with you auto insurance agent and credit card provider for more details.
- Travel insurance. It usually pays to skip airline insurance to cover lost or stolen items when you travel. Again, your homeowners and renters insurance should cover you. In addition, airlines typically reimburse passengers up to $3,000 for lost or stolen domestic baggage. Have you paid for your ticket with a credit card? You already may have additional lost baggage coverage.
- Trip cancellation insurance. You don't need travel cancellation insurance anytime you travel. Most airlines will let you change your plans for a fee, say $50 or $100, depending on the carrier. Trip cancellation insurance might be a good idea, however, if you are planning to take an expensive cruise and are concerned you may have to cancel.
- Critical illness insurance. Stay away from a critical illness policy if you already have health insurance and, perhaps, long-term care insurance. These policies only protect you in the event some specific illness befalls you, like cancer. It's a waste of money.
- Mortgage insurance. Avoid insurance that will pay off your mortgage if you die unless you're ineligible for term life insurance. Reason: Mortgage insurance coverage declines as you pay down your mortgage, yet the premium stays the same. By contrast, the value of the death benefit on term life insurance doesn't decline and is usually far cheaper. In fact, the commission on some mortgage insurance policies is over 90% of the premium cost.
- Non-medical life insurance. You may get a solicitation in the mail offering you life insurance that doesn't require a medical examination. If you're near death, I guess you have nothing to lose. Otherwise, this coverage is shamefully expensive.
- Identity theft coverage. Generally, you can forget identity theft insurance -- or credit report monitoring services, for that matter. Many homeowner's insurance policies already cover identity theft. As for the credit report monitoring service: You're already entitled to one free credit report annually. Plus, there are a number of other circumstances under which you may get a free credit report -- including, if you're an identity theft victim.
- Appliance and auto service contracts. Last on the list of coverage that's probably worth a lot less than it costs is a service contract for appliances and cars. One noteworthy exception to this is that it's often wise to obtain a service contract on your computer.