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Insurance Policies You Don’t Need

by Emily Guy Birken

In one of my favorite episodes of the television show Family Guy, a slick door-to-door salesman convinces the bumbling Peter to purchase volcano insurance. When Peter first suggests that they’d never had volcano trouble in Rhode Island, the salesman responds “Don’t you think we’re due for one?” which of course ensures his sale.

volcano eruption

Do you need volcano insurance?

Even though it would take effort to be as naïve as Peter, there are definitely times when it’s difficult to know if the insurance you are considering is worth your money, or if it’s just another example of volcano insurance. Here are four insurance policies that you can feel comfortable skipping:

1. Life insurance for children. The traditional purpose of life insurance is to financially provide for your family in the case of premature death. Since your children are not contributing financially to the family, and will most likely grow up to be safe and healthy, paying into premiums for their life insurance does not make sense. The money you would spend on premiums would be better spent in an emergency fund, a 529 plan for their education, or in an IRA.

2. Mortgage life insurance. On the surface, this seems like a reasonable policy. This insurance will pay off your mortgage in the event of your death, giving your family one less financial headache during a stressful time. However, a good life insurance policy should provide your heirs with enough money to handle the mortgage and any other bills that they will have to pay. There’s no need to purchase a separate policy for this—just make sure that your life insurance is adequate to cover your family’s needs. (caveat: mortgage life insurance can be a good idea if you have preexisting conditions and are ineligible for a term life insurance policy; otherwise, term is the way to go).

3. Credit card insurance. For those who carry a balance on their credit card, having a policy that will pay your credit card bill in the event that you are unable to do so seems like a smart plan. The benefits of these plans are relatively limited, however, meaning you’re paying a monthly premium only to have your benefits capped and still be in debt. It makes much more sense to send the amount of the premium toward your bill and try to get your credit card paid off. You’ll save money on interest in addition to avoiding having to pay another bill.

4. Cancer and other disease insurance. The sad fact of the matter is that many medical insurance policies have holes in their coverage. Because of that, specific disease insurance policies—and specifically cancer insurance—have become popular over the past few years to take care of the gaps in regular medical coverage. The problem with these types of insurance is that they are so specific, and they do not necessary cover everything related to the disease. For example, many cancer insurance policies do not cover skin cancers, which are the most common form of the disease. A better use of your money would be to upgrade your current health insurance. That way you’re covered no matter what happens.

When it comes to insurance, always make sure you take the time to do some research into what you need and what will covered before you sign on the dotted line. And beware volcano insurance salesmen!

Photo credit: Storm Crypt


Published or updated March 22, 2012.
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{ 7 comments… read them below or add one }

1 Kris @ Debt-Tips

Life insurance for kids is definitely something most people do not need. The ads on TV make it sound so appealing, since it is presented as some type of investment. And while that may provide some benefits, you are usually better off investing for an investment rather than buying insurance for an investment. And of course, the true purpose of insurance is to protect against loss, and while losing a child would be sad, unless they provide income to the family insurance is misguided.

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2 Cherleen @ My Personal Finance Journey

I definitely agree. We do not need to spend for life insurance for our children. Though we would always want to be safe and healthy, I still do not see any reason why we should spend for their insurance. I would rather put the money in an account and save it for their college education.

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3 Jonathan@ Friends and Money

I can’t believe that people actually take out life insurance for their kids. This is a serious waste of money and in the current financial crunch It’s important to re assess all insurance policies.

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4 Ryan Guina

There are times when a small policy for children may not be a bad idea. There is generally no reason to purchase a large life insurance policy for a child unless he or she is earning income which the family needs to maintain their quality of life (admittedly, this is rare and limited to children who work, such as child actors, models, etc.).

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5 Emily Guy Birken

I do know some young families who could not afford to take care of their child’s final expenses if (G-d forbid) something were to happen. For these families, the cost of life insurance premiums is relatively low, while trying to keep an emergency fund with enough money for a funeral in it would be very difficult with their current level of income. In those cases, it can be a reasonable expense.

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6 Nick

Totally agree. We have health, car, house, renters (we own 2 rental properties but rent where we live), life on my wife and me and that’s pretty much it. We do want to get an umbrella policy though. I think we have a bit of exposure still – just no reason for any of those junk policies.

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7 Kevin - Family Benefits

Telling people to upgrade their health insurance may not help many people dealing with cancer: many can’t, it doesn’t really help, and the alternative may be too costly.

Many people buy their health policy at work. Their employer determines the plan design, network, co pay structure etc. Employees get to choose between a handful of options if they are luck.

A big chunk of cancer related costs are non-medical: travel, lodging, child care, lost income, etc. Health insurance does not cover these items.

The alternative of buying coverage in the individual market is often a more costly option than group coverage. Employers often contribute to the premium, and employees pay using pre tax elections. An individual plan has none of these advantages.

Someone with a family history of cancer, or a lifetime smoker would find exceptional value with a cancer only plan. The costs are fairly low.

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