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.
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!