3 Types Of Insurance You Definitely Don't Need


The Good, The Bad, And The Insurance You Don't Need

You can buy insurance for almost anything imaginable. Some are absolutely necessary, like health or auto insurance. Others may end up costing a lot and providing very little. Since most people like to keep the money they make, here’s a look at three types of insurance you don't need:

1. Extended Warranties

An extended warranty is an offer by the retailer or manufacturer to cover repairs and damage to your recent purchase that lasts longer than the typical coverage. For example, if you have just purchased a new $1,000 laptop and the salesperson offered an extended warranty for two additional years for just $150—the average consumer might see this as a great deal, considering the potential costs of something going wrong outside of the usual warranty. A standard warranty, however, comes with most products and lasts about a year. Places that offer an extended warranty are not doing it out of the kindness of their heart: Companies keep track of data relating to product failures and repairs. They know exactly how often your new appliance will break down over the next couple years, and are willing to bet on those odds by offering you an extended warranty. The percentage of people who end up needing the warranty is typically very low. Consumer Reports advises staying away from these warranties, because retailers who offer them pocket 50 percent of the price, products seldom break within the allowable period, and the average cost to repair is close to the cost of the warranty. This is a very profitable business for retailers and statistically unnecessary for consumers.

SEE ALSO: Do You Really Need Insurance?

2. Rental Car Coverage

Every time you rent a car, the customer service agent will push for you to purchase insurance, usually a loss or damage waiver or collision damage waiver that can add several dollars to the daily cost. Many drivers purchase it out of confusion and the desire to feel safe, especially if they are unprepared and a long line of customers stand waiting behind them. Generally, you are already covered under your existing auto policy or by the credit card used to make the purchase, and should therefore not purchase coverage offered by the rental company. Selling coverage is usually just a way for the rental place to make extra money, so buying it is unnecessary. Be prepared before you turn it down though. Always read the fine print first and don’t assumeanything! Coverage and protection can change, there may be certain provisions you are not aware of or the credit card might cover losses, but not liability. Call your auto insurance provider or credit card company before you leave to clear up any confusion. If it’s a business trip, check with your company’s travel policy. Many larger businesses provide coverage as a courtesy to employees.

SEE ALSO: Securing Your Car With Mercury

3. Private Mortgage Insurance (PMI)

The PMI was designed to protect lenders from borrowers who are unable to pay a mortgage. Lenders usually require PMI if the borrower cannot make an initial down payment of at least 20 percent of the value of the home. This seems like a good idea because it allows a home buyer to make a smaller down payment. But remember, PMI is not designed to protect you in case something goes wrong, and it can add tens of thousands more to the cost of your home over the total lifetime of your mortgage. The law now requires the lender to cancel PMI once the loan has been paid down to 78 percent of the original loan, but don’t assume the lender will be courteous or quick in doing so. If the value of your home has risen due to improvements from a recent remodeling or naturally through changes in the market, this could change the loan-to-value ratio and therefore qualify you to cancel the PMI. Keep an eye on possible changes. The simple way to avoid paying for private mortgage insurance is to put down at least 20 percentand eliminate the requirement altogether. For many people this might be difficult, but remember it’s a method to get you to pay for a house you might not be able to afford. By waiting a little longer until you can afford the minimum amount, you can avoid extra PMI payments each month.

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