At its best, insurance helps protect against events that could send your finances into a death spiral. Crucial products include insurance against serious car crashes, the loss of or damage to a home, and the loss of income due to death or disability.
Other products? Many offer little value, or they’re filled with exclusions and caveats. Following are some potentially dumb insurance buys:
1. Identity theft insurance
Federal law limits your liability from credit card fraud. So, even if a thief uses your credit card, you’re off the hook if you report the theft promptly. According to the Federal Trade Commission:
Under federal law, the amount you have to pay for unauthorized use of your credit card is limited to $50. If you report the loss to the credit card company before your credit card is used by a thief, you aren’t responsible for any unauthorized charges.
Most card companies go a step further and offer $0 fraud liability.
Report a debit card missing within two business days after you realize it’s gone, and you are liable for no more than $50 in stolen money. Wait longer to report, and you could be responsible for up to $500 — or might even face unlimited liability, the FTC says.
Repairing your credit and damage to your identity can be time-consuming and costly. But the National Association of Insurance Commissioners says identity theft insurance only offers so much protection:
Identity theft insurance cannot protect you from becoming a victim of identity theft and does not cover direct monetary losses incurred as result of identity theft. Rather, this coverage pays for expenses related to reclaiming your financial identity, such as lost wages, attorney fees and documentation reporting.
Alternative: Protect yourself before you’re hit. Monitor your bank and credit accounts regularly. Get three free annual credit reports. If you think your identity has been compromised, place a 90-day fraud alert on your credit file. Finally, weigh the pros and cons of freezing your credit.
2. Travel insurance
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Travel insurance can be confusing. There’s protection against canceled trips, interrupted trips, medical expenses and many other risks. Policies vary in quality and in coverage. Some cover many eventualities. Others insure against a single risk, like a medical evacuation.
Travel insurance can be a waste of money when if your policy is riddled with exclusions, or you choose a policy that doesn’t cover the risks you are likely to encounter.
However, Money Talks News founder Stacy Johnson notes that there are situations where travel insurance makes sense. To find out more, check out “Ask Stacy: Should I Buy Travel Insurance?”
Alternatives: You may already be covered for some of these situations through your homeowners, life, auto or health insurance. Credit cards also may offer some forms of travel insurance, such as for lost luggage, theft and life coverage.
3. Dental insurance
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If you have dental insurance through work, you’re golden. If you have to buy your own policy, however, don’t buy it thinking you’ll collect thousands of dollars’ worth of implants or other complex treatments. Your policy might just pay 50% for oral surgery and restorative care. It may not cover cosmetic dentistry at all.
Alternatives: A discount dental plan can get you discounts ranging from 10% to 60% on all of your dental visits and procedures. Other options for cheaper dental care include charitable clinics and dental schools.
4. Children’s life insurance
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Adults buy life insurance coverage for themselves to provide for their families in case they die. Arguments in favor of taking out life insurance on children include locking in insurance for them at a young age in case it becomes impossible or too expensive to insure them later because of illness or playing high-risk sports. Some advocate coverage for possible funeral expenses.
But unless the family depends on the child’s income, there’s no need to insure his or her life.
Alternatives: Save for the child’s education or open an investment account for him or her. If necessary, you could use those funds to pay for death expenses without giving a penny to insurers.