Forget About It: What Insurance You Do – and Don’t – Need

Insurance. It’s complicated and confusing, which is why many people end up with insurance they don’t need, while neglecting to carry the type of basic insurance they do need. So how are we to know? Today, I have a few common-sense guidelines to help untangle the mystery known as insurance.

Generally, you need four types of insurance:

TERM LIFE

You need enough term life insurance to replace your income for those who are financially dependent on you. How much? A good rule of thumb is eight to 10 times the breadwinner’s annual income. And if you are not financially responsible for anyone but yourself? You can confidently scratch life insurance off your list.

HEALTH

You need a comprehensive health policy or membership in a health management organization.

DISABILITY

You need disability insurance to provide income when you are unable to work due to a disability.

PROPERTY

You need homeowners (or renters) and automobile insurance to replace loss of property.

That’s it. If you have those policies, then generally you don’t need these 10 types of insurance:

MORTGAGE LIFE INSURANCE

This is very expensive life insurance from a lender that pays off your mortgage if you die. Your term life policy should take care of this should you die before the house is paid. You do not need mortgage life insurance. Save your money.

CREDIT CARD LOSS PROTECTION

If you are paying $10 to $20 a month in case a thief uses your card to run up a big balance, you’re just throwing money away. Federal law limits your loss to $50, and most credit card companies even waive that.

CAR RENTAL INSURANCE

Don’t throw $25 or more a day into the trash on supplemental insurance coverage. Chances are great your auto policy has you covered on rental cars. Ditto for the credit card you used to secure the deal. Check both before renting a car.

FLIGHT INSURANCE

This is really expensive insurance that pays your heirs if you die in a plane crash or lose a limb. Save that $60 because your health insurance will cover your medical, and term life policy is going to take care of heirs in that unlikely event.

CANCER INSURANCE

Single-purpose health insurance is expensive and rarely covers outpatient expenses. Your comprehensive health care policy covers everything — including cancer. Say no and keep the dough.

CREDIT LIFE INSURANCE

This pays the outstanding loan balance at the time of death. And it’s expensive. If you die, your term life policy will cover your debt. Instead of buying credit life insurance, why not use that money to reduce your debt?

CREDIT DISABILITY INSURANCE

This is similar but pays the minimum payments while you are unable to work. You’d be better off putting the premiums into your emergency fund so you’ll be prepared for all kinds of emergencies.

CREDIT CARD BALANCE INSURANCE

This one varies, but basically an amount is added to your bill each month to cover a policy that pays the minimum payments if you are out of work or disabled. It, too, is very expensive and just lines the pockets of the card issuer. Cancel the policy and put this money into your emergency fund or toward your debt.

ACCIDENTAL DEATH INSURANCE

At the cost of about $600 a year, you can save the money knowing that if you die in an accident — or any other way — your term life policy will pay your heirs.

IDENTITY THEFT INSURANCE

This covers the costs of repairing your credit, and maybe attorney fees, if your identity is stolen and used to harm you. You don’t need this insurance if you are carefully monitoring your credit reports (annualcreditreport.com). Tip: You may already have this coverage in your homeowners or renters policy. You might also have identity theft insurance or monitoring through your credit card from your employer.