Eight types of insurance that are a waste of money
THE STACK #14Insurance is one of those things we hate paying for, but we are happy we have it if we ever need it.
When used right, insurance is a tremendous financial tool as it helps us cover the unknowns in life.
There's a reason why the insurance industry is booming. Insurance Brokers and Financial Institutions have mastered the art of pushing unnecessary insurance products on us because they know at the back of our minds, we'll always have that nagging question of "What if?"
But the truth is, we don't and won't need most of the insurance policies we pay for, which ends up being an unnecessary bill and adds to our expenses.
So with the plethora of insurance products, how do you know which ones to accept and which to reject?
Let's start with the ones you DON'T NEED.
THE STACK
1. Credit Card Insurance
This is a type of insurance that pays off your credit card balance if you become unemployed or disabled and are no longer able to pay your credit cards.
Why you don't need it:
✕ This is an absolute waste of money. The monthly premium gets added to your balance which ends up getting charged interest - if you don't think this is criminal, I don't know what else to tell you.
What to do instead:
✓ Pay off your credit card balance. No balance, no need for insurance
✓ Have an emergency fund that can help cover your bills in the event you lose your job
2. Gadget Insurance
If you can shell out almost $2,000 for a phone, you can afford to pay $100 to replace a broken screen, and you certainly don't need to pay $249 for insurance, especially if you'll still be expected to pay part of the repair cost anyway.
Yes, I'm talking about Applecare.
Why you don't need it:
✕ You don't need insurance on gadgets that are easily replaceable.
What to do instead:
✓ Pay for the repair out of pocket; it'll still be cheaper than the insurance
✓ A broken phone screen isn't the end of the world 🤪
3. Mortgage Life Insurance
This type of insurance pays off your mortgage in the event of your death.
Why you don't need it:
✕ The premiums are expensive and can only go toward your mortgage payment.
What to do instead:
✓ Buy Term Life Insurance and account for your outstanding mortgage when taking out a policy
4. GAP Insurance
This type of insurance pays off the difference between what you owe on your car and what your auto insurance covers if your vehicle becomes totalled.
Why you don't need it:
✕ It's unnecessary, and a good comprehensive policy should cover a replacement vehicle of equal value
What to do instead:
✓ Use those premiums towards the balance of your car loan instead. That way, you can pay off your car faster
✓ Do not take out a loan on your car that is more than five years (or you can't pay off in 5 years)
✓ Buy a car that retains its value and depreciates slowly
5. Rental Car Insurance
This type of insurance covers damages to a rental car.
Why you don't need it:
✕ Most auto insurance policies also cover rental cars
What to do instead:
✓ Update your auto insurance policy to cover rentals if you'll be using them frequently
✓ Your credit card could also cover insurance on rentals
6. Life Insurance on your kids
This is a type of Life insurance a parent carries out on their child. Most people do this so their kids have a lower premium as they age.
Why you don't need it:
✕ Life insurance is meant to replace income in the event of death; unless your young kids have dependants and are the breadwinners of the home, they don't need this.
✕ Term life insurance for a healthy adult is not as expensive as most whole-life salespeople paint it out to be. There is no need to pay for it for your child for 18+ years.
What to do instead:
✓ Use those premiums to open an RESP or 429 for your kid instead
✓ Invest in assets like low-cost index funds that will be useful to them when they grow up
7. Whole Life Insurance
This type of Life insurance has a death benefit and cash value attached to it.
Why you don't need it:
✕ The premiums are crazy expensive (10-15x the cost of Term Life Insurance)
✕ Most of the premium goes to admin costs and fees during the first few years
✕ The cash value doesn't exceed your premiums for at least 5-10 yrs
✕ The returns are subpar
What to do instead:
✓ Get a decent Term Life insurance policy
✓ Invest the difference
8. Identity Theft Insurance
This type of insurance notifies you if someone steals your identity
Why you don't need it:
✕ It doesn't cover any money they might have stolen
What to do instead:
✓ Check your credit report for free using apps like Credit Karma and Borrowell to monitor any unusual activity, such as someone opening up a credit card in your name
✓ Set up mobile alerts with your bank
✓ Use a third-party authenticator app for your banking
✓ Use a third-party password generator and change your passwords frequently
Now there might be personal circumstances that warrant an extra insurance policy, and that's fine, but make sure that insurance is absolutely necessary and not shoved down your throat by the nice-looking salesperson.
You might be wondering, if not insurance, then what?
The answer is simple: An emergency fund.
Many of these mishaps can be covered by having an emergency fund.
All that money you're wasting on premiums can go towards building your emergency or, as my friend calls it - Your Peace of Mind Fund.
And the thing I love about an emergency fund is that IT'S YOURS!
If something terrible happens, you can use it, but if something bad doesn't happen, you also get to KEEP IT!
If you have any questions or objections, please REPLY; let's chat!
I've talked an ear full already, so I'll spare you the rest of THE STACK.
But until then...Keep Stacking!
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