Early Show financial advisor Ray Martin recommends which policies to snap up and which to ignore.
When buying insurance of any kind, Martin employs four rules:
- Buy insurance only to protect you and your dependents against risks that would be financially devastating.
- Buy the right type and right amount of coverage - don't overdose.
- Buy at the right time - or cancel when you no longer need it.
- Never buy for emotional reasons.
The Basics: Health, Auto, Homeowner and Life Insurance. Few people will argue that these are important. They won't necessarily cover all of your insurance needs, but they are the standard starting point and four policies that Ray recommends for everyone, "in the right dose, at the right price, at the right time."
NO - Life Insurance for Kids: Life insurance is only for people with dependents, not the dependents themselves. You don't rely on your kids for money, so you don't need a big chunk of change to come your way upon their deaths. Grandparents and others sometimes like to give such policies as baby gifts, but they are simply not worthwhile.
"From a mortality perspective, children (at least in the U.S.) are highly unlikely to die prematurely, so ultimately the insurance marketing to parents involves emotion, not logic. This type of insurance is highly profitable for the insurance companies," Martin says.
YES - Renters Insurance: If you're not a homeowner, you won't have homeowners insurance so get yourself some renters insurance. Landlords' policies only cover damage to the physical structure, not your possessions inside the apartment. Renters insurance typically covers fire, theft, vandalism, damage from electrical surges and faulty utilities and water/weather damage as well as liability coverage and medical payments coverage. These last two items will provide legal defense and claims-paying ability should someone claim an injury at your rented home. A good policy is fairly cheap - about $150 a year for $30,000 worth of coverage.
Surprisingly, only a quarter of all renters have this protection. But even replacing items inside a bare-bones apartment can be quite costly and you never know when problems may pop up. In the recent flood near Houston and the tornados in Ohio, almost none of the people affected had renters insurance.
YES - Natural Disaster Insurance: This makes sense if you live on a flood plain or in the path of hurricanes. FEMA makes this available to people in high-risk locations.
NO - Mortgage Life Insurance: As more and more people buy new homes or refinance existing mortgages, offers for this type of insurance are becoming more widespread. Basically, the coverage you buy will pay off your mortgage in case of your death. As Martin points out, this is one reason you have life insurance in the first place. You're better off buying some term life insurance than policies such as this.
YES - Disability Insurance: Most people don't think about disability insurance until they need it. By then, it may be too late.
"The risk of an unexpected disability is five times greater than an unexpected death and, is more costly than death due to the ongoing expenses related to a condition of disability," Martin says.
Many employers offer short-term coverage and about 40 percent of medium and large companies offer long-term disability.
"If your company allows you to buy disability through payroll deduction, have the costs deducted from your after-tax pay - that way any benefits paid will be tax-free," Martin says. "This way you can buy less coverage, because the benefits will be tax-free and you save money because you are not 'over-dosing' on this coverage.
"Remember, since most disability insurance provides benefits only until age 65, people nearing that age can cancel this coverager ."
NO - Travel Insurance: The number of people buying this insurance has jumped in the past year. Before September 11, 2001, about 10 percent of travelers bought it; now the percentage is closer to 20 percent. The most common travel insurance is a travel-cancellation policy, which typically costs about 4 to 7 percent of the trip's price.
Two other policies: flight insurance, which starts at about $8 per flight and covers you if you're killed on the plane; and medical insurance which covers doctor bills overseas or a medical evacuation and range from $25 for a few days of coverage to annual policies for over $2,000.
Travel coverage is unnecessary - losing money's never fun, but chances of suffering a devastating loss in these situations are slim, says Martin. Flight insurance in particular should be negated by a good life insurance policy. His one exception would be medical travel insurance.
"This is okay in certain situations," Martin says. "First, check with your existing health insurance plan and ask what is covered. You should do this before any trip abroad. If your plan does not cover certain items, then this coverage may be a good idea - particularly if you intend to go scuba diving, parasailing or engage in other high-risk activities."
Group tours will often offer their own trip cancellation insurance. Be aware that this doesn't cover the money you lose if the company itself goes out of business. Also, check the fine print on your credit cards - they often offer some travel coverage.
NO- Wedding Insurance: This insurance covers a variety of nuptial mishaps - no-show photographers, photos that don't turn out, stolen wedding gifts, reception sites destroyed by weather or going out of business basically, everything except cold feet. If something happens, the insurance pays for lost deposits or even may pay to reschedule the wedding. The insurance was first offered in 1993 and although it's a big hit in England, the coverage has been slow to catch on in America.
Chances of this happening are fairly small, and you can increase your chances of avoiding trouble by contracting only with reputable vendors, etc.
Fireman's Fund Insurance Company offers $3,000 worth of coverage for $195; Wedsafe offers a variety of coverage ranging from $7,500 for $128, to $50,000 for $399.
NO - Pet Health Insurance: This coverage definitely violates Martin's rule of not buying insurance for emotional reasons. However, more pet owners are beginning to purchase coverage for their furry friends and, according to The Washington Times, employers such as Miller Brewing Company, eBay and Office Depot are even offering this benefit. Employees who choose to participate are shelling out anywhere from $7 to $30 a paycheck for a basic plan that reimburses up to 80 percent of costs.
The industry's largest pet insurer said the average premium is less than $20. Americans spend $11.1 billion at the vet each year; a dog check-up will run you about $196 while a cat owner pays $104.
"Let's see," Martin says. "Thirty dollars per paycheck equals $720 per year. Keep Fido well fed and healthy and budget for additional expenses. Why pay for insurance you may never collect on?!"