Peter Boys, Boys Financial Services

When Buying Insurance Is A Waste Of Money

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The concept with any insurance is to cover losses that you otherwise could not afford, and it is your decision which scenarios you want to insure against.  For example it makes no sense to insure a toaster, but insuring a home, mortgage, or business loan is usually essential.  When at all possible, avoid the following scenarios when buying insurance is a waste of money.

1
Credit card balance insurance

Most of us have been offered this at some time.  Your credit card company offers to pay the "minimum payment" every month if you lose your job, become disabled, etc. The cost is around $1/month per $100 owing and often offered for free for a short period of time.  The catch is they will start billing you every month unless you call to cancel it.  And remember, if only the minimum payment is made, the credit card company will continue to charge their exorbitant rates on the remaining balance!

2
Creditor Life Insurance

This is life insurance that's tied to a purchase you've financed such as furniture, large appliances or a car, and generally it's not a good buy.  It doesn't pay out that often, and only pays off the balance outstanding.  This type of coverage is really cheap, which is why it's attractive to people.  Instead, put the money into paying off your purchase faster and save yourself some interest.  That's an investment that pays off every time.

3
Mortgage Life Insurance

Similar to creditor life insurance, this will pay off the balance of your mortgage if you or your spouse were to die prematurely.  When you purchase a home, you'll be offered mortgage life and your lender names themselves as the beneficiary, which means they get the payout.  A better plan is to purchase a policy that you own and control such as a term life insurance plan that will provide for your children, your spouse, or anyone else dependent on your income if you pass away.  If you purchase sufficient coverage your beneficiary will be able to pay off the mortgage plus have money left over for other needs.

4
Extended Warranties

Consumer Reports and many other experts recommend that in most cases you don't need this coverage.  Very often you're paying $60 to $100 for coverage that lasts an additional year or two, which means the appliance or electronic gadget you purchased is still working when the coverage expires.  Keep in mind that some credit cards provide a period of warranty for free if you use their card for the purchase.  There may be some instances the extra protection may be worth the expense if the cost or likelihood of repair or technical help is high such as with critical computer equipment.

If any of these scenarios describes your situation, do yourself a favor and check into the different types of personally-owned insurance that could benefit you and your family under these circumstances.

Our biggest insurance risks relate to personal liability and health, as most people could recover from the loss of a home or car, but losing their health could by itself prevent recovery.  Plus in today’s litigious society a multimillion dollar award could financially wipe out an individual found even partially at fault.

 

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