Save Money on Insurance – Skip These Insurance Policies You Don’t Need!

Fear sells, and nothing is more fearful than the future. Insurance agents have known this for ages, and the most unscrupulous of them will play up the fear factor to the hilt. That’s not to say that all insurance is unnecessary or that all agents are fear mongers. Insurance has a definite purpose – to protect you from the financial risk of some future event that, while unlikely to happen would be financially devastating if it were to happen.

Many insurance policies sold today are simply unnecessary in most cases. Knowing which policies are needed and which aren’t will go along way toward arming yourself with the knowledge needed to protect yourself from less honest agents.

1. Private Mortgage Insurance (PMI).

First up on the hit parade is the onerous PMI. Many homeowners only become aware of this after they buy a home an see their monthly mortgage payment has this extra fee included. PMI has nothing to do with protecting you or your home. It’s insurance for the bank to insure against the possibility that you default on your mortgage.

You didn’t expect the bank to pay for its insurance, did you?

Private Mortgage Insurance is required for loans with less than 20% equity – either a refinance for more than 80% of the value of the home, or a mortgage with less than a 20% down payment.

PMI can only be avoided in the initial opening process of the loan, after you’ve got the loan you have to wait until you have at least 20% equity in the home. This can be due to appreciation in the home’s value, which is unlikely in the current housing market, or by paying down the loan. Homeowners can accelerate this process by making extra payments – just make sure they are principal only payments.

(check out Why A Mortgage Loan Without PMI Is A Bad Idea.)

2. Extended Warranties.

An extended warranty is basically insuring against a breakdown of the product outside what’s covered by the basic warranty. That may mean a breakdown after the basic warranty has expired, or a breakdown of something not covered by the basic warranty.

Unless you’re purchasing a high-ticket item, the warranty is likely to cost almost as much as a total replacement. I paid $115 for my first lawnmower. At the time of check out, the sale clerk tried to upsell me on a 3 year extended warranty. I would “only” cost me 30 bucks a year. That would have been $90 in total – for a $115 lawnmower!

The dirty little secret on most warranties is that they only cover the things that rarely go wrong to begin with. So in most cases, you’re better off playing the odds that it won’t break. This is especially true if you save up the entire purchase price of the item before buying, and don’t buy on credit. Also, waiting for prices to come down helps too. I might be tempted to get the extra warranty on a $5,000 new flat screen television, but a $700 one? Not so much.

But then, the thought of spending so much on a “want” makes my frugal self revolt.

3. Automobile Collision Insurance.

Collision insurance is meant to cover the cost of repairs if your vehicle is involved in an accident. This isn’t necessarily useless. It depends on your financial situation and your car. I drive old cars that I can either pay for entirely or pay for mostly, leaving me with a lower loan amount.

Banks typically require you to carry collision insurance, so if you have a loan you will likely get stuck with this bill. But after the loan is paid off, the car is likely worth less that the insurance premiums you’re paying (are darn close)! In which case, you’d be better off putting that money into a savings account for car repairs (should they arise) or a new(er) car.

4. Rental Car Insurance.

People buy this?

Apparently they do, but they probably shouldn’t. Most people rarely need a rental car while their car is in for repairs, and if they do the cost is far cheaper than what they would pay in premiums. Personally, the few times my car has been in the shop long enough to need alternative transportation, the shop has provided either a loaner car or paid for the rental car.

5. Flight Insurance.

I’m not sure what this is meant to cover. I gather it’s meant pay your survivors should you die in a plane crash, but your life insurance would do that anyway.

6. Water Line Coverage.

Ah, now we’re getting to the really fringe insurance types.

This policy would cover the repair costs of the water line that runs from the street to your house. The likelihood that this would ever become a problem is slim – especially in new neighborhoods and given the relatively short distance covered in most suburban neighborhoods.

7. Life Insurance for Children

Life insurance is meant to cover the income of the insured in the event that they die prematurely. Children don’t have dependents to worry about. Some agents try to sell this kind of insurance as an investment for the child’s future. This gets to the Term Life Insurance vs. Whole (or Universal) Life Insurance debate. (see Life Insurance: What kind should I buy?) The same is true in this case – skip the whole life policy and invest the money that would go toward a premium in a Roth IRA for the child. (See Secret # 2. Make Your Grandchild a TAX-FREE Millionaire!) It will perform better with less fees and he’ll have access to the contribution amounts for his first home, while the rest will continue to snowball toward retirement.

8. Credit Card Loss Insurance.

This is meant to cover your expenses if someone steals your card or makes fraudulent purchases. It’s a complete waste because you’re only liable up to $50 by law, and most credit card companies wave that for good customers.

9. Mortgage Life Insurance.

Mortgage life insurance pays off your house in the event of your death. This is useless, since it’s the purpose of Life insurance to begin with , only life insurance will pay off the mortgage, and your children’s college expense and anything else you need.

10. Unemployment Insurance.

With government unemployment benefits lasting over a year, you’re far better off building an emergency savings account and using that to supplement the unemployment checks. If you can make Unemployment Insurance premium payments, you can make contributions to an emergency fund.

Check out the inspiration for this article and 5 more unnecessary Insurance Policies.

Related Posts:

• Cheat Sheet: How to Buy Life Insurance (Infographic).
• When is it Ideal to Drop Collision Auto Insurance?
• When To Switch Car Insurance.
• Is Gap Insurance A Good Idea?
• What Not To Tell Your Insurer.

How To Reduce Car Insurance Costs In 5 Easy Steps.

Car insurance is one of those things people love to hate. It’s mandatory in many states, and most people think there isn’t much they can do about the cost other than shop around every few years. But there are some things that can cut costs even further, and a few that will help avoid unnecessary costs in some situations.

1. Can you drop collision insurance?

As your car gets older and depreciates (loses resale value) there comes a point in time where it’s worth less to replace than you would pay in collision coverage. Collision insurance exists to cover repair expenses due to a collision, but the insurance company will not pay more than the car is worth regardless of the repair costs. Once the resale value of the car drops below the amount you pay in your premium for collision, you’re better off dropping the collision coverage and putting that money into a high yield savings account for your next car (or repairs if you can’t afford a newer car).

To find your car’s current resale value, use the Get Your Car Value tool at Kelly Blue Book (kbb.com).

2. Buy used, or buy GAP.

As discussed in the point above, a new car depreciates the minute you drive it off the lot. Now consider what happens if you buy a brand new car for $25,000 and get into an accident a few weeks later. Say this particular car is now only worth $20,000 but you’ve got a loan for $25,000. The insurance company will only cover up to the current value of the auto, which is $5,000 less than you owe. This is where GAP insurance is a good idea because it covers the gap made by the difference in what you owe vs. what the car is worth.

GAP insurance is a good idea IF you buy new. A better idea is to buy slightly used.If you buy a car that’s 2-3 years old, you end up with a car that’s already experienced the bulk of its depreciation, but is still in very good shape. If you’re disciplined and plan ahead you can buy this new-to-you car with little if no financing. Either way, the chances are that whatever amount you end up taking out a loan for will be below the value of the car and so you can skip the GAP insurance and save even more money.

3. Keep your credit score in good order.

Head over to AnnualCreditReport.com and check your credit history. The report is truly free (not free with purchase of some other service, like the credit report site with the catchy commercials..) and you don’t need to buy your credit score, though you can. You basically just want to make sure all the items in your history are up to date and correct. Each agency has its own proprietary score that should give you a general idea of where you fall on the poor to excellent scale.

The idea here is to get to and stay in the excellent range because more and more insurance agencies are checking credit scores of prospective clients, and basing premiums on that score.

Don’t have an excellent credit score? No problem, just follow these tips to improve your credit score and over time you’ll be in excellent shape. After that, you can shop around for a lower rate.

4. Know your worth.

Well, know your car’s worth anyway. It’s a dirty little secret that many insurance companies offer incentives to claims adjusters to minimize the payout to customers when a claim is filed.

It is to your benefit that you be aware of this and don’t accept the first decision if you feel the agency is not meeting their obligation to pay the full amount of your claim.

Know how much your car is worth both as a trade-in and on the open market (again, use Kelly Blue Book’s Get Your Car Value tool) before entering into negotiations with the claims adjuster. If there is an injury involved, have a full understanding of the extent of the injury and speak to an attorney if necessary.

5. “I have this friend who…”

Some insurance companies may view a call as a claim and adjust rates accordingly, even if you’re only asking whether a specific incident is covered. Even worse, the claim may go in a comprehensive report that other insurers use when determining what rate to charge customers for premiums!

In other words, don’t call your insurance agent to ask if the mirror your son broke with his cave-man style baseball swing is enough to meet your deductible. This could be considered a claim by some agencies, as it pertains to an actual event. The better course of action is to be vague in your question. Only ask what your deductible is, or use the old “my friend” ploy. For example:

“I have a friend and his son broke the mirror on his car but his insurance company told him that it didn’t meet his deductible and he’d have to pay out of pocket. This got me wondering about my policy and what might happen to me if I were in his place..”

Keep any discussion as general as possible until you know what’s covered and what’s not and where you stand in the matter. Otherwise, you could end up paying more in the end.

Related Posts:

• When is it Ideal to Drop Collision Auto Insurance?
• When To Switch Car Insurance.
• Alternatives To Pet Insurance (Tips For Doing Without Pet Insurance).
• Save Money on Insurance – Skip These Insurance Policies You Don’t Need!
• How to Find the Best Place To Put Your Savings.

Average Auto Insurance Costs by State.

Have you ever wondered which state is the most expensive to insure a car, or which is the least expensive state for auto insurance? Here’s a list of average insurance costs by state that may help answer those questions.

I live in the once great state of New York, and I have to admit I’m quite surprised to find that while NY seems eager to compete with California in the race to bankruptcy, New York is just about in the middle when it comes to auto insurance costs.

Here’s the top 10 most expensive states for auto insurance, and the average cost:

1. Michigan, $2,541

2. Louisiana, $2,453

3. Oklahoma, $2,197

4. Montana, $2,190

5. Washington, D.C., $2,146

6. California, $1,991

7. Mississippi, $1,896

8. New Mexico, $1,896

9. Arkansas, $1,836

10. Maryland, $1,807

I’m not surprised to see that Michigan is #1. After all, they’ve practically been living in a depression for the better part of a decade now, and probably have to tack on hundreds of dollars in fees just to slow the pace of their economic decline. Also, with cities like Detroit that have a reputation for high levels of crime, you’ve got to figure auto theft is going to drive costs up as well.

Also, these costs are a function of the number of uninsured drivers in the state, and Michigan actually guarantees unlimited personal injury protection payments to people injured in auto accidents! That means insurance companies are on the hook for up to $480,000 per case, plus 3 years lost wages and the tax payers foot the bill for the rest. Of course, the insurance companies have to pass those costs on to the insured drivers, causing rates to rise and exacerbating the problem even more. Way to go Michigan.

You see something similar in Louisiana, where courts tend to award larger than average payouts in auto injury cases, driving up the cost of insurance.

Oklahoma blames their high costs on weather related claims.

So where is the cheapest place for auto insurance?

Here are the 10 least expensive states for auto insurance:

41. Arizona, $1,280

42. Utah, $1,272

43. Virginia, $1,237

44. Iowa, $1,179

45. North Carolina, $1,154

46. Ohio, $1,152

47. Tennessee, $1,146

48. Wisconsin, $1,128

49. Maine, $1,126

50. South Carolina, $1,095

51. Vermont, $995

There aren’t 51 states in the union, so obviously this list include the District of Columbia (i.e. Washington D.C.), which incidentally is also a high crime site and comes in at the 5th most expensive place to insure your car.

Vermont is by far the cheapest, and it’s no coincidence that they also have the fewest congested roads, and plenty of rural areas so claims are less and tend to be for smaller amounts as well. Cows just don’t sue as much as pedestrians.

Check out the complete list here.

Related Posts:

• When To Switch Car Insurance.
• How To Reduce Car Insurance Costs In 5 Easy Steps.
• Auto Insurance Rates Decline in 2009.
• Save Money on Insurance – Skip These Insurance Policies You Don’t Need!
• When is it Ideal to Drop Collision Auto Insurance?

When is it Ideal to Drop Collision Auto Insurance?

Collision Auto Insurance is one of the common car types of insurance people go for. It pays for fixing your car if your car gets involved in a crash or collision with some object or some other car. While buying this insurance, you set a deductible amount on the repairs of the car. And you reap the insurance benefit only after the damages exceed the predetermined amount.

The total amount payable by the insurance company is determined on the basis of two factors– the deductible sum and the total value of the car. The ceiling for this amount is the book value of your car, minus the deductible.

Collision coverage is an essential part of the insurance package when your car is new. However, as your car gets older, the question of whether or not to continue with the insurance becomes relevant.

How to judge that your collision coverage needs to be dropped?

• Estimate the overall value of your car by glancing through the internet. You may also check out the classified ads in your local newspaper for the information. If the value of your car on the open market has dropped below $3,500, it is probably not worthwhile to continue with the collision coverage on your car.

• If your annual premium is above 10% of your car’s total value then dropping your Collision Car Insurance would be wise.

• The overall value of the car usually goes down as your car gets older. Value of an old car is likely to get decreased to such an extent that the insurance company will refuse to payout, even if it is involved in a collision. So, it is advisable that you drop your collision insurance if your car is aged 5 years or older.

• Considering your driving record is also important if you are deciding on parting with the collision insurance. If you have had your car for a few years and have not been involved in a crash, then it is likely you will continue to be safe. And hence you do not require insurance.However if you at all chose to do away with the insurance under these terms, it is better that you start saving money. This is because even if you are unlucky enough to be involved in a crash after you have canceled the coverage, you will be able to meet the repairs costs without curtailing on other essentials. Particularly, if you have enrolled in a debts consolidation program, save up enough money to cover additional damage expenses after paying your monthly interest amount.

• Last but not the not the least, is the question of whether you can afford the repair costs yourself or not. It is the most crucial factor when you decide on dropping your Collision Auto Insurance.If you are living a fairly comfortable life, or could easily manage without the car for a few days if it gets crashed, then you may cancel the policy without any fear. But, if the case is otherwise, it is advisable to continue with the insurance.

If you think your situation fits any of the above categories, then its advisable that you stop wasting the premiums on your collision auto insurance and reap the benefit from the savings in the long term.

Related Posts:

• 5 Small Sacrifices to Save Big.
• When To Switch Car Insurance.
• 6 Things to Know About Car Insurance.
• Minimalism vs. Simplicity – Are You Missing the Point?
• Alternatives To Pet Insurance (Tips For Doing Without Pet Insurance).