5 Types of Insurance You Don’t Need

by Miranda Marquit · 33 comments

You know that insurance is a necessity in some cases. By law, you are required to purchase car insurance, and health insurance can protect against major (and possibly financially devastating) health problems and costs.

Other types of insurance, like life and disability, can be very helpful in securing your family’s future, depending on your particular situation. However, there are plenty of folks out there ready to sell you insurance that you might not actually need. While you might gain some protection from these types of insurance, they may be wholly unnecessary. Here are 5 types of insurance to think twice about:

1. Mortgage Life Insurance

There are some insurance agents that will try to convince you that you need mortgage life insurance. This is life insurance designed to pay off your mortgage if you die before the mortgage terms are fulfilled. Of course, your regular life insurance policy will do that as well. Instead of getting a separate life insurance for your mortgage, make sure that your regular life insurance coverage is adequate to pay off your mortgage.

Do not mix mortgage life insurance with private mortgage insurance (PMI). If you do not have 20% for your down payment, you will probably have to buy PMI to help protect the lender in the event that you default.

2. Identity Theft Insurance

Because identity theft is such a fast growing crime, many people are concerned about it. And they should be. You do need to keep tabs on what is happening with your accounts and your credit report in order to watch for identity theft. You can set up security flags on your reports, making it difficult for credit accounts to be opened in your name. Identity theft insurance can’t actually do something for you that you can’t do for yourself — free of charge. It may require some of your time, but paying for this type of insurance is not required to get adequate protection.

3. Cancer Insurance

My uncle is one of the healthiest people I know, the poster boy for wholesome living. If he can end up with cancer (and he had two bouts), anyone can. However, that doesn’t mean that you should buy cancer insurance. First of all, having cancer insurance can void some of the coverage in your regular health policy. Second, you need to be aware that many cancer insurance policies have loopholes in them, which can prevent a payout. Instead of shelling out for specific disease coverage, double check your health insurance policy. Make sure it is adequate for hospitalizations.

Also to avoid: stroke insurance and heart attack insurance. Like cancer insurance, these types of insurance are unnecessary, and the conditions likely already covered by your comprehensive health policy.

4. Payment protection on your credit card

The idea is that if you cannot make your credit card payments due to death, job loss, illness or disability, this protection will make minimum payments for you, until the issue can be resolved. However, it is important to note that certain conditions always apply — and the protection can get pricey since it is based on your credit card balance.

Instead of relying on payment protection, consider a disability policy that includes debt payments. Life insurance policies should have enough coverage to pay off any credit card debt you have (in addition to the mortgage). You can also build an emergency fund to help you prepare for these situations.

5. Collision coverage on older cars

You have to have some sort of auto insurance in every state (usually liability, so that you can cover damage you do to property and people). However, once your car gets older, and has declined sufficiently in value, it might not be worth it to have collision coverage. Indeed, you will only get what your car is worth according to a formula, no matter what sort of damage is done.

So do the math. Does the premium for your collision coverage cost too much for what you could potentially get from the insurance? Your policy should break down what each portion of your coverage costs, so you can decide whether comprehensive coverage on your old car is worth it as well. Set aside money in an emergency fund to cover costs, or to use toward another car, just in case.

Of course, whether insurance is worth the money is all based on your unique situation. Do you need the peace of mind that any changes in your credit report will be flagged automatically for you? Or can you monitor such things yourself? Just make sure you know what you are getting for your money before you blindly pony up your hard earned cash.

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{ 33 comments… read them below or add one }

Wojo July 27, 2010 at 5:52 am

I personally don’t have identity theft insurance policies, but have been interested in them before. Companies like Lifelock supposedly offer a million bucks in “insurance,” but has anyone ever read through their terms of service? It would seem like they exclude a ton of stuff–what DO they actually cover?

Anyone have experience with filing a claim with Lifelock and getting paid?

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Gumpster August 22, 2010 at 2:33 pm

LifeLock offers a service guarantee and not insurance. Should their product fail to perform, they will spend up to $1 million of their own money to make it right.

The author of this article, Ms. Marquit, is incorrect in stating that Identity Theft coverage only provides services you can do yourself. Most products on the market provide credit monitoring, notifying you if someone makes an inquiry or opens an account under your social security number. That is not something you can get directly from the credit bureau for free.

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Miranda August 23, 2010 at 7:57 am

You can monitor your own credit, free of charge, with a little planning on when you get each of your free reports from the major bureaus from annualcreditreport.com. Also, you can watch for dramatic drops in your credit score for free at creditkarma.com. If you are denied credit, you are entitled to a free copy of your report. You will always have to pay if you sign up for a credit monitoring service, but I have been monitoring my own credit — free of charge — for years now. No need to be notified every time someone looks at my credit. Plus, you can make it difficult for others to open a credit account in your name through other methods. And if something needs to be fixed, I can do it myself, without having to pay someone else. My point is that you don’t need to pay for a service or insurance in order to keep tabs on your credit.

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Dave Giaimo November 14, 2012 at 8:56 pm

Lifelock is a fantastic company with which to do business. If you sign up with them, and go through each and every one of the thorough steps they have to lock down your and your family’s personal information, I don’t think there is any way that you could possibly suffer a theft of your identity – that is how thorough their methods are. I spent years in information security and am definitely a skeptic where these things are concerned, but Lifelock is in a word, astounding. For what they charge, the protection they deliver is stellar.

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It's Only Money July 27, 2010 at 8:15 am

Add to that list a new one: Tuition insurance.

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Jenna July 27, 2010 at 9:19 am

What about car rental insurance? Won’t most car insurance cover rentals?

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MoneyNing July 27, 2010 at 9:42 am

All car insurances have an option for car rental coverage. Personally, I think it’s a waste of money because I can always make do and even if I really need an additional car, I probably would’ve saved enough for the cost by the time I add up all the extra premiums that I’m paying for it.

But for some people, I’m sure the extra coverage is useful.

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Miranda Marquit July 27, 2010 at 9:51 am

Also, don’t forget that many credit card issuers offer car rental coverage. Check your terms. If you pay for a car rental using a specific credit card, you may be covered.

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Jenna July 27, 2010 at 11:21 am

Good to know @MoneyNing and @Minranda Marquit. Thanks.

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Chris May 7, 2012 at 12:53 pm

Be careful, I thought the same thing. I called my three credit card copies and I would have had to “Upgrade” my cards to be eligible for rental car coverage. All the upgrades required me to pay an annual fee to carry the card.

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Car Negotiation Coach July 27, 2010 at 10:07 am

I’d add GAP insurance on car purchases to that list (hedging against the amount you owe on a car being higher than the value when you get rid of it). Great post as usual Miranda.

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Greg H July 27, 2010 at 6:40 pm

I’d disagree on the Gap insurance (as something not worth buying). It’s very cheap for what it potentially covers. If you purchase a new SUV, this is a must.

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VAP April 5, 2012 at 2:44 pm

I would never buy a new car. It becomes used once you drive it off the lot and you lose big $$$ from depreciation. Forget the GAP insurance and buy USED.

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vered July 27, 2010 at 12:08 pm

Wow, I haven’t even heard about most of these.

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Cd Phi July 27, 2010 at 12:27 pm

I’d never heard of cancer insurance. Wow that’s a first for me.

And about that collision coverage, many people forget to update their policies according to their cars’ needs so they just continue to pay higher premiums for unnecessary coverage.

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Wojo July 27, 2010 at 1:22 pm

I think AFLAC originally started out as a purely cancer insurance business. At least that’s what the sales lady claimed. :) Before that, I had never heard of it either.

I guess there’s an insurance for everything these days, really.

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Deacon Bradley July 27, 2010 at 3:00 pm

Great list Miranda. From what I hear Zandar’s ID theft insurance is the only one worth it (6.50/mo). Rather then reimburse you x-amount of money they assign a specialist to your case to make all the phone calls and handle all the paper work. I hear the worst part about your ID being stolen is the hours and hours on the phone.

@CarNegotiationCoach Good call on the GAP insurance. Another classic.

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Greg H July 27, 2010 at 6:45 pm

What a great list. I’m going to suggest a lot of accident insurances are also rip-offs. I know one family who is paying almost 1000 dollars a year for a set amount of money in case of certain covered “accidents.” For half the cost they could have a far more comprehensive disability policy which would give them an income stream for as long as they needed it.

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Doug Warshauer July 27, 2010 at 7:16 pm

This is great information. I’ve never heard of cancer insurance, either.

I always like to keep in mind that every insurance policy is designed to be profitable for the insurer, which means it’s designed to be unprofitable for the insured. Unless I have a real risk of catastrophic loss, I’m inclined to pass on most types of insurance.

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basicmoneytips July 28, 2010 at 4:05 am

It seems evident that you can get insurance on most anything. The only one I might comment on the collision for older cars. If this car is paid off and is your primary vehicle, I would not necessarily drop coverage. Plus it is going to decline the older the car gets.

Car repairs due to wrecks are expensive and even the most minor wrecks can cost several thousand dollars. If you drop collision, be prepared for that.

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Susan July 29, 2010 at 8:56 am

I can always make do and even if I really need an additional car, I probably would’ve saved enough for the cost by the time I add up all the extra premiums that I’m paying for it.

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Kris July 29, 2010 at 9:54 am

Chances are that if you haven’t heard of the insurance before, you don’t need it. Especially since many people don’t really understand the purpose of insurance financially. For me, I decline all insurance except for life, health, auto – and I shop around to get the best rates at least every 2-3 years.

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Ted July 29, 2010 at 12:34 pm

Interesting. I am not sure where you get your information on some of these coverage’s, but you obviously do not know anyone who has had cancer, a heart attack or a stroke. These are very costly sicknesses and yes, they are covered by a good health insurance plan. However, I know of no one who has been faced with these situations whose health insurance paid everything. The coverages you mentioned are meant to help someone with additional money (not income) in order to pay for many things such as deductibles, travel, lodging, additional money each day regardless of their income and more. I personally have witnessed many people who have had to use their supplemental insurance. I know of none of them who were disappointed that they took the precautions to provide themselves and their families with these benefits.

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CreditShout August 2, 2010 at 1:37 pm

I agree with Kris, if you haven’t heard of it, you probably don’t need it. Specific disease insurance seems redundant to me unless you’re planning on having a heart attack or something, which is ridiculous. Your regular health insurance policy should cover all of these.

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William September 28, 2012 at 10:58 am

Major medical insurance only covers a portion of these expenses and only when your healthcare deductable is met. Then you usually have to pay 10 to 40% of the bill. This however does not include other expenses such as missed time from work (especially if you are self or newly employed), expensive medications, etc.

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Paula February 9, 2011 at 12:30 pm

If planning to use your credit card to cover rental car insurance, make sure to check all the terms and conditions of your coverage (check with your credit card issuer). Credit card coverage may not apply in other countries, longer rentals, or rentals of exotic or luxury cars.

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Bob July 31, 2011 at 5:00 pm

As far as Identity Theft insurance goes, check your Homeowner’s or Renter’s policy. I know that at least Farmers Insurance has that as a (I believe) automatic part of the policy you have already purchased. Other carriers may or may not have similar coverages.

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Devon Sibbell January 4, 2012 at 2:35 am

Great article. There are so many different types of insurance most people don’t need. Flight insurance is on the top of my list.

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Kay July 5, 2012 at 10:02 am

It seems that mortgage insurance could be useful in the event you do not have life insurance which has more restrictive qualifiers for obtaining it and which may be more expensive depending on your age and/or health. It may be worth it to get the mortgage insurance if the primary goal is to make certain your house is paid for; then your heirs can take their time getting it sold and receive their proceeds albeit taxable.

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William September 28, 2012 at 10:55 am

I disagree with this article…The author is obviously unaware of how healthcare and major medical insurance work…There are many deductibles and co-pays, as well as out of pocket expenses to consider…For instance Cancer and Heart Attacks and other medical catastrophies can bring a person and their family to financial ruin with just the out of pocket costs. Things will get much worse once healthcare reform takes effect.

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Shane September 28, 2013 at 3:07 pm

William, I agree with you. Who ever wrote that article is a misinformed idiot!
What she or he is not saying is, when a person goes through cancer heart attack and stroke, is it takes months and even years for recovery. Who pays the mortgage, car payments, bills and puts food on the table. Who helps have the co-payment for the treatments? People need to do more investigative work before they open their mouths and voicing their own oppinon! Health insurance is great to pay for treatments, doctors and the hospital’s. But most health insurance only cover 80% who pays the other 20%? Plus most actual cancer treatment centers even if a person has Medicare part A&B, they will still ad 15% to the bill so they must pay. Unreal and not right but that’s what they do!

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Terry September 19, 2013 at 10:54 am

The author of this article has NO idea what they are talking about in regards to Health insurance and Cancer, Heart Attack and Stroke insurance. It’s real simple… Your health insurance pays the doctors and the hospitals. Cancer, Heart Attack and stroke insurance pays you not anyone else. You can use the money away you want and pay for the mountain of additional expenses that you will face if your ever diagnosed with any of those conditions.

This article has obviously created even more confusion for the people that don’t understand how these policies work. I can tell you from personal experience that if you have a higher propensity through your genetics to be diagnosed someday with Cancer, Heart Attack or Stroke… You will be very thankful you got one of these policies. It saves people’s assets!!

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Douglas RN March 22, 2014 at 3:53 pm

I found this website while doing research on supplemental illness insurance. I was 33 years old and working 4, 12 hour shifts a week as an ICU RN when, 2 weeks after adopting our 2nd child, I was diagnosed with cancer. The author of this article is correct in stating the health insurance covered most of the major surgery, lab work, radiation treatments, and oncology Dr.visits – about 80%. Leaving me with 20% of co-pays and deductibles, about $3000 to $4000 dollars. IT DID NOT PAY FOR ONE WEEK OFF WORK while recovering from major abdominal surgery ( I went back to work, as painful as it was, with staples in my belly and stitches on top of both feet from a 4 hour long lymphangiogram cutdown . After 10 days I took the staples and stitches out during a bathroom break at work-no one ever knew) NOR DID IT PROVIDE MONEY to buy food for my stay at home wife/mom and 2 kids. IT DID NOT PAY MY MORTGAGE OR CAR OR PHONE……Do I wish now I had purchased a supplemental illness insurance policy? I’ll let you ponder that -don’t take to long!

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