Four Insurance Policies That Aren’t Worth The Cost

The following is a post by MPFJ staff writer, Toi Williams, who is a professional personal finance blogger of Fine Tuned Finances. She has backgrounds in personal finance, sales, and real estate.

Today, insurance is a fact of life for most people. At times, it can seem like there is an insurance policy available for everything, and that is almost true. People can buy insurance policies for their homes, cars, vacations, pets, valuables, and nearly anything else that you can think of. Many people love having insurance because of the protection it provides to them and their families. While some of these insurance policies can be very beneficial and provide a great amount of assistance when you need it the most, some insurance policies are not worth the paper they are printed on.

Here are some insurance policies that are not worth what you must pay for them.


Whole Life Insurance

One insurance product that most people should stay away from is whole life insurance. These life insurance policies are sold with the promise that it will be an investment in your future and that your investment will grow to the point that the policy will pay for itself. Unfortunately, investment results are never guaranteed and you could end up spending a lot more than you realize because these insurance policies are very expensive.

There are several reasons why purchasing a whole life insurance policy is so expensive. The biggest reason is that there is a savings element built into the policy over and above the cost of coverage. You are basically using the life insurance policy as a savings account for additional money that you may have. There are also various fees and commission charges that are added to the cost of the policy as well, significantly increasing the price.

Many people who choose this type of life insurance policy do not have the coverage that they need because the policies are so expensive. Not having enough coverage is almost as bad as having no coverage at all. While there are a few people who could benefit from purchasing a whole life insurance policy, most people can’t and won’t. Instead of purchasing a whole life insurance policy, choose a reasonably priced term life insurance policy that has enough coverage to replace several years’ worth of your income in the event that the unthinkable happens.


Accidental Death Insurance

Another type of insurance policy to avoid is accidental death insurance. People purchase these policies thinking that it will help their family if they die suddenly in a tragic accident but fail to realize that the chances of this happening are extremely low. Companies that sell accidental death insurance policies know that they will rarely have to pay out money to beneficiaries, so they keep premium rates just low enough to entice you into buying the policy. By using scare tactics and coercion, they convince consumers that this is a type of insurance that they actually need.

The truth is that you probably don’t need an accidental death insurance policy. The chances of you dying in an accident is slim. Even if you do have an accident that causes your death, there is no guarantee that it would be an accident that is covered under the policy. You would do better to get the term life insurance coverage that you need and keep the insurance in effect throughout the term to ensure your family’s financial security if you were to die suddenly.


Children’s Life Insurance

Children’s life insurance is another insurance product that you can do without. Insurance agents sell these policies as an investment in your kids that will benefit them with they get older, but you could do the same thing with a savings account and be earning interest instead of paying money out of your pocket. In some cases, parents buy these policies so that they will not have large out-of-pocket costs to bury their child if they should die from an illness or injury while they are young. Once again, placing that premium payment into a savings account will accomplish the same thing with much lower costs associated with it.


Rental Car Insurance

If you have ever rented a car, you will be familiar with the rental car insurance policies that the rental company tries to sell you when you go to pick up the car. Renters are told that the policy protects them in the event that they have an accident or the car becomes damaged while in the renter’s possession and are encouraged to sign for the insurance when they get the keys to the car. What many people do not know is that they may already be covered by insurance when they rent a car, so purchasing additional insurance from the rental company is a waste of money.

Before you sign for the optional insurance from the rental company, check to see if you are already covered under your current auto insurance policy. Many car insurance policies contain coverage for the covered driver whether they are in their own car or a car rented in their name. Whether you are covered will be disclosed in the terms and conditions of the policy you purchased, so review your paper copy of the terms, look up the terms for your policy online on the auto insurance company website, or call a customer service representative and ask if you are covered.

If you use a credit card to reserve and pay for the rental car, you may also have insurance coverage for the car rental available to you from the credit card company. Many credit card companies offer coverage for rental cars whose costs are charged to the card, but this insurance is generally secondary to the rental car insurance that is available to you under your regular car insurance policy. Review the terms and conditions for your credit card or call the credit card company to see if this coverage is available to you.

How about you all? Do you think there are good reasons to buy these types of policies? Why or why not?

Share your experiences by commenting below! 

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  1. Other insurance product I would stay away from are called equity indexed annuities. These are really messed up and only benefit the insurance agent who is selling them. wiki says, “Equity Indexed Annuities are strongly not recommended for most investors. Interest paid by EIAs is not calculated with the usual formulas for calculating interest. EIA interest crediting methods are complex and have several moving parts. This makes it impossible to know at the time of purchase, how much interest, if any, you will get from the annuity.” If someone tries to sell you these things, run the other way.
    Bryce @ Save and Conquer recently posted…Grandpa and the Great DepressionMy Profile

  2. Thanks for writing about all this! All the life insurance options out there are definitely confusing. I know about the whole life insurance and car rental insurance being pretty much not worth it. Term life it is! I always wondered about how child life insurance. The child isn’t leaving any dependents behind anyways. Is that what the Gerber life grow up plan?
    Christine @ ThePursuitofGreen recently posted…Back from Camping!My Profile

  3. I cringe at the commercials encouraging you to buy life insurance on your child. They are totally playing up on the emotion of a new parent wanting nothing but the best for their child. Insurance is there to replace income or an item should the unexpected occur. You’d be better off investing the money yourself than buy children’s life insurance.
    Jon @ MoneySmartGuides recently posted…Chicks Don’t Dig The LongballMy Profile

  4. I disagree with two of the policies mentioned.
    1. Whole Life – I agree that for most of your life, Term Insurance is just fine and a good low cost way to provide for your family if you were to die prematurely. But, if you bought term that runs out when you reach 65 or even 70, what do you do to provide for the possibility that you won’t be there to care for the adult children that have had to return home because they can’t find a job, or the elderly parent who is now living with you? I am one of the “sandwich” generation and I’m facing this exact dilemna because I bought term and it runs out in 6 months. The cost for a new policy? How about $1,200/month. Didn’t see that coming.
    2. Life Insurance for Children – one situation that I can see where this might be benficial is if you have a child who develops a disability or for some reason becm,es either uninsurable or the life ibnsurance will be at a very high cost. You can’t see those things coming so why not pay a few dollars for a time to make certain you have “insured their insurability” as the Life Insurance Agents like to say? You can always drop the policy if it’s not an issue and if you keep it until they’re 18 it almost pays for itself through the cash values. Seems like a cheap way to make sure your kids are protected for their future, whether they are in good health or not.
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  5. Michael Hoo says:

    I disagree with accidental death insurance. Just in case and you don’t know what bad things will happen to you, it is good that insurance that covers you back. As we know, the medical bills are very high, it is impossible for us to pay so huge amount of money to pay it, at least insurance can cover it. You never what will happen to you in future so better buy it as security.
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