Thursday, January 20, 2011

Silly Interweb Insurance Info

So I log off email, and see this link on the home page: "Seven Insurance Policies That Aren't Worth the Money." Intrigued, I click over, curious to see what profound wisdom is to be had.

Turns out, not much.

Here are the 7 policy types, a brief description of each, the author's take, and my own:

1. "Mini-Med" Insurance

The agent quoted here is not a fan of these policies, claiming that "(b)uyers should know that these policies are best used for minor cuts and scrapes." While I know that there are some cases where this is true, I think this brief and arrogant dismissal misses the mark: for some people, this may be the only kind of coverage for which they qualify or that they can afford.

2. Accidental Death and Dismemberment

I agree with the article that these are - at best - a waste of money. I'd also add that the AD&D rider on life insurance policies has never made sense to me, either: dead is dead, regardless of cause. And how does it make sense that your wife needs more cash if you're hit by a bus than if you die of cancer?

3. Divorce Insurance

The article's agin it; I've never even heard of it. Of course, I hadn't heard of virginity insurance before, either. The idea is that a couple buys the policy and, if they get divorced after 4 years, they get some quick cash. Uh-hunh.

4. Comprehensive or Collision Coverage for Old Cars

I'm not a P&C guy, so I asked my friend Bill M for his take. Bill's a 30+ year industry veteran, a CIC and independent agent. Here's his take:

"I advise customers to consider dropping comp and collision when the value of the vehicle hits $ 3,000 or less. At that point a minor fender bender can total your car. You also need to look at the premium charged versus the potential benefit in that decision."

5. Car Rental Insurance

Again, we turn to P&C guru Bill M:

"As far as the car rental insurance goes, you need to check your rental contract to see if you are responsible for loss of use or diminished value, two items not normally cover by your own auto insurance.

If you are going out of the country you need to check that your coverage extends to where you are going.

All of these items should be discussed with your insurance agent about your specific policy."

6. Term Life Insurance

Is term insurance really a "big waste of money" as the article claims? No more than auto, home or health insurance are: none of those pay off if you don't have a claim, either. I agree that it's often not the best choice ("permanent needs require permanent solutions" as my own mentor used to say), but if you think it's really just money down the rat-hole, consider a Return of Premium plan.

7. Mortgage Insurance

First, there is no such thing as "mortgage insurance." That's simply a marketing wrapper for folks who don't want to buy "life insurance." Second, there's no industry-standard definition of what one means by the term. The article uses it to describe a term plan that's payable to the lender. But you can make any insurance policy payable to pretty much anyone you want to. Back in the day, "mortgage insurance" was a euphemism for "decreasing term life;" that is, the face amount ostensibly declined along with one's mortgage. The premium stayed the same, though, meaning the coverage got more and more expensive with each passing year.

As they say, YMMV.
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