When Insurance May Not Be the Smartest Solution

Whether you need insurance depends in part on the policies you already own.

People typically purchase insurance to provide protection for themselves and their family members against financial loss that results from a catastrophe such as death, property damage or destruction, illness, or injury. Whether you need to purchase an insurance policy to guard against a calamity depends on several factors, including the contract’s affordability, practicality and similarity to other policies you already own. Depending on the type of insurance you intend to buy, you may consider your financial responsibility for other individuals as well.

Research

In order to determine if purchasing an insurance policy is a smart way to protect your interests, you must conduct research. Comparing the premiums one company would charge for a policy with rates charged by others for comparable coverage enables you to evaluate the practicality of buying a particular policy and to identify the lowest cost for the coverage you desire. By ensuring you work with a licensed insurance agent experienced in the type of insurance you need, you increase the likelihood that a policy will provide an adequate amount of protection if a tragedy occurs.

Duplicate Coverage

If you review the insurance policies you already own in advance of purchasing a new policy, you decrease the chances of purchasing a policy that provides coverage similar to the protection provided by another contract. If you have a health insurance contract, for instance, you do not need to include medical coverage as part of your travel insurance if you plan to travel within the United States. Similarly, it is not smart for you to include baggage protection in your travel insurance package if your homeowners insurance policy protects you from the loss, damage or destruction of the personal property you have with you when traveling away from your home.

Life Insurance

If you have dependents or people who rely on you for their well-being, purchasing life insurance is typically a smart way to ensure their continued comfort in the event you die. If you maintain a life insurance policy with a death and disability benefit that is sufficient to satisfy the financial needs of your dependents, purchasing an additional policy such as accidental death and dismemberment insurance is generally not a smart investment.

Disability Insurance

An insurance carrier will typically offer both a short-term disability (STD) policy and long-term disability (LTD) policy to you if you want to protect yourself from the loss of your income if you suffer a disability or illness that prevents you from working. According to the Insurance Information Institute, 43 percent of the people who are currently 40 years old will experience a disabling event lasting at least 90 days before reaching age 65. Securing a LTD policy, therefore, may be a smart investment. Whether your purchase of a STD policy is an equally smart investment depends on your savings. If you have enough savings to pay your living expenses during the period of time an STD contract would replace a portion of your income, you would not need STD coverage.

References

• Bankrate.com; 14 Useless Insurance Policies; Jay MacDonald; September 2008
• Insure Me: Unnecessary Insurance Policies You Should Avoid
• Insurance Information Institute: Travel Insurance
• Insurance Information Institute: How Can I Insure Against Loss of Income?
• Insure.com; The Basics of Travel Insurance; January 2010
• Insure.com; The Basics of Short-Term Disability Insurance; January 2010
• Bankrate.com; 7 Common Insurance Mistakes; Leslie McFadden; August 2007
• Insure.com; The Basics of Accidental Death and Dismemberment Insurance; June 2010