3 Types of Insurance Policies That You Don't Need

Insurance Can be Extremely Important, But It Can Also Be Unnecessary

types of insurance you don't need
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There are undoubtedly some types of insurance that everyone absolutely should have. Car insurance, health insurance and homeowner's insurance (if you own a home) are easily in the top three. Life insurance and long-term care insurance are also something you may want to consider as you shape your estate plan.

These types of insurance can help protect your health, life and property, while also providing financial reassurance for your loved ones. But there are some types of insurance that may be unnecessary for helping you to further your financial goals. As you assess your insurance needs, consider carefully whether to include these types of policies.

Insurance Policies That You Don't Need

While there are certainly more than a few types of insurance policies that have their place in people's portfolios, there are just as many that you're probably better off without. While they may sound appealing in theory, in reality, you may be wasting money on premiums if an insurance product doesn't fit your needs.

1. Mortgage Life Insurance

Mortgage life insurance is a policy that promises to pay your mortgage payment in the event you become disabled or die. This can sound attractive but there are some potential snags associated with this type of insurance coverage.

Specifically, mortgage life insurance is very narrow coverage. It only covers your mortgage, meaning that if you pass away without a traditional life insurance policy in place, your loved ones will receive no other financial benefit.

Mortgage life insurance policies can be more expensive compared to regular life insurance and the death benefit associated with the policy decreases over time. That's because these policies are designed to cover the outstanding amount owed on your mortgage. Assuming that you're paying your home loan down consistently, you're essentially paying potentially steep premiums for shrinking coverage.

What it comes down to is that mortgage life insurance is very narrow in its coverage and, therefore, probably not the best use of insurance premiums. You're generally better off sticking with a good life insurance policy. You can always increase your life insurance coverage to offset your mortgage balance if that's something you're especially concerned about.

Tip

Compare your options for life insurance carefully. Term life insurance, for example, can offer lower premiums but it only covers you for a set time period. Permanent life insurance covers you for a lifetime but the trade-off is higher premium costs.

2. Travel and Flight Insurance

Travel and flight insurance policies offer another type of coverage that may require you to pay a premium for insurance that could overlap with coverage or benefits you already have. Before you spend money on travel insurance, check your current health and life policies to see how accidents or injuries during travel or flights are covered. And in the event of a catastrophe, your life insurance policy should cover you if you pass away while traveling. 

If you use a credit card to book tickets or travel arrangements, you'll also want to check with your credit card company to see if any travel protections are included with your account. Many credit card companies automatically provide benefits like car rental insurance, lost baggage insurance or travel accident insurance as part of your cardmember agreement. The caveat is that you'll need to book your relevant travel expenses using the card for those coverage protections to kick in.

And you find that you still need some additional insurance to keep your mind at peace, you can always purchase a small travel policy to cover the gaps in your existing coverage.

Note

Credit card travel insurance may not cover you in every situation. For example, your card may not reimburse you for travel expenses if your trip is cut short by certain types of natural disasters or global pandemics.

3. Cancer Insurance/Disease Insurance

Critical illness coverage like cancer insurance is becoming more popular as cancer rates and awareness rise. But is it really a worthwhile investment? While cancer treatment can come with some astronomical medical bills, you might want to hold off on taking out a cancer-specific insurance policy.

The reason? In most cases, your primary health insurance policy covers medical expenses related to cancer treatment. If you're worried about potentially expensive treatments, like cancer treatment, leaving you with out-of-pocket costs once you reach the lifetime coverage limit, review your current coverage to see how much the policy pays. 

One shocking reason cancer insurance policies can be a waste of money is that most cancer insurance doesn’t even cover skin cancer, a leading type of cancer. Not only that, but cancer insurance typically doesn’t cover outpatient expenses related to cancer treatment. And, there's always the possibility that you may not get cancer at all. In those scenarios, you have to question exactly what you're paying for with these types of policies.  

Unless your health insurance specifically does not cover cancer-related expenses or you have a high likelihood of getting a specific type of cancer that could be covered by a policy, you're more than likely wasting money on a premium you could be using elsewhere. And in some cases, your primary medical policy may not cover you if you have supplemental coverage elsewhere for the same types of treatment. As with any type of insurance, be sure you understand the benefits and limitations before buying a policy. 

Important

If you have a life insurance policy, it's worth checking to see if it includes a rider that would allow you to tap into some of your death benefit during your lifetime to cover critical care. Some policies allow you to draw on death benefits to pay end of life expenses, though this does reduce the amount payable to your beneficiaries once you pass away.