When You Shouldn’t Buy an Insurance Policy
One of my buddies recently went out and bought one of those ride-on lawn mowers from a dealer around here, and when he was closing the deal they asked him if he wanted to finance it, and like most Americans he didn’t have a whole lot of money, so he did. Then they asked him if he’d like a policy that would pay if off if he dies for only $10.00 a month! He wasn’t dumb enough to fall for that gimmick, but surprisingly, many people are. I’m sure there’s been some guy who died with meaningful life insurance, but at least his riding lawn mower was paid off! Let’s face it, there’s a lot of insurance policies that nobody ever needs.
The first thing you should never do when it comes to insurance is buy insurance for things that you can easily afford. My wife’s engagement ring is $1000, and the insurance was $5 or $10 a month on it, and we passed. I could write a check for that several times over and still have plenty of money in the bank, it just wouldn’t affect me. If you can easily pay to replace an item if it should break, you are self insured and don’t need an insurance policy on it.
You should also never buy insurance if the likelihood of disaster in that area is very improbable. Statistically you don’t need it and never will, but there are people out there who buy terrorism insurance. You don’t need hurricane insurance in South Dakota, and you don’t need flood insurance when you live in an extremely high elevation. Those things just aren’t going to happen. Don’t buy an insurance policy unless there’s a reasonable chance of needing it. Buy good insurance policies such as life insurance, health insurance, automobile insurance, and get a homeowners policy, but after that, there’s very little you need.
Don’t insure things that do not need to be insured. Life insurance for children is a great example of this. Children don’t create any income, so there’s no need to get a big check if they were to die, yet thousands of people get suckered into Gerber’s life insurance policies for children each year.
Finally, don’t buy insurance policies in which the majority of your payment does not go toward insuring the product. Extended warranties are the worst offender here; usually only about 10% of your payment goes towards the cost of the insurance. The rest is given toward commission and advertising. If it sounds gimmicky and is heavily marketed, you probably don’t need it!
Everyone needs good reasonable insurance policies, such as health insurance, automobile insurance, home/rental insurance, and term life insurance if someone is dependent upon your income. Don’t fall for insurances that you just don’t need, such as pet insurance, cancer insurance, mortgage life insurance, extended warranties, and all of those heavily marketed but useless policies.