There are two kinds of insurance out there: The kind you need and the kind that wastes your money. When used correctly, insurance becomes important to any financial plan. However, insurance companies have no problem coming up with products that are a waste of money.
So, how do they do this? Mostly by trying to scare you. Insurance companies feed off your fears.
But if you have the right kinds of insurance in place, you can avoid throwing away your money.
Speaking of financial planning, do you need help getting out of debt? If so, I’ve written a 23-page eBook just for you! And the best part, it’s totally FREE! Just enter your email below and you’ll receive my eBook within seconds!
If you want something a little more in-depth, then I recommend Dave Ramsey’s The Total Money Makeover. This is easily one of the best personal finance books out there. Dave’s plan is what I use, and I believe it will help you, too!
Now, are you ready to learn more about insurance? Yes, I know it’s a boring subject. But you need to know! Here are 5 kinds of insurance that are a waste of money.
5 Kinds of Insurance That Are a Waste of Money
A little bit of a warning before we dive into this. For some of these, insurance agents will argue with you. They’ll tell you things like, “different people have different situations.”
Yes, different people do have different situations. But crap is still crap no matter how you sell it. I’m sorry, I just can’t see how ANY of the insurance products below help anybody.
Therefore, I recommend avoiding these kinds of insurance that are a waste of money.
1. Whole Life/Universal Life/Any Cash Value Insurance
Whole life insurance is one of the worst insurance products out there. In fact, Dave Ramsey often refers to this gimmick insurance as, “The pay-day loan of the middle class.”
That’s because this kind of insurance is a total ripoff.
But isn’t life insurance necessary? Indeed, you do need life insurance. But you need term life insurance, not whole life.
Here’s why: a $100,000 policy for term life will cost you about $10 a month if you’re healthy. Compare that to a whole life policy for $100,000, which might cost you around $100 a month.
Yes, your monthly premium will be several times higher than it would for term life.
Instead, go with term life insurance that is about 10-12 times your annual income. This will ensure your family will have enough in the event of your death.
There are more reasons that make whole life insurance a waste of money, but I’ll save that for another article! For now, just know that you can achieve better returns on your money with good mutual funds.
2. Life Insurance for Kids
Think for a moment about the purpose of life insurance. The point of life insurance is to replace your income in case you die. I hate to sound crass, but your children don’t produce any income. Therefore, life insurance for them is unnecessary.
But what if something happens to them? How would we pay for a funeral?
Indeed, losing a child would be absolutely terrible. Unfortunately, it’s a situation I’m personally all too familiar with, having lost a nephew three years ago. But there are two things you can do:
- Maintain a sufficient emergency fund.
- Add a rider to your term life insurance policy that will cover funeral expenses for your children.
Also, this kind of insurance gets even more gimmickier. Gerber offers a form of life insurance that supposedly helps pay for your child’s college. That’s right, the same people who make baby food.
Don’t bother. It’s a total waste of money. Instead, invest in an ESA or a 529. These will gain much better returns than a baby food insurance policy.
3. Accidental Death Insurance
So…if you die in an accident, does that make you extra dead?
Nope. You’re still just plain old dead.
Accidental death insurance, just as its name implies, adds an extra benefit if you die in an accident. However, if you have enough term life insurance, there’s no need for this extra insurance.
It’s just extra money that goes to the insurance company. For the cost of adding Accidental Death insurance, you could simply increase the amount of your term life insurance.
Therefore, just stay away from this. It’s just another kind of insurance that is a waste of money.
4. Mortgage Protection Insurance
Congratulations! You just bought your first home! Soon, you see the mail carrier deliver your first round of mail to your new mailbox. How exciting! That is until you read the mail. And you find nothing but offers for mortgage protection insurance.
So here’s what mortgage protection insurance claims to do: if you die, they pay off your mortgage. Sounds like a pretty sweet deal, right?
But hold your horses! This gimmick insurance costs more than term life insurance. Plus, the benefit continues to go down as you pay your mortgage.
Once again, the solution is good term life insurance. If you get enough term life, your family can pay off the mortgage and use the rest to live.
Therefore, stay away from this one. The same goes for any “we’ll pay this if you die” insurance.
5. Cancer Insurance
There are few things in life scarier than that six-letter word. Indeed, in all likelihood, you know someone who has suffered from cancer. You may even suffer from it yourself.
However, add-ons like cancer insurance feed more off your fears than anything else. All you really need is good medical insurance.
Think about it: you’re just as likely to have a heart attack as you are cancer. So why don’t they offer heart attack insurance? Because your regular health insurance covers it.
Cancer is a pretty scary disease. But most insurance companies cover it just like they do other diseases. Adding this would just be a waste of money you could use for other financial goals.
Only Get the Insurance You Need
In the earlier stages of your life, there are six kinds of insurance you need:
- Health Insurance
- Auto Insurance
- Term Life Insurance
- Homeowners or Renters Insurance
- Long-term Disability Insurance
- Identity Theft Insurance
Once your net worth reaches more than $500,000, you’ll also need an umbrella policy. This simply adds extra liability insurance in case someone sues you. Once you reach 60, you’ll also want to look into long-term care insurance.
And that’s all you’ll really need! Remember, the whole point of insurance is to transfer risk. Therefore, you’ll want to get the kinds of insurance that offer real protection when life happens.
How Can I Get Insurance That Isn’t a Waste of Money?
Good question! First off, I don’t recommend going to insurance companies one-by-one. Instead, go with an independent insurance broker.
Insurance brokers shop among multiple companies to find you the best rates available. Plus, they don’t have much reason to sell you gimmick insurance.
If you want an insurance professional who has integrity, I recommend one of Dave Ramsey’s Endorsed Local Providers. They will help you find the insurance you need, not just the ones that will line their pockets.
You can also check out Zander Insurance. They operate nationwide and I’ve personally found them extraordinarily helpful. Plus, their ID theft insurance is unparalleled. And no, I don’t get anything if you use them. I just recommend them as a satisfied customer.
Make Sure You Have a Financial Plan
Above all, make sure you have a viable plan for your finances. So, what does that look like?
First, I recommend you create a vision for your life. Think and pray over where you want to go, what you want to do, and how to get there. You can also think about some financial goals to set for yourself. If you have a spouse, include them in this process.
Second, start budgeting! This is your key to financial success. Without one, you don’t know where your money goes. But when you have a budget, you can take control of your money and tell it what to do. And yes, you can budget even on an irregular income, or even in the midst of a crisis.
After that, start saving for an emergency fund of $1,000. This will be your buffer whenever Murphy comes knocking.
Finally, you can really get to the good stuff! Save up an emergency fund of 3-6 months of expenses, start investing for retirement, pay off your mortgage early, and more!
There are all kinds of things you can do once debt is out of your life! But most of all, it gives you the opportunity to become extraordinarily generous. After all, your money belongs first and foremost to God. Therefore, manage it wisely and for his glory!
And don’t waste your money on crap insurance along the way.
Resources for You
Once again, I highly recommend Dave Ramsey’s The Total Money Makeover! Dave’s plan is what I personally use. Following his seven baby steps have done wonders for my finances. And I believe his plan will work for you, too!
I also offer personalized, one-on-one financial coaching. I’ve completed Dave Ramsey’s Financial Coach Master Training and I would feel honored to help you! I offer a free initial consultation for anyone. We’ll talk about you and your situation and see if coaching can help. Just click the button below to schedule your free consultation!
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