What types of insurance do you really need?

Since none of us can predict the future, we look for ways to prepare for the unexpected. For example, even though you are a perfect driver, your insurance company knows there are some real crazies out there, so they insist on you carrying some level of automobile insurance coverage. The amount you carry depends a great deal on the value of our car, your ability to replace the car if it were totaled and possibly the total amount of your assets. All of these things must be part of the equation when determining the amount of car insurance.

However, the one thing that should not be part of the equation is fear. Too often insurance companies will play on our fears of the unexpected, and convince us to buy insurance products that we don’t need. Investopedia gives the below list of 15 types of insurance you probably don’t need, or need to find a way to get rid of in exchange for the right coverage. For example, you don’t need mortgage life insurance, but you do need a life insurance policy that will cover the cost of your mortgage in the case of your death. A good term-life insurance policy is very inexpensive, and should be part of almost everyone’s financial plan.

Let me say I don’t agree with getting a second mortgage to eliminate PMI as the author suggests, but this list of unnecessary insurance is a great spring board for each of us to evaluate what types of coverage we really need.

Here’s the list:

1. Private Mortgage Insurance
2. Extended Warranties
3. Automobile Collision
4. Rental Car Insurance
5. Car Rental Damage Insurance
6. Flight Insurance
7. Water Line Coverage
8. Life Insurance for Children
9. Flood Insurance
10. Credit Card Insurance
11. Credit Card Loss Insurance
12. Mortgage Life Insurance
13. Unemployment Insurance
14. Disease Insurance
15. Accidental-Death Insurance

Some of these are just plain silly; like life insurance on your children. Generally speaking, life insurance is designed to replace lost income in the case of death. God forbid, if your child dies, how much income are you going to need to replace? Unless they are a baby model, you probably don’t need life insurance on your children. (Update: Although I don’t recommend life insurance on your children, I do recommend carrying a rider for burial expenses on your policy)

Flight insurance is another one that falls into the life insurance category. If you have the right amount life insurance you don’t need more if you die in a plane accident. Invest the money you would spend on flight insurance and enjoy traveling.

Extended warranties are also something that you probably do not need, especially on well researched products. If you are buying a product built by a quality company, you don’t need the extended warranty.

Credit card insurance is an easy one to sell, but a better idea is to not use the credit card in the first place. They will tell you that they will cover the payments if you lose your job, and that is supposed to make you see the need for the coverage. If your balance is zero, you don’t need the coverage.

Last but not least is Accidental-Death Insurance. Are you trying to say that your family will need more money if you die by accident than if you die by some means that is not an accident? Again, a good term life insurance policy is what you really need. Take the extra money you would have spent on Accidental-Death insurance and invest it for retirement (on purpose).