What Types of Insurance Plans should i Avoid

While insurance is a useful tool for risk-management, it is not one that should be purchased through fear instead of rationale. Some insurance plans can be considered essential, while others are garbage cans for your precious dollars. Even a specific plan that covers a vital insurance need can be rubbish. In any event, certain insurance plans should be avoided in most cases.

Refundable term insurance

This type of plan was designed to appease clients who felt that term insurance offered absolutely nothing. Insurers crafted a term plan that offers a refund of premiums on maturity. The problem with this is that the premium is significantly higher than non-refundable term insurance. In some cases, refundable term costs almost as much as cash value plans! This plan just absorbs your money without increasing the benefit that you receive.

Mortgage protection and credit insurance

The basic idea behind mortgage protection and credit insurance (life or disability) is that payments would be made on your behalf if you were unable to fulfil debt obligations; as a result of death or disability. The problem with this is that these plans are often too expensive and specific. It would be better to invest in term life insurance or a disability plan. Buying non-specific plans may also help you to cover other needs at better rates.

Cash value life insurance plans for short-term needs

Some financial professionals suggest that cash-value life insurance is unnecessary. They have a valid argument in many cases. However, cash-value plans for short term life insurance needs are definitely a complete waste of time. With expenses and charges involved with cash-value insurance, you’d save more money by taking a term insurance plan for the period (especially if it’s less than 20 years).

Plans with limited coverage or overlaps

There are certain stand-alone plans that would be better covered as riders. Critical illness plans and accidental death plans are just two examples. Some dedicated critical illness plans may cover the same illness as primary health plans. What this means if that you are paying for the same thing twice. If you feel that you may be able to claim on the two plans- think again! Several health plans have clauses that prevent the insured from claiming twice. Accidental death is unlikely and may be better selected as a double-indemnity rider.

Insurance for basic medical expenses

Insurance for any risk that you may be able to cover out of pocket can be considered a waste of money. Insurance was designed to cover catastrophes that could cripple you financially. It may seem wise to choose a plan that covers doctor’s visits and medication. However, the increase in payments wouldn’t match the increase in benefits. Insurance plans should not be used to cover minor risks.

Comprehensive auto Insurance for low-value vehicles

Your old jalopy may not have a high market value. This suggests that third-party insurance may be better suited. An auto insurance plan is an indemnity plan. If your car is worth next-to-nothing, then you are paying for next-to-nothing when you purchase comprehensive coverage on it.

Insurance plans must be avoided if they only cover trivial financial risks, provide overlapping coverage or simply do not offer value proportional to their higher premiums.