Insurance is a vital tool for managing the risks we face in our lives. Its intent is to prevent catastrophic monetary loss such as the financial blow of losing your car, your ability to work, and even your loved ones. But that certainly doesnít mean that every insurance policy is a good buy or even worth the premium.
Save money by avoiding these four over-priced policies:
- Baggage Insurance. Some credit cards offer auto-enrollment in their baggage insurance programs, which will pay you if your baggage is delayed by several hours or lost. American Express charges $9.95 per person ever time you purchase a plane ticket with your card if you are enrolled in their program. This is one of the most over-priced forms of insurance around! These types of coverage generally offer limited benefits beyond what the airlines are already responsible for, and the premiums are dramatically higher than the risk involved.
Alternatives: Lost luggage is likely covered by comprehensive travel insurance as well your homeownerís or renterís insurance. Plus, international treaties spell out the specific liability that airlines are responsible for in case of lost or delayed luggage.
- Jewelry Insurance Riders. If you own valuable jewelry (like an engagement ring), itís probably only covered for up to $1,000 of loss by your homeownerís or renterís insurance unless you purchase a jewelry rider. However, these riders are often very costly, sometimes costing as much as 5% of the jewelryís value and providing less coverage than you may presume.
Alternative: Purchase a jewelry insurance policy. These specialized policies can cost half of a jewelry rider, and often also offer expanded coverage for lower value jewelry items as well.
- Tuition Insurance. For just a few hundred dollars per year, tuition insurance will reimburse your tuition and fees if your child has to withdraw from college for medical reasons. More than 1,000 schools partner with tuition insurance companies, promoting these policies on their own letterhead. But these policies cover withdrawal only for medical reasons, and there are exclusions for many situations, such as mental health and substance abuse issues.
Alternative: Unless you have reason to believe that your child is at high risk of withdrawal due to their health, skip these policies all together. Depending upon your tuition agreement, you are likely responsible for not more than one semesterís costs, so bear this small risk yourself.
- Extended Warranties. Know what the most profitable item in any electronics store is? No, itís not the big screen TVs or laptop computers. Itís the extended warranties that are aggressively pushed upon you when you are ready to buy a new gadget. These plans are often priced dramatically higher than the true risk of loss (and if theyíre not, youíre probably about to buy a piece of junk!). They are never worth the money.
Alternative: Remember, nearly any electronics you buy will come with its own 90-day or one year warranty. Plus, many credit cards also automatically extend the warranty on most purchases for an additional year at no additional cost to you.
Kristin Harad is a Certified Financial Planner in San Francisco.