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Car and Home Insurance Coverage That Can Be a Waste of Money

In general, insurance is a great asset. It ensures that you will be reimbursed if you ever suffer a covered loss. But some losses are much more likely to transpire than others. In today's world you can get insurance against virtually anything, even though the truth is some of those policies are unnecessary. What types of insurance should you be on the lookout to avoid? Here's a helpful list to keep you from buying insurance you don't need.
 

Unnecessary Auto Insurance Coverage

Auto insurance liability is virtually unavoidable since forty-nine states require drivers to carry it. But that is not the whole story. There are multiple features and add-ons for auto insurance that are rarely necessary or even helpful. Unless you know for a fact that you need one of the following coverages, feel free to decline it when offered.

Rental Car Coverage

Despite the name, this optional auto insurance feature only pays for the cost of a rental car in the event your car has been in an accident; it does not pay for a rental vehicle if you are simply going on vacation. While you may be happy to have this coverage after your primary vehicle has been in an accident, you probably do not need it on a secondary vehicle. Some people choose to drop this coverage entirely and put the money they would have paid towards it into an emergency savings account instead.

Gap Insurance

For a small handful of people, gap insurance is a wonderful thing. When you buy a brand new car, the depreciation in value begins as soon as it comes off the dealer's lot. So, if you were to total your new car just a couple of months after buying it, you may find that the claim settlement your insurance company offers is a lot less than what you still owe the loan company.

Being indebted to your loan company while you do not even have a car is not a great place to be. To combat this, most dealerships and some loan companies offer gap insurance. That is a great feature for people who are buying brand new cars and paying full price. However, if you buy used, get a great deal on your new car, or put a significant amount of money down on your new car, you probably do not need gap insurance.

Collision and Comprehensive Coverage

There is a common adage that says you should never put full coverage on a car older than ten years old. While this is not necessarily true all the time, there is a good chance that your car has more coverage than you really need, even if it is less than ten years old. Here are some signs that you may want to forego collision and comprehensive the next time you renew your auto policy:

  • Your savings account exceeds the value of your car. Let's say your car has a KBB value of $8,000 and you generally keep $10,000 in your emergency savings account. Instead of paying for collision and comprehensive coverage, it makes more sense to put that $50-100 you would be paying each month in premium, and add it to your savings account to use towards potential car repairs.
  • Your car's value is less than your deductible. If you have a $1,000 collision deductible because you cannot afford anything lower, and your car's KBB value is less than that, you really should not have this coverage. More than likely, you will not receive any payment from your insurance company if your car is totaled so this is a waste of money.
  • It is a backup car. You and your spouse each have reliable vehicles you use to commute to and from work but you have a spare car in the driveway that was inherited from a relative. When you know that you would not replace your vehicle if it was in an accident, there is really no sense in carrying collision and comprehensive coverage on that vehicle.

On the other hand, if you have a car that is over ten years old, but do not have significant savings, good credit, or the ability to easily buy a new vehicle if yours were totaled in an accident, you probably do need to add collision coverage to your auto insurance. Furthermore, you should always check with your loan company to see if they require you to carry collision and comprehensive coverage on your vehicle for the duration of the loan. Never remove coverage before checking with your lien holder.
 

Property Insurance You May Not Need

In direct contrast to the fact that nearly thirteen percent of drivers do not have insurance, most people insure their homes pretty adequately. As a matter of fact, it is possible to have too much insurance on your home and that is not a good thing. Here are a few features and coverages of property insurance that you may want to skip.

Earthquake Insurance

A decade ago, the majority of insurers included earthquake coverage on all of their homeowner policies. However, in recent years this coverage has been moved onto a separate policy of its own. Should you be concerned that your home is not insured against earthquakes? Unless your home is in an earthquake prone area, you probably should not worry.

Flood Insurance

If you live near a body of water, your mortgage company probably requires this coverage. But what about freak floods and torrential storms? Should you make sure to carry flood insurance just in case? Maybe. For homeowners who live at a low elevation or in towns where there is a history of sewers backing up during heavy rains, flood insurance might not be a bad idea. However, if your home is up on a hill and you do not have city water, flood insurance is most likely a waste of money.

Umbrella Policies

All homeowner's insurance includes some liability coverage for the policyholders but the amount of coverage is not always adequate. This is where umbrella insurance policies come into play. They offer additional liability coverage for professionals and families who need more liability than their homeowner's policy can offer. Umbrella policies are frequently sold in addition to recreational vehicle insurance, such as dirt bikes, RVs, and boats. Despite the fact umbrella policies are typically inexpensive, most people just do not need them.

Market Value Coverage on an Older Home

When you purchase a homeowner's insurance policy, you are usually given the option of insuring the home for market value or replacement cost. Policyholders buying a brand new home often choose the market value option since it could provide more coverage initially. However, as time progresses, this trend may reverse: the market value of the home may be less than the cost to replace it. By the time your house is twenty years old or more, the market value coverage option could leave you grossly underinsured. If you would want to rebuild your home just as it is in the event of a total loss, skip the market value option and stick with replacement cost.

Although every item on this list is completely unnecessary for some policyholders, there are others who can readily say that at least one particular coverage is something they would never go without. Since insurance needs vary drastically from one individual to the next, you should never assume that you absolutely must buy or forego certain coverage just because a friend made that particular choice. Be sure to take a good look at both your insurance needs and financial standing before buying any additional insurance or dropping coverage you already have.