Do you ever feel like you’re just throwing money away on life insurance? You could end up doing just that if you buy specialized coverage that you don’t really need. One way to save money on life insurance is to keep it simple and resist the temptation to load up on life insurance in all its varieties.
Many exotic, specialized life insurance policies simply feed on people’s fears. Dying is a fact of life, and no matter what kind of life insurance you’ve got, it can’t prevent you from dying. What it will do is provide for those you leave behind. Let’s take a look at some commonly marketed, largely unnecessary policies:
Accidental death insurance
There’s really no reason to purchase an additional life insurance policy that pays you more money if you die in an accident. If you want extra coverage, then you should simply increase your life insurance coverage through a traditional life insurance policy that will pay your heirs for almost any reason you die.
With accidental death life insurance, you are basically paying for the same coverage twice. When you die, it doesn’t matter if it was an accident or not. You are still dead, and traditional life insurance will pay either way. There is no need for extra protection due to the manner of death.
Nowadays, it seems that anyone you talk to has a family member or knows someone who has been touched by cancer. Cancer is a scary, often incurable, unpredictable disease. Insurance companies and their agents feed off this fear and use it to sell special supplemental cancer insurance that will pay out if you are diagnosed with and die from cancer.
This is akin to trading a stock because of bad headlines. We tend to forget that we are actually more likely to die from other illnesses such as heart disease than from cancer. But have you ever noticed that insurance companies don’t sell heart attack insurance?
Mortgage life insurance
If you have a mortgage, or significant credit card debt, then those debts should be taken into consideration when you purchase your traditional life insurance policy because your estate will be responsible for paying those debts. In most cases, you would save money by simply purchasing an adequate amount of term insurance from the start, rather than adding additional mortgage and/or credit card supplementary life insurance coverage.
Because the amount of coverage is typically so small, the premiums end up being very expensive for the amount of coverage purchased, and worse, the coverage effectively decreases with every payment you make. You are much better off using that money to simply pay off your debts, rather than paying additional insurance premiums.
Flight accident insurance
Another waste of money is flight accident insurance that pays the claim if you are killed in an airplane crash. You have a better chance of winning the lottery than having this type of life insurance policy actually pay out to your heirs. In some airports around the world, you can still buy these policies from a kiosk or vending machine before you board an airplane. That alone should help clue you in as to how ridiculous these policies are.
If you have adequate life insurance in the first place, you do not need to waste your money on insuring your life against an event that has very little chance of actually occurring. Flying is far safer than driving, so save your money for treats for your family and enjoy your trip.
Motivated by profit
There is a reason why insurance companies offer these policies for only a few dollars. They know the likelihood of a payout is slim to none, and the premiums are almost pure profit. If you won’t miss the few dollars a month and it makes you feel better, go for it. But keep in mind where those dollars are going. Even just a few dollars a month, paid over decades, can add up to some serious money.
How much life insurance do you need? One common rule of thumb is that you should have enough life insurance to equal ten times your annual income. But the actual amount should be based not only on your income, but also on the size of your family, the age of your kids, the lifestyle you’d want them to have if you didn’t come home one day, and so forth.
What about you? Have you ever bought a specialty life insurance policy? Do you still think it was a good deal, or did you have second thoughts later?