Several years ago, when I ran a Rent to Own company, clients would ask me, “Do I need insurance?” What they meant was, “Do I need mortgage insurance?” This question came up after a visit to their mortgage broker, or lender, to sign mortgage documents. Included in the pile was an application for mortgage insurance. I told them that mortgage insurance is typically a waste of money as it doesn’t provide coverage for many of the key costs that you face after a loss. You can almost always do better with term insurance. Your premiums also stay the same throughout the term despite the fact that the value diminishes as you pay down your mortgage.
Should your outstanding mortgage balance be insured? Absolutely. The last thing you want to face after a death is the stress of mortgage payments. Should you do it through mortgage insurance? Probably not.
The banks are big on pushing this insurance because it’s a money-maker for them. I know you won’t find it hard to believe that the banks don’t always have your best interests at heart.
One of the first things that I recommend to all women, after ensuring that you have a good will for both you and your partner, is to put effective, comprehensive insurance in place to protect your family.
The answer to the question, “Do I need insurance?” is yes, but the key is to get the right insurance for the things that matter, rather than wasting money on stuff that won’t make a whit’s worth of difference to you.
On the latter note, I came across an entertaining blog post by Gail Vaz-Oxlade in which she makes the same point and takes it a step further by ratting out two other kinds of insurance you shouldn’t buy: flight accident insurance and accidental death insurance.
Flight accident insurance
Vaz-Oxlade makes the point that if you have term insurance, you are covered whether you die in a plane crash, in your sleep, from an illness or simply crossing the street. With flight accident insurance, you’re only covered in the event of a problem with your flight.
How likely are you to die in a plane crash? According to Vaz-Oxlade, “you’re more likely to win the lottery than die in a plane crash, and you’re more likely to be struck by lightening twice than win the lottery.”
In short, not likely.
The good news is that you’re likely to live. The bad news is that you’ve wasted money.
Accidental death insurance
What about accidental death insurance? Isn’t that worth it? Here’s the problem: You’re not covered unless your death was an accident. So much for heart attacks and illnesses of any kind. If you dig through other women’s stories in my blog, including my own, not one of us would have collected a dime with accidental life insurance.
Vaz-Oxlade doesn’t mince words: “If you’re delusional enough to think you can get away with a minimum of insurance as long as you have extra insurance for accidental death, give your head a shake.”
To me it boils down to two key issues: risk and wisdom. Is it worth risking your financial well-being to save a few dollars? No it’s not, especially if you have kids. This is a great example of being penny wise and pound foolish.
Is it wise to invest in insurance that is very limited in its application or its likelihood of being useful? No.
Don’t get me wrong. It’s critically important to have a good insurance policy. There are a lot of very important items to cover with insurance. Here’s a partial list:
- Your mortgage(s)
- All debts – credit cards, lines of credit, student loans, car loans, etc
- Money to carry you through the first few difficult years after loss
- Your children’s education
- Special health needs
- Support workers (i.e. caregivers, daycare costs, etc)
The list goes on. I recommend that you sit down with a knowledgeable insurance broker to discuss your needs. This bit is definitely worth your time and effort. Insurance matters a great deal, but not all types of insurance are equal.
Some credit card companies offer accident insurance as part of their incentives. These are the sorts of perks on which you should capitalize simply because they are already a part of the package for the card that you have chosen. However, they should never factor into your reasoning for choosing the card in the first place. (The right use of credit cards is a whole other topic.)
The next time you board a plane, relax and enjoy the flight. Give yourself a pat on the back for not having wasted your money on flight accident insurance.
If you’re tempted by accidental life insurance, head to the corner store and buy a lottery ticket instead. Apparently it’s a much better investment.