Tuesday, April 3, 2012

5 Unnecessary Insurance Policies You Better Avoid

5 unnecessary insurance policies


Risk management is the basis of insurance. Fear of the uncertain future creates the need for financial protection against a catastrophe. There are reasons why some types of insurance are unnecessary. Here are the five unnecessary insurance policies that waste money:


1. Mortgage insurance
Instead of focusing on just paying off the mortgage, holistic coverage should be considered. In addition, most companies provide large sum discounts. There are term plans that mirror the mortgage insurance coverage, providing reducing coverage without needing you to submit mortgage documents and revising everything when you change residence.


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2. Comprehensive motor insurance
Most drivers opt for low excess and a comprehensive plan instead of third party plan with higher excess. With the rising cost of motor insurance premiums, it is to your benefit to do some calculation if it is worth paying both an arm and a leg for the maximum coverage. When considering excess, consider the amount you are comfortable to fork out, keeping in mind that once a claim is submitted, your premiums will sky rocket the following year. For example, if you chose $500 excess and a claim for $1,000 is submitted, your next premium may be $1,500 more and may lose your No Claim Discount (NCD), so does it make sense to claim or pay yourself? In that case, why not adjust your excess higher and pay less premium?


3. Child insurance
Insurance is mainly designed as a safety net for your dependents. As children do not have dependents to worry about and are, technically speaking, a "liability", the main concern is saving for their future living expenses. Most important of course is to have an adequate hospitalisation expense plan in place and to review the parents' coverage with the addition of this new dependent first.


4. Credit card insurance
Purchasing coverage to pay the bill in the event you cannot, is purely an additional expense that could have gone to paying down the bill in the first place. You will save on the premiums as well as the debt interest. You should not even have the debt — paying off your bills on time will be the most prudent approach.


5. Critical Illness Insurance
Instead of trying to cover all the possible illnesses in the world and possibly new illnesses not even known yet, a comprehensive hospitalisation plan for treatment cost and disability income insurance as income replacement should be emphasised first.


When choosing insurance, there are so many policies to chose from, and they all cost money. There is no point wasting good money on less critical additions when the fundamental basics are not adequately addressed. Are you aware of all the available policies or are you relying on your insurance salesman to recommend only those high commission products?

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