3 Insurance Policies Most People Don’t Need

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Don’t pay for insurance coverage that isn’t really necessary.


Key points

  • Insurance provides important protection for assets.
  • Certain policies, such as car insurance and health insurance, are crucial.
  • There are other insurance policies that many people don’t need.

Purchasing insurance coverage to protect assets is extremely important. But that doesn’t mean it’s a good idea to buy every insurance policy available for purchase.

In fact, there are a few types of coverage that most people don’t need and are nothing more than a waste of money in the majority of cases.

So what are these useless policies? Here are three types of insurance that are generally best not to have.

1. Mortgage life insurance

Mortgage life insurance is a special type of policy that specifically aims to ensure that a home loan can be repaid in the event of death. It is often marketed to people who want to ensure that their loved ones will not have to move if they die.

While buying this type of protection might seem smart, the reality is that it’s usually a bad buy. The value of the policy decreases over time as people pay off their mortgage. And it does not provide money for other things that family members may need upon death.

It’s usually a much better idea to just buy a standard term life insurance policy with a death benefit large enough to cover the mortgage and also replace the policyholder’s income in the event of death. This can be more affordable than mortgage life insurance and the value of the death benefit will remain the same while the policy is in force, rather than decreasing as the mortgage balance is paid off.

2. Identity Theft Insurance

Identity theft insurance covers the costs associated with fighting identity theft. This type of policy can reimburse a victim of identity theft for any financial loss caused by their identity being stolen. It can also help pay for the costs associated with recovery.

While this may seem like a good buy, the reality is that the premiums you’ll pay for this policy year after year are usually higher than the amount you could lose if your identity were actually stolen.

This is because there are a number of protections in place to ensure that consumers are not liable for fraudulent use of their credit or debit cards. And there are policies in place to allow individuals to have incorrect information removed from their credit report free of charge.

Rather than paying for identity theft insurance, people should know the terms of their credit and debit card agreements so they can report fraud immediately. And they should take advantage of the free resources made available by the Federal Trade Commission if they are victims of identity theft.

3. Credit Card Loss Prevention

Credit card loss prevention insurance is marketed to consumers with the promise that it will protect them against unauthorized use of their credit cards. But the reality is that consumers are already protected and their potential liability is limited to a maximum of $50 (and many creditors limit their losses to $0).

The FTC actually called this type of insurance “worthless” and urged people not to buy it.

Avoiding these three types of insurance is a best practice and consumers should generally avoid all of these policies and instead spend their money on coverage that is worth buying and provides legitimate protection for their assets.

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