If you’re meeting with an insurance agent or buying insurance on a website, you could spend all day purchasing policies. That is, beyond the basics, there’s almost a never-ending array of extra coverage you can get.
Ned Ryerson, the fictional insurance agent, demonstrated that in a scene from the movie “Groundhog Day” when he raved about a sale he finally made with Bill Murray’s character: “I have not seen this guy for 20 years. He comes up to me and he buys whole life, term, uniflex, fire, theft, auto, dental, health, with the optional death and dismemberment plan, water damage …”
But, naturally, not every insurance extra is necessarily as great a deal as your insurance agent or company would have you believe. If you want some good coverage without spending every last nickel you have, this is what most experts would tell you to get – and what you can skip.
What to skip. Just about everything, as long as you have comprehensive and collision coverage. Many features sound attractive until you do the math. Such as these …
Accident forgiveness. You crash your car, and your premiums won’t go up. What’s not to love? “The catch is that you have to pay extra for this – sort of like an insurance policy for your insurance policy,” says Neil Richardson, who isn’t a fan of accident forgiveness, is based out of Austin, Texas, and is a licensed agent with The Zebra, an online car insurance comparison marketplace.
Vanishing deductibles. Every year, your deductible decreases by about $100 per year when you are accident-free. When you pay for the feature (as most, if not all, insurers will have you do) you usually pay more than $100 a year, according to Richardson. So if you have to pay $500 or higher to remove a $500 deductible … well, you can see the problem.
“You’d be better served by putting aside an extra $100 per year than paying more for it on your insurance policy,” Richardson says.
Towing and roadside assistance. If you can forgo paying it and use a service like AAA (American Automobile Association), you’ll be better off, says Amy Danise, the insurance expert at the personal finance site NerdWallet.com. She points out that every time you use your insurance company to tow your car, it’s a claim that goes on your record.
“While a couple of towing claims are not likely to lead to a rate increase, a string of claims could signal that you’re a risky driver and lead to a rate increase at renewal time,” she says.
What to get. New car replacement. Actually, for most car owners, you can skip this, too, but for some car owners, it might be worth the added expense, if you have a ridiculously expensive car. Richardson points out that to use a new car replacement add-on, you have to be the original owner, so if you own a used car, it’s a feature unavailable to you, and if your car is seriously damaged, but not totaled, you won’t get your car replaced.
What to skip. Richardson says that companies have begun offering add-ons that don’t provide much benefit to consumers.
“Accidental damage, defamation of character and identity theft protection are offered by many companies in exchange for extra premium, but are seldom necessary,” he says. “It’s fairly easy to explain the benefit those coverage options provide, but the odds of actually utilizing those add-ons are slim for most people. Stick to what is necessary and determine your own specific needs before deciding to fork over extra money to your insurance company.”
What to get. Really, you can probably justify about anything, given that this is your most valuable asset and one you spend a lot of time with. In other words, it’s a judgment call.
“The key to add-ons with home insurance is understanding where your current policy’s coverage ends,” Danise says. “For example, the sewer pipe from the street to your home is typically not covered by home insurance. If it becomes backed up, it’s your responsibility. If you don’t want to potentially be saddled with that large repair and cleanup bill, consider adding sewer backup coverage.”
Generally, most sewer backup add-ons increase a typical policy by about $50 to $100, according to industry experts.
What to skip. Insuring your children. “Some agents will try to sell an add-on of life insurance on the kids that will cover the kids up to a designated amount of usually $5,000 to $25,000 in the event they die,” says Derek Benavides, an agent and branch owner of TWFG-Benavides Insurance in Brownsville, Texas.
Why? Benavides makes the point that many insurance experts make. Your kids probably aren’t contributing anything meaningful to your household income, he says, and that’s the point of life insurance, to replace a family’s income if something happens to one of the revenue earners.
If you’re worried about something happening to your kids and not having the money for a funeral, Benavides says he understands and wouldn’t try and talk you out of it, but he would point out that the odds of something happening to a minor are generally slim, and if you’re that concerned, you’d still be better off socking away the funeral money into a savings account.
What to get. Danise feels that there are two add-ons you’ll want to look at.
Accelerated death benefit. You can access the death benefit while you’re still alive, if you become terminally ill, Danise says.
“This can be a crucial safety net for paying medical bills,” she says, adding that it’s worth asking about. You may be able to add it for no charge or a low cost.
Critical illness rider. “A critical illness rider lets you tap into your policy’s death benefit if you develop a severe condition, such as cancer or a stroke,” Danise says. “The money can be used for anything – living expenses, medical bills or anything else. This rider is best for people who wouldn’t be able to pay basic expenses if they developed a severe condition.”
It isn’t a bad idea. Every year, over 795,000 people in the U.S. have a stroke, according to the Centers for Disease Control and Prevention, and 130,000 people die from one. So if you can buy a critical illness rider, it may be worth it – provided you can get one without a jaw-dropping price.
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