Groups Warn About Buying Unneeded Insurance Coverage : Consumerism: In many cases, the policies are either redundant or too narrow in scope to be cost-effective, they say.
Autumn is the time when summer home buyers settle into their new digs, children resume after-school activities, parents return to work or volunteer jobs--and insurance companies try to sell them extra coverage they might not need.
“Right now, the push seems to be on mortgage insurance for all the people who have moved into their new houses . . . and also athletic insurance for schoolchildren,” said J. Robert Hunter, president of the National Insurance Consumer Organization (NICO) in Alexandria, Va.
“But there are many other policies consistently offered throughout the year,” he said. “Quite a bit of the stuff you get in the mail . . . or hear about over the phone is not useful.”
Hunter says about 10% of the $180 billion consumers spent on insurance last year was wasted on unnecessary policies for life and health, home and car, and travel and entertainment. In many cases, the coverage was redundant or too narrow in scope to be cost-effective, he said.
“You should buy insurance that comprehensively covers you against catastrophic dollar losses,” Hunter noted in NICO’s latest list of “Insurance Coverages Not to Buy.” The list includes about a dozen avoidable policies, from air travel insurance to rain insurance.
The whole point of insurance, Hunter says, is to avoid severe financial stress, not inconvenience.
“So what if it rains on your vacation? It’s not catastrophic. You can still go to the movies and have fun,” he said.
Consumer groups say individuals as a rule should avoid policies that cover non-catastrophic losses that can be handled by dipping into savings--such as insurance against a lost contact lens and rainy vacation days--or policies that insure against just one risk, such as cancer or muggings, the consequences of which are covered under regular insurance policies.
Individuals also should be wary of policies hooked to a purchase, such as extended-service contracts offered by auto dealers, home warranties from builders, or certain trip-cancellation insurance sold by travel agents, consumer advocates say.
Often, these policies are filled with fine-print exclusions. For instance, many trip-cancellation policies--which costs about $5.50 per $100 in coverage--will not pay out if you cancel because a chronic ailment flares up or if a tour operator defaults.
One of the strongest pitches that most people hear is for credit insurance--particularly mortgage insurance, which protects your family or estate if you die and still have payments left on your home, said Stephen Brobeck, executive director of the Consumer Federation of America in Washington.
Brobeck says homeowners probably would find it cheaper to increase their basic life and disability coverage instead of shelling out for a separate policy.
Before making any decisions, consumers should review their current policies to see what is already covered or if any modifications are needed.
Most people do need: comprehensive health insurance, life insurance if there are dependents, auto insurance if they have a car, homeowners or renters insurance and disability insurance.
Jeanne Salvatore, a spokeswoman for the Insurance Information Institute trade group in New York, said that while consumer advocates have “a legitimate point” in their warnings to individuals, insurance decisions should be based on each person’s approach to risk-taking and personal finances.
“Some insurance could be duplicative of other coverages,” Salvatore said. “Some are unusual--you can buy insurance against UFO abductions for $1 a year--and are not going to be for everyone. It depends on your situation.
“Our experience is that most people are very unhappy if they find they’re underinsured rather than overinsured because that’s where the heartache comes in.”
Louis Iacovelli, marketing vice president for Continental Insurance in New York, agreed: “It’s hard to say across the board that things are frivolous. In some situations they are. It depends on your financial situation.”
Continental is currently pushing expanded coverage of its homeowners insurance, which provides so-called lifestyle protection for active two-income families. Among the coverage: up to $1,000 if the day-care center to which you send your children burns down; up to $1,500 if your health or country club goes belly up; up to $1,000 if you get robbed after withdrawing money from an ATM, and up to $20,000 if you are sued while doing volunteer work.
“It only costs you $38 (a year) over the normal price of the policy,” Iacovelli said. He said about half of Continental’s homeowner policyholders have opted for the extra coverage so far. However, he had no figures on how much benefits had been paid out.
Hunter, though, says he would probably keep the $38 in his own pocket, line up some backup baby-sitters and check out the track record of his health club before joining. “You just can’t insure lifestyles.”
