Insurance can be complicated, expensive and really, really annoying. The typical household pays thousands of dollars for various policies without getting much in return for that money, other than peace of mind.
Which is exactly the way it should be. Most insurance is designed to protect you against catastrophic expenses you couldn't otherwise handle. If your insurance is paying out, that usually means something really bad has happened: Your car has been totaled, your house has burned down or you have died.
The idea that you'd buy something you didn't want to use is counterintuitive, but that's the nature of insurance. Anything that's so baffling and irritating is bound to spawn myths, as people try (often unsuccessfully) to comprehend how it's supposed to work. Don't fall for any of the following:
1. 'I don't need life insurance; my spouse will remarry'I'm delighted you think your spouse is such a catch that he or she could so easily replace you (even while trailing two kids and 20 extra pounds added while in mourning). But do you really want the economic future of your loved one(s) to depend on whom your partner can snag next?
That's not to say that every couple needs life insurance. If you don't have minor children and your partner could pay the bills (including the mortgage) without your income, then you may not need life insurance, or you may be fine with the basic coverage provided by many workplaces (which often equals your salary or $50,000, whichever is less).
But if you have kids or anyone else who is financially dependent on you, you need life insurance -- and probably a lot more than your workplace provides. MSN Money's Life Insurance Needs Estimator can help you figure out how much to buy, and you can get quotes from websites such as Accuquote and Insure.com. Get it done. You don't want your family's final and lasting memory to be how you left them in the lurch.
2. 'Rental car insurance is a rip-off'Yes, the optional insurance offered at the counter is a huge profit center for rental car companies. And yes, some rental outfits are so obnoxious about pushing the coverage that you may be tempted to blow off their hard sell. But sometimes the smart choice is to buy at least some of the coverage you're offered.
Here's what you need to know:
- Your auto insurance coverage may have holes. The coverage on your personal auto policy typically transfers to rental cars. If you dropped comprehensive and collision coverage on your older vehicle, you typically won't have it on your rental, either, which would leave you on the hook if the car was damaged or stolen. Also, your coverage may not extend to rentals in other countries or rentals lasting more than a certain period (such as 30 days). You may not be fully covered if your personal vehicle is worth less than the rental. You should call your auto insurer to confirm the type of coverage you have, how much you have and what restrictions may apply to rentals.
- Credit card coverage varies considerably. If you pay for the rental with a credit card and decline the rental company's collision coverage, many credit cards promise to pay whatever your primary insurance doesn't, such as your deductible if you get into an accident. (Visa and Diners Club cover all cardholders, while MasterCard, Discover and American Express offer it only on their higher-end cards, according to CreditCards.com.)
But there may be limits and exceptions to your coverage; in many cases, for example, you may not be covered if you rent a luxury car, SUV or pickup. You could invalidate your coverage if you're caught speeding or driving recklessly, while drunk or on unpaved roads. If you plan to rely on your card coverage, ask your card issuer to send you a summary of the coverage in writing and read it so you understand the details.
- "Loss of use" fees are a big issue. If you wreck your rental, the company may bill you for the money it supposedly loses while the car is being repaired or replaced, along with "administrative" charges and "diminution of value" fees. You don't want to be on the hook for these charges, which can total hundreds of dollars, so check to see if your insurance or your credit card covers them. Even then, you may still face a tussle, because credit card companies often balk at paying these fees, said Michelle Crouch, who investigated credit card coverage for CreditCards.com.
"The credit card companies say, 'We'll pay it, but we want to see the rental car company's fleet utilization log'" to prove there were no cars available to replace the damaged one, Crouch said. "But a lot of times the rental car company won't provide that log, because they say it's proprietary."
Judging from her research and response to the column, Crouch said Visa had the best reputation for covering these fees. Discover doesn't cover them at all. With other cards, the bigger the stink cardholders made, the more likely they were to get some concessions, she said.
"Most of the ones who really made a fuss about it ended up at least getting some of the fees waived," Crouch said.
If you don't want the fight, aren't covered for loss of use or your coverage has other gaps, you should at least consider buying the rental car company's coverage, usually called "loss damage waiver" or "collision damage waiver." (Don't just buy everything that's offered, though. Coverage for personal effects, illness and extra liability protection often duplicates what you already have.)
Or you could change the card you use. Diners Club offers no-cost primary insurance to all cardholders, meaning that you don't have to use your auto coverage first or even notify your insurer that there's been an incident (which could protect you from a premium increase). You can get the same type of coverage from American Express by enrolling in its Premium Car Rental Protection, which costs a flat $24.95 each time you rent a car.
If you're relying on credit cards to cover you, make sure you use them correctly. You must make the reservation and pay for the car in full with the card that provides the protection, and identify on the contract everyone who will be driving the car.
3. 'The color of my car affects my premium'This stems from the urban legends that contend:
- Red cars garner more speeding tickets.
- Certain colors (usually white, silver or yellow) are easier to see and get into fewer accidents.
There's no evidence to support the idea that red cars get more tickets. And the evidence on car color and safety is mixed. One New Zealand study found a lower injury rate among people in silver cars, but a contradicting Australian study (.pdf file) found silver and gray to be riskier colors than white. In a white paper (.pdf file) on car color and safety, the AAA Foundation for Traffic Safety concluded that "there is presently no scientific evidence supporting the selection of one particular vehicle color as the unambiguous best choice for safety."
In any case, insurers don't ask about your car's color, said Loretta Worters, a spokeswoman for the Insurance Information Institute. What insurers really care about, and what affects your premiums, includes:
- Your driving record.
- Where you live.
- Your credit history.
- What kind of car you drive.
- How many miles you drive.