10 kinds of insurance you (probably) don't need

By Dan Phelps

1. Private mortgage insurance. When you buy a house, the mortgage company wants to make sure it won't be hurt too badly if you skip town without paying off the loan. Unless you can put down at least 20% of the home's value, you're usually required to get PMI. The policy's purpose is mainly to secure the lender's investment, but in recent years it's become a means for people to buy a home with a much smaller down payment.

But homeowners pay for it in the long run. Premiums can amount to as much as a 13th mortgage payment each year.

Once the outstanding balance on your mortgage drops below 80% of the original value of the home, federal law says your lender must notify you that you can cancel the insurance. As unlikely as it may be in the current housing market, if your home has appreciated rapidly, you can also apply to cancel PMI. But be prepared to pay for an appraisal ($300 to $400) to prove your point.

2. Service contracts. These "extended warranties" are usually worth skipping. A service contract is simply a promise to perform or pay for certain repairs or services. Service contracts often duplicate what's provided in the standard warranty you get with a car or an appliance. Read your regular warranty carefully. Then compare it to the service contract. Sometimes, you can purchase service contracts later, when the original warranty expires.

Also keep in mind that if you purchase such items with a credit card, the card issuer often provides its own warranty on the purchase. (See "4 hidden ways credit cards help you.")

3. Separate policies vs. riders. Buying separate policies to cover things like boats or RVs may not be your best choice. Check out whether supplemental coverage is already available through your existing homeowners policy.

A major reason is cost. Think of it as buying in bulk. When you add a rider to an existing policy, it usually costs less than buying a whole new policy. Also, many of these "things that move" are already covered by your home insurance, albeit at less-than-ideal levels.

4. Flight insurance. According to some statisticians, you could fly on a major airline every day for 26,000 years before you'd be involved in a plane crash. Even then, the odds are that you'd survive the crash. Besides, you may already have flight insurance, if you purchased your plane ticket with a credit card. Some credit card companies give you up to $100,000 in coverage just for charging your ticket on their card.

5. Credit insurance. This insurance is often pushed on consumers. The most important thing to remember about credit insurance is that a lender cannot make you buy it.

Video: How to save on life insurance

There are several variations (including credit life insurance, credit health or disability insurance, and credit unemployment insurance), and they all do the same thing: They pay the lender if you can't. So why would you want to pass on credit insurance?

Well, for one reason, you might have enough life insurance, disability insurance or assets to cover your debts. Or, you might be able to buy a term life insurance policy for less, and the payout would be higher.

Continued: Life insurance for children

 1 | 2 | next >