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

6. Short-term, cash-value life insurance. If you don't hold onto them long enough, cash-value life insurance policies are a waste of money. Cash-value life insurance theoretically offers both a death benefit (the money paid to your heirs when you die) and a return on investment. Your equity in the policy -- the cash value -- builds up over the years, and you can borrow against it or simply stop paying on a policy and let the annual dividends keep the policy in force. While your survivors will still get the death benefit, these policies cost you big chunks of money in the first few years.

According to a study by the Consumer Federation of America, it takes five years before one of these policies shows a positive return. And even then, that return is extremely small. Even after 10 years, the average return is only about 2%. All of this is due to brokers' commissions and other fees paid in the beginning of the policy's life.

If you're looking for life insurance coverage for a short period, term life is your best bet. The premiums are much lower, and your heirs will still get the death benefit.

7. Life insurance for children. This insurance offers a big death benefit, but kids don't have debts or dependents. If you're thinking that a cash-value kid's life insurance policy would be a good way to save for his or her college education, you could do better putting that money elsewhere. See "How Uncle Sam wants you to save for college."

8. Mortgage insurance. It's more expensive than it's worth. Besides, you could do better with another policy -- one that you might already have. These policies are designed to make your mortgage payments if you die or become disabled. If you're worried about burdening your heirs with mortgage payments, you'd be better off buying straight life insurance. Adding on to your existing life insurance policy is less expensive than mortgage life.

9. Cancer insurance. If you look closely at what you get, you'll realize there's a better way to protect yourself in the event you get sick: health insurance. Some cancer-insurance policies promise to refund your premiums every 10 years if you've had no cancer. Not a bad deal -- if you're the insurance company.

A study done by the federal General Accounting Office in 1994 found that the largest companies selling plans -- covering only hospital stays or diseases like cancer -- paid out as little as 35% of the premiums they took in. Some states set payout targets of 75% or more for other policies. While $400 a year may not seem like too much to spend for peace of mind, it's the narrow coverage provided by cancer insurance that makes it a bad deal. They'll cover you if you get cancer, but some policies won't pay for cancer treatments until several years after you've bought the policy. And skin cancer, probably the most common form of cancer, often is excluded.

Video: How to save on life insurance

10. Short-term medical coverage. There will be arguments a-plenty here. Often, this coverage is offered to those who leave one job for another. Under the federal COBRA law, your old insurance policy can "follow" you for about 18 months after you leave, but you have to pay the whole premium. (Here's where you find out just how much your employer's been kicking in for your insurance coverage.) You don't have to pay the premiums until 100 days after your last day on the payroll.

But let's say you're single, run three miles a day, don't smoke and are terrifically healthy. You may decide that the cost of COBRA coverage is too high for the low risk of developing a medical problem before you take your next job. If so, don't take the coverage. But, if you have a family, you may conclude that the risk of not having any coverage is too great.

Updated Sept. 23, 2009

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