Do you ever feel like you’re just throwing money away on life insurance? You could end up doing just that if you buy specialized coverage that you don’t really need. One way to save money on life insurance is to keep it simple and resist the temptation to load up on life insurance in all its varieties.
Many exotic, specialized life insurance policies simply feed on people’s fears. Dying is a fact of life, and no matter what kind of life insurance you’ve got, it can’t prevent you from dying. What it will do is provide for those you leave behind. Let’s take a look at some commonly marketed, largely unnecessary policies:
Accidental death insurance
There’s really no reason to purchase an additional life insurance policy that pays you more money if you die in an accident. If you want extra coverage, then you should simply increase your life insurance coverage through a traditional life insurance policy that will pay your heirs for almost any reason you die.
With accidental death life insurance, you are basically paying for the same coverage twice. When you die, it doesn’t matter if it was an accident or not. You are still dead, and traditional life insurance will pay either way. There is no need for extra protection due to the manner of death.
Nowadays, it seems that anyone you talk to has a family member or knows someone who has been touched by cancer. Cancer is a scary, often incurable, unpredictable disease. Insurance companies and their agents feed off this fear and use it to sell special supplemental cancer insurance that will pay out if you are diagnosed with and die from cancer.
This is akin to trading a stock because of bad headlines. We tend to forget that we are actually more likely to die from other illnesses such as heart disease than from cancer. But have you ever noticed that insurance companies don’t sell heart attack insurance?
Mortgage life insurance
If you have a mortgage, or significant credit card debt, then those debts should be taken into consideration when you purchase your traditional life insurance policy because your estate will be responsible for paying those debts. In most cases, you would save money by simply purchasing an adequate amount of term insurance from the start, rather than adding additional mortgage and/or credit card supplementary life insurance coverage.
Because the amount of coverage is typically so small, the premiums end up being very expensive for the amount of coverage purchased, and worse, the coverage effectively decreases with every payment you make. You are much better off using that money to simply pay off your debts, rather than paying additional insurance premiums.
Flight accident insurance
Another waste of money is flight accident insurance that pays the claim if you are killed in an airplane crash. You have a better chance of winning the lottery than having this type of life insurance policy actually pay out to your heirs. In some airports around the world, you can still buy these policies from a kiosk or vending machine before you board an airplane. That alone should help clue you in as to how ridiculous these policies are.
If you have adequate life insurance in the first place, you do not need to waste your money on insuring your life against an event that has very little chance of actually occurring. Flying is far safer than driving, so save your money for treats for your family and enjoy your trip.
Motivated by profit
There is a reason why insurance companies offer these policies for only a few dollars. They know the likelihood of a payout is slim to none, and the premiums are almost pure profit. If you won’t miss the few dollars a month and it makes you feel better, go for it. But keep in mind where those dollars are going. Even just a few dollars a month, paid over decades, can add up to some serious money.
How much life insurance do you need? One common rule of thumb is that you should have enough life insurance to equal ten times your annual income. But the actual amount should be based not only on your income, but also on the size of your family, the age of your kids, the lifestyle you’d want them to have if you didn’t come home one day, and so forth.
What about you? Have you ever bought a specialty life insurance policy? Do you still think it was a good deal, or did you have second thoughts later?
12 Responses to “Four Types of Life Insurance That Are a Complete Waste of Money”
And another question would an autopsy have to be dpne before any payout to determine cause of death cause my husband and I are being cremated
I just got life insurance thru globe I called and asked if my hisband r I died from cancer in the far future would they pay out they said cant really tell u that until after a death is this true and is a heart attack covered I would think so cause a heart attack is natural causes right ?
Hi,my mother is the beneficiary to her brothers life insurance policy. He died 3 motnhs ago from a heart attack and now they denied the claim. Why? I don’t get it. Why have insurance if they aren’t going pay out?
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I am providing my mom’s story in hopes that it will help others to make the right decision when it comes to supplemental insurance.
3 years ago, my mom had a fall off-duty while she was working full-time that completely tore 2 tendons connected to her rotator cuff. She did not have short-term disability or accident insurance, so all of her time off of work (3.5 months) was a total loss. Not ever wanting something like that to happen to her again, she opted for Colonial Life’s “Accident Insurance” which covers such things.
Fast-forward to December of this year, mom starts complaining of horrible, debilitating back pain. It took a month for her to get her cancer diagnosis of multiple myeloma. This is a rare type of cancer for a Caucasian woman, and one of the rarest types of cancer in general. It’s a cancer of the plasma cells and circulates around in the bone marrow, creating tumors in the bones/eating through bones and causing fractures. Mom’s back pain turned out to be a vertebral compression fracture caused by a multiple myeloma “plasmacytoma” aka tumor. Although mom had the accident insurance, Colonial Life does not consider cancer to be an accident. She will not be covered for her time off of work, (she’d have nearly $3600 due) her surgery (nearly $1600 due) hospital admission ($375 due) 6 day hospital stay ($200 due/night) body brace ($100 due) and physical therapy ($25 due per session). So, thanks to the misleading insurance agent, mom signed up for an accident insurance that didn’t cover her, because cancer is a separate policy. And go figure, she gets the type of cancer that breaks your bones. No one told her that if her accident was caused by something other than a trauma, she’d be up you-know-what creek without a paddle.
Mom was doing everything she could to avoid getting cancer, according to her doctors. Not a smoker, not a drinker, didn’t bake her skin in the sun, avoided most processed foods, stopped eating fast foods and exercised nearly 5x a week. Cancer is something you believe you can at least lower your risk for. If you’re eating the standard American diet, have even moderate stress levels and come into contact with carcinogens on a regular basis, PLEASE get cancer insurance (and then research the Budwig diet). Supplemental “accident” insurance will screw you.
And avoid Colonial Life/Unum. They use misleading tactics and obviously split up coverage types in order to up the likelihood that you won’t have the specific insurance you need to cover your problem AND maximize their profits while appearing to be sympathetic to customer needs.
My sympathies to anyone else this may have happened to.
I am sorry but I think you are being totally irresponsible giving advice like this. We pay insurance “just in case”. 4 years ago my wife decided to get us Cancer Insurance and we decided not to get “Heart Attack” insurance ( which was offered though you falsely stated it didn’t). 2 years later I got a heart attack unfortunately we did not have that policy. 2 weeks after while doing a catscan on my heart, they discovered I had Kidney Cancer. We received a big check for loss of income. A few months ago her cancer insurance rep informed her that money was stilled owed to us for all the medical bills associated with the cancer for the last two years.SO we are about to receive another check, which I will inform you how much when we receive it, So readers will know that cancer insurance is worth it.
We have house insurance on the slim chance that our house may catch on fire etc. SO what is the difference?
@Jan – It’s a waste of money. It’s not something I would recommend.
@Art – Great point. You’re definitely right. I was also blown away by how my mortgage lender blatantly sold our names to advertisers.
@Vic – Exactly! Deaths caused by cancer, heart attack, and flight accident deaths are all still covered under normal life insurance policies. If you have adequate life insurance, you do not need to fall victim to these costly insurance policies.
@Jesse – There are actually two different insurance policies. A health insurance version that also goes by the name of cancer insurance and a life insurance version as well. Both prey on people’s fears and statistically are not worth their costs.
I was led to believe that the main point of cancer insurance is to pay for the expenses of cancer treatment that may not be adequately covered by health insurance. Is that not the case?
Wait, aren’t cancer (and heart attack) and flight accident deaths still covered under life insurance policies?
My wife and I just bought a house and I was shocked by the volume of solicitations we have received for mortgage life insurance in only two weeks! The only thing that tops the quantity is the level of deception! The solicitations are designed to look like a mortgage payment voucher or other official information from your mortgage company. One of them even put the name of my mortgage company above my name in the address section. Luckily I’m the child of a former life insurance agent and knew better than to fall for this “sucker bet”. I wonder how many people fill it out and get taken because they don’t read closely.
What about auto insurance with coverage that pays should a person die in an auto accident? I pay $6 a year which would give my family a $15,000 pay out. Is this something you would recommend?