When buying plane tickets recently on a major travel site, I was confronted with an offer to buy "travel insurance" for my trip. Digging deeper, I discovered that this insurance policy would reimburse me the cost of the tickets if I canceled because of illness (any other reason for canceling wouldn't fly -- pardon the pun). Niche insurance products like this have proliferated in recent decades, playing on our fear of the future in order to separate us from our money.
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Buy any kind of electronic device, from cameras to refrigerators, and the seller will eagerly offer you an extended warranty in case the product fails or needs repairs after the basic warranty expires. These policies almost never pay off; even if the product does fail during the extended warranty period, the cost you'd pay for repairs is often less than the cost of the warranty. A Consumer Reports study on extended warranties for automobiles found that 55% of warranty purchasers never used the policy, and the ones who did spent far more on average to pay for the policy than they saved on the repairs it covered.
Rental car damage insurance
When you rent a car, the rental company will try to sell you insurance coverage "for just a few dollars a day" to cover the cost of repairs should you somehow damage the rental. But since most auto insurance policies already include this coverage for rentals, buying it again from the rental company is a total waste of your money.
Children's life insurance
The basic idea behind life insurance is to provide financial support for a person's dependents should that person die. Since your children are unlikely to have dependents, buying them life insurance policies is just silly. Instead, take the money you'd spend on premiums and put it in a college fund or other educational savings account. You'll get a much better return on that money than you would if you'd spent it on insurance.
Believe it or not, you can buy insurance to cover the cost of a wedding that is canceled for specific reasons, such as a natural disaster. But the odds of your ceremony being disrupted by a runaway tornado are slim, making this type of insurance a poor investment. Reputable vendors will carry liability insurance policies, so if your caterer serves food that gives everyone food poisoning or the wedding dress arrives with a big stain on the front, you're likely already covered. And most wedding policies won't pay if the ceremony is canceled because one of you changes their mind.
In addition to standard health insurance policies, you can now get special policies that cover specific ailments such as cancer or heart disease. But once again, the odds aren't in your favor when you buy such a policy. Just about everybody will get sick or suffer an injury at some point in their lives, which is why regular health insurance is so important. The likelihood that you'll suffer the ailment covered in one of the disease-specific policies is much, much lower. Worse, many of these policies have expensive loopholes in their coverage -- for example, cancer policies usually don't pay for related ailments such as infection, and they may only cover hospital-based care even though many cancer treatments are done on an outpatient basis.
Niche policies don't pay off
Insurance policies are products designed to make money for the companies that issue them. With broad types of policies, such as health or auto insurance, the money comes from selling the policy to huge numbers of people, which evens out the risk for the insurance company. You'll likely use the coverage these policies offer more than once, so from an individual perspective, they're still a good deal. But with niche policies, the potential disasters they protect you from are either incredibly unlikely or relatively inexpensive. Stick with the standard broad-spectrum insurance programs, and save the rest of your money for better investments.
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