We know your insurance makes you feel safe. But does it save you money? Don’t worry! Figuring out which insurance policies are wasting your money will let you rest easy knowing that you AND your wallet are safe.
Wanna stop wasting money?
Then you need to take a hard look at what you’re spending on insurance. Many Americans waste hundreds—if not thousands—of dollars buying insurance that they either don’t need or that offers such little coverage, it’s a bad bet.
Keep reading to find out which insurance policies aren’t worth the expense.
1. Rental Car Insurance
Rental car insurance is a waste of money for most people. That’s because the car insurance coverage you carry likely already protects you in the event of an accident. However, there’s an important caveat—you must have collision coverage.
But what if you don’t have personal auto insurance? Chances are you’re still protected if you use a major credit card to secure your rental.
For instance, American Express, Discover, MasterCard, and Visa typically provide rental car insurance benefits if you decline the car insurance coverage offered at the rental company. However, some restrictions may apply, so definitely check with your credit card company before you travel.
Potential Savings: If you travel 2 weeks a year and pay $25/day for 14 days of rental car insurance, you’ll save $350.
2. Collision Insurance
As a quick refresher, there are two main types of car insurance: collision and comprehensive. Collision insurance covers accidents that occur while you’re driving. Comprehensive insurance covers damage to your car when it’s stationary, like theft, vandalism, hail, etc.
If you drive an older car, it’s a good idea to get rid of your collision coverage. Allow us to explain. Let’s say you have a car that’s worth $2,500, and you have a $1,000 deductible.
If you get into an accident, your insurance company will give you $1,500—at most— to repair or replace your vehicle. And mind you, your insurance policy won’t even kick in unless you get into a big accident—one that costs over $1,000 in damage.
So, you could be spending $200/year or more paying for collision insurance that offers very little benefit. A better idea is to set some money aside should the worst occur—then, you’ll be prepared regardless.
Potential Savings: While collision insurance costs vary, based on your car’s Kelley Blue Book Value and deductible, you can expect to save $100-$300/year by ditching collision coverage on an older car.
3. Personal Injury Protection
Personal injury protection is one of the various types of auto insurance coverage you’ll come across when you shop around for an auto insurance policy. Personal injury insurance provides medical payments coverage to you and other passengers in your car if you’re in an accident.
This insurance may be unnecessary if you rarely have passengers in your car and already have great health and disability insurance from your employer—then your medical expenses will be covered anyway.
However, keep in mind that personal injury protection is a legal requirement for residents of some states. Check to find out if that’s the case in your state before ditching your coverage.
Potential Savings: Varies, although on average, you’ll probably save $50-$100/year.
4. Comprehensive Coverage
In addition to collision coverage, you also might want to drop comprehensive coverage on an older car. To determine whether it makes financial sense for you to do so, try the 10% rule of thumb.
For example, let’s say you have a car worth $4,000 with a $1,000 deductible. Should your car be damaged beyond repair, you’ll get $3,000 from your insurance company. If you’re paying more than 10% of that amount ($300) annually for that coverage, you probably should get rid of it.
In fact, with an older car, you might just want to carry liability insurance. Liability coverage means that if you’re at-fault in an accident, other people’s bodily injuries and property damage will be covered by your insurance.
You’re actually required by law to carry liability insurance, but if you drive an older vehicle, that might be the only type of insurance coverage you need.
Potential Savings: The average person pays $22/month for comprehensive coverage. For an older car, that figure is probably closer to $15/month, so you can expect to save approximately $180/year.
5. Comprehensive Travel Insurance
This type of insurance covers lost bags, reimbursements for missing connections, medical and dental emergencies while you’re on vacation, and disaster evacuations. While comprehensive travel insurance is a good idea if you’re traveling internationally, it’s not worth it for domestic travel.
Additionally, many credit cards offer travel insurance as a perk. For instance, Chase Sapphire Preferred, Citi Prestige, and Citi ThankYou all offer some type of trip cancellation protection. So, before plunking down your hard-earned money on travel insurance, check to see what type of trip coverage your credit cards offer.
Potential Savings: Travel insurance typically costs 5-7% of your total trip cost. So, if you have a $2,000 trip planned, you can expect to save anywhere between $100-$140.
6. Pet Insurance
We all adore our pets, so it can be difficult to imagine not protecting their health with pet insurance. However, in most cases you’ll find that the cost of your pet insurance premiums is more than what you’ll spend out-of-pocket on your pet’s health care.
For instance, Consumer Reports looked at nine pet policies for Roxy, a healthy 10-year-old beagle. They found that over the course of Roxy’s life, her vet bills had totaled $7,026.
The premiums for all nine insurance companies cost more than that figure. Even when Consumer Reports boosted Roxy’s hypothetical medical problems to $12,685, only five of the policies would have paid out more than they cost.
So, if you’re good at putting money aside and saving for a rainy day, pet insurance isn’t worth the expense. You’re better off setting aside a few hundred dollars each year for pet-related emergencies.
If, on the other hand, you don’t have a good track record with money, you may find it worth your while to pay for pet insurance. Then if your pet experiences an unexpected health problem, you can get it the medical care it needs.
Potential Savings: Pet insurance isn’t cheap. On average, accident and illness coverage costs $400-$500/year for dogs and $250-$300/year for cats.
Aim for the Minimum and Don’t Waste Money
Our philosophy is this—you should always buy the minimum amount of insurance you need to sleep well at night. Doing that will save you hundreds, if not thousands of dollars, over the course of a year.
Are you ready to start saving?
If you’d like to cut your insurance costs right away, here are two easy things you should review:
- Your Auto Insurance Policy
- Insurance Coverage Offered by Your Credit Cards
By checking these two things, you’ll be in the best position to stop spending money on unnecessary insurance and start putting it toward your savings instead!
Jill Huettich is a WealthFit contributor. With an MBA in Marketing and a Digital Marketing Strategies certification, she frequently writes about marketing, entrepreneurship and wealth-building strategies.