Less Common Types of Insurance


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Types of InsuranceThere are some types of insurance that are not so popular.

This could propably be because they are specialized types of insurance for some specific risks or simply because the insurance market does not promote them.

In the next paragraphs you will discover something interesting:

5 types of insurance you probably don’t need

Most Americans can probably think of four types of insurance policies they own or want to own: Health insurance, auto insurance, property and casualty insurance and life insurance. And they’re all either mandatory to have, or smart for most people to have. But there are several types of insurance that you should think carefully about before purchasing. Even some experts, such as Robert Hunter, a former state insurance commissioner in Texas and now director of insurance for the nonprofit consumer watchdog group Consumer Federation of America, characterize many types of insurance as “junk.”

Here are five types of insurance you probably don’t need:

Down payment insurance
A new product goes on the market in January 2016 that promises to protect the down payment on your home if the real-estate market goes south again. The product, called +Plus by New York-based ValueInsured, isn’t designed for speculative buyers: You have to live in the home and you can’t make a claim on the insurance for two years, while it lapses after seven.

It’s designed for borrowers who might have to move suddenly for a job, like millennials or military families, or move into marginal markets that are particularly volatile, such as Stockton, Calif., which saw some of the worst downturns during the real estate crash, with home values cut by half as a result of widespread foreclosures. ValueInsured notes that about 8 million borrowers are still underwater, meaning they owe more than what their house is worth, compared with more than 15 million during the worst part of the real estate crash in 2012.

The insurance costs about $1,200 for a $20,000 down payment, and it will protect a down payment of up to $200,000 for a higher premium price. But the policy only kicks in if the market along with the value of your individual home falls 10% or more, as determined by the Federal Housing Finance Agency’s House Price Index, and then you only get back either the amount of equity you lost, or the actual down payment, up to $200,000.

dreamstime_m_20110879-760x507Bottom Line: It’s not worth it for people who plan to live in a home for a long time. Joe Melendez, the company’s chief executive, says the goal of his insurance company’s product is to get millennials, renters and parents who might be convinced to help fund a down payment off the fence and into the housing market by attempting to ensure that their down payment is protected, but he admits that his product isn’t for everyone. “If you’re buying a home that you will live in for 30 years, don’t buy this product,” he said in an interview.

Debt cancellation or debt suspension agreements

With millions of Americans in debt and perhaps worried about their job prospects, some credit card companies are offering insurance against being unable to come up with monthly payments. In 2009, about 24 million consumers paid $2.9 billion for such insurance, according to a 2011 Government Accountability Office report to Congress.

Credit card companies, especially during uncertain times, offer insurance that promises to pay your minimum balance for a period of time if you lose your job or are incapacitated or unable to work, either in the form of Debt Cancellation Contracts (DCC) or Debt Suspension Agreements (DSA). Other instances where the credit card companies can either cancel or suspend your monthly payment include divorce, military deployment or a natural disaster. If you die, the credit card company may pay off your entire balance, with other companies offering only up to a certain balance, such as $10,000.

The credit card companies say this helps protect a consumer’s FICO score, which otherwise would plummet if they fell behind on payments. While some credit card companies charged a flat fee of $19.99 a month for insurance coverage, others charged between 85 cents and $1.35 per every $100 of the outstanding balance and a national median fee of 89 cents per each $100 in the balance.

Using the 89 cent per $100 median on a $2,500 credit card balance (the national average in 2009, the GAO says) that works out to $23 in additional monthly payments.

The GAO report noted that of the $2.4 billion collected in 2009, just $513 million went to consumers, while $1.3 billion went into the pocket of the credit card companies in the form of earnings once reserves of $574 million were set up.

Except in states where the credit card companies are well-regulated, “these credit-related insurances have been a bad deal,” said James Hunt, an actuary who works with the Consumer Federation of America.

The American Bankers Association, which is the trade group for the largest banks and credit card companies, says that there have been few complaints associated with such products.

Bottom Line: If you’re worried about losing your job, pay down your credit card balance, but don’t pay the credit card company for insurance, Hunt says. Or put that extra money to work in a rainy-day fund. If you do get laid off, apply for unemployment benefits immediately or use severance to pay off those credit cards, then cut them up so you don’t run them up while you’re looking for a job.

Home warranty insurance

This is probably the most debated insurance product on the market. A $500 washing machine breaks? It’s fixed for $75. An air conditioner with a $3,600 replacement cost shorts out? Consider it repaired for $100.

The advantage of such plans is that they cover existing appliances, regardless of age, make or model already in the home, not just those newly purchased or replaced. Some companies promise total coverage of all appliances and components in the house, such as a hot water heater, or a furnace or an A/C unit for as little as $59 a month.

Memphis-based American Home Shield, owned by ServiceMaster SERV, -0.48% , which says it’s the biggest provider of home warranties and that it has paid $3 billion in claims over the past 10 years, points to its insurance product as a selling point when listing a home for sale. They cite 2012 data of more than 24,000 listings that shows homes listed for sale that had home warranty insurance sold 11 days faster and sold for $2,300 more than homes that didn’t have home warranty insurance.

But you often get what you pay for. Not only are there deductibles like many other insurance products ($75 to $125 for those offered by American Home Shield), and the repairman who shows up doesn’t have any incentive but to do the minimum amount of work as he’s under pressure from the home insurance companythat wants to hold down its own costs.

“We only do (home warranty insurance repair) as busy work when things are slow,” said Matt Danner, an air conditioner repairman in Frederick, Md. Danner says when he does a warranty repair job he often has to call the insurance company to get an authorization if the repair needs an additional part, which slows him down and reduces the incentive to spend the time on the site to fix the problem long-term. “We have to come back again, and again and again with these jobs,” he said.

no-exam-life-insuranceAmerican Home Shield says that 98% of its repairs requests are dispatched to technicians within 24 hours.

Bottom Line: Better to just sock that $59 away each month so that you have the cash to get a good repair job with a contractor or repairman you trust.

Child insurance

While the price for insurance plans for children might seem inexpensive and further lure you in with a promise of cash value when your child turns 18, it’s often not a good insurance product or a good savings vehicle.

Plans such as the Gerber Grow Up Plan and the Gerber Life College Plan are often bought by parents and grandparents when the child is born and the premiums are pitched as being just “pennies a day” while the cash value benefits are guaranteed.

The Gerber Life College Plan, called an “endowment insurance policy,” provides a lump-sum payment at the end of the term (typically 18 to 21 years) that can be cashed in for college, or rolled into an adult insurance coverage plan, so long as the premiums continue to be paid. The advantage, Gerber says, is that the life coverage can continue automatically into adulthood without fear of cancellation.

But that’s where the benefits end, says retired actuary James Hunt of the Consumer Federation of America. The distributions from the endowment insurance policies are often taxed, unlike the distributions of a 529 college savings plan or an education savings account, he says.

And the risk of a child dying, compared with an adult breadwinner, is tiny. And in the case of a child, unless they are Mary-Kate and Ashley Olsen, there are no lost wages that are offset by the policy.

Bottom Line: Put an extra $30 to $50 a month in the adult’s life insurance policy instead of into the child’s policy, and it could buy tens of thousands, if not hundreds of thousands of dollars of extra life insurance coverage. Also, setting up a tax-free savings account such as a 529 plan or an investment fund will probably yield a better return as a college savings vehicle for the child, says Hunt.

20-things-every-twenty-something-is-sick-of-hearing-9Body parts

If you want to know where the phrase “Million Dollar Legs” came from, you can thank both Betty Grable and Lloyd’s of London. The famous World War II-era pinup Betty Grable had her legs insured by movie studio MGM with insurance market Lloyd’s of London for $1 million in the 1940s (worth $15 million today).

Many other celebrities and athletes have insured body parts, including now-retired Pittsburgh Steelers safety Troy Polamalu. In 2010, shampoo maker Head & Shoulders insured Polamalu’s flowing locks for $1 million with Lloyd’s while the football player starred in their commercials.

Lloyd’s said that a hair and scalp clinical specialist known as a trichologist examined Polamalu’s hair before the policy was underwritten. The policy would have paid out if he lost more than 60% of his hair in an accident, according to Lloyd’s. Kansas City Chiefs’ running back Larry Johnson infamously grabbed Polamalu’s hair in a last-ditch effort to prevent him from scoring a touchdown in a 2006 game.

The policy also came with a number of conditions. Polamalu wasn’t allowed to take up fire-breathing as a hobby or decide to go mountain climbing. He was required to steer clear of candles and in nightclubs avoid fans of rival teams with grudges — and lighters, Lloyd’s says.

Bottom Line: Lloyd’s says that many of these “insurance” policies were really designed to be attention getters by the celebrities’ publicists, so unless you’re a celebrity or an athlete — or their agent — you can safely pass on this one.

Read the full article: http://www.marketwatch.com/story/5-types-of-insurance-you-probably-dont-need-2015-11-18

By
DANIEL
GOLDSTEIN
PERSONAL FINANCE REPORTER

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Less Common Types of Insurance
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Less Common Types of Insurance
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There are some types of insurance that are not so popular. This could propably be because they are specialized types of insurance for some specific risks or
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