Don't Buy Too Much Insurance! - The Not-So-Good

By Jennifer Silver-Goldberg, Wall Street Journal 8 October 2011

In this age of hurricanes, tsunamis, market crashes and banking crises, it isn't any wonder that people are feeling insecure. Companies are responding by rolling out a raft of newfangled insurance policies designed to protect against real—and perceived—risks.

Here is a guide to the insurance policies you can safely skip.

Juvenile Life Insurance

Just had a baby? Chances are that you will get an offer to buy the infant life insurance. The pitch: If a horrible illness afflicts him or her, the policy will provide you with a lump sum to put toward burial costs or unpaid medical bills.

In addition, many policies for adults allow policyholders to buy a rider that covers all the children in a family.

But the chances of a child dying are slim—only one in 3,000 children perish each year—meaning you are likely shelling out cash needlessly.

Instead of getting a juvenile life-insurance plan, consider increasing your own coverage. If the primary breadwinner dies, the financial consequences are far more severe.

Tuition-Protection Insurance

Another insurance policy aimed specifically at parents: tuition-protection insurance.

The policies typically allow you to get back some tuition money if your child gets sick, has to withdraw from school or gets injured—but not if Junior fails to meet academic standards.

However, most colleges already offer some kind of refund if a student drops out because of a medical condition. What's more, the policies set serious restrictions; some won't refund tuition if the withdrawal is due to mental health or if a student simply drops out because of disinterest or other factors.

Identity-Theft Insurance

In June, Citigroup disclosed that a hacking attack had breached its computer systems, potentially affecting about 200,000 customer accounts—the latest in a string of cyberattacks on financial institutions. Such attacks have made consumers more skittish.

A wide range of companies are offering some form of insurance against identity theft, particularly credit-card theft. Some include credit monitoring and will send alerts if a new account is opened under your name or there are sudden moves in account balances. Some even offer to cover any expenses fraudulently charged to credit cards. Other companies offer broader coverage, such as cash to cover expenses associated with identity theft.

But such coverage is repetitive because credit cards already come with built in identity-theft protection. Most cardholders aren't responsible for any unauthorized or fraudulent charges on a card and issuers provide free credit-monitoring tools, which render the extra coverage unnecessary.

Payment-Protection Insurance

This coverage is offered by credit-card issuers. The promise: If you lose your job or get sick, the issuer will waive finance charges and minimum payments.

The nation's nine largest card issuers received $2.4 billion in fees for debt-protection products in 2009, but paid out only $518 million in benefits to consumers—a low payout ratio, according to the GAO.

Cancer and Critical-Illness Insurance

Insurers offer two types of policies designed to supplement existing health-insurance coverage: cancer policies and those that cover a broader range of critical illnesses. The problem: Many are riddled with exclusions and don't cover the most common form of the illnesses they purport to address.

For instance, some cancer-insurance plans exclude skin cancer entirely, while others won't cover basal-cell skin cancer, the most common kind.

Some critical-illness plans don't cover common illnesses such as cancer, or set strict limits on the number of illnesses they do cover.

Divorce Insurance

One firm is offering protection plans in case "happily ever after" doesn't pan out. Roughly 22% of women and 21% of men over the age of 15 have been divorced, according to the most recent data from the U.S. Census Bureau.

SafeGuard Guaranty, a firm based in Bernersville, N.C., rolled out a divorce-insurance program called WedLock last year. The idea: For $15.99 a month, you can secure $1,250 in coverage, which can be used to cover the costs of divorce or any other expenses. The only problem is that couples have to wait four years before they can cash in the policies. That means if you get divorced before your fourth anniversary, you don't get the benefit of any of the premiums.