Insurance Life Insurance

5 Types of Life Insurance Policies You Don’t Need

Written by Hank Coleman

Life insurance can be confusing. And, to make matters worse, you may not always have someone you can turn to who’s impartial to help you make informed decisions. You have to remember that life insurance agents, mortgage brokers, and other financial professionals are in the business of making money, and the sales pitches aren’t always the right financial choice for you and your family.

Term life insurance and a fully funded emergency fund can replace the need for many specialty and exotic life insurance policies in most instances. They should be your first choice and the first line of defense against needless, extra life insurance policies.

Here are five types of life insurance that are a waste of money: whole life insurance, accidental death, cancer insurance, burial insurance, and life insurance for a child. The article will also discuss how

Whole Life Insurance

Whole life insurance coverage is permanent insurance that provides coverage for your entire life as long as you continue to make monthly premium payments. A term life insurance policy only runs for a certain number of years, hence the name term. Ten, twenty, and thirty-year term life insurance policies are some of the most popular.

Whole life policies are also significantly more expensive than term because they cover you your entire life. While a term policy for 20 years, for example, can be used to cover you for 20 years, typically during your working lifetime. Term life insurance provides coverage only for when it is needed and then ends after your children are grown, the home mortgage is paid off, and other life events are typically over.

One benefit of whole life insurance is that it has a cash value that grows over time, and you can borrow against the policy. Whole life insurance typically ends up as an investment and is not necessarily a good deal for most people. There are far better investment options for investors than whole life insurance policies.

Accidental Death Insurance

Life insurance pays your heirs if you die. That’s its sole purpose. Accidental death insurance is an additional life insurance policy that pays your loved ones if your death is the result of an accident.

Regular life insurance will pay out whether your death was the result of an accident, illness, or some other manner. Having additional accidental death insurance is redundant and a waste of money.

There is a reason that life insurance companies have gotten creative with the different types of policies that they offer customers. The policies prey on people’s fears, have a low probability to other types of insurance for payouts, and add to the profit margins of the insurance companies more than standard policies.

Cancer Insurance

Most Americans dread cancer. So many are personally affected by cancer or know someone struggling with the disease. It is a real fear, and insurance companies prey on that fear by selling cancer insurance.

Cancer insurance can take on two aspects. You can take out a form of health insurance that will pay if you develop cancer, which can help you offset some of the costs of treatment. Or, you can purchase cancer insurance that pays your beneficiaries and additional benefit if you die from cancer.

While none of these topics are fun to consider, cancer insurance is another example of an extra insurance policy that you do not need. With proper life insurance and health insurance, you can skip this policy and save the premiums that you would have spent.

Burial Insurance

Most insurance companies have additional, add-on insurance policies or riders for burial insurance. When you die, the policy will payout to your heirs to help with funeral expenses.

Funerals are a growing business in the U.S., and it’s expensive. According to the National Funeral Directors Association, the average cost of a funeral in the United States is almost $6,600. These costs can include funeral home expenses, church services, casket, gravesite, and other costs. 

Many of these large costs hit families hard especially when their loved one dies prematurely, and they aren’t expecting these burdensome expenses. Burial insurance has an allure to it to help offset these costs if the unexpected event occurs. But, you should use your emergency fund to pay for these costs. You should have three to six months of living expenses set aside in a fully funded emergency fund. With an emergency fund, you don’t have to pay the added, needless cost of burial insurance.

Even though you can add burial insurance for a minimal cost to most policies, it’s often not worth the cost. You would do better to increase your emergency fund instead.

Life Insurance for Children

The primary purpose of life insurance is to replace income. Life insurance protects your family from the sudden loss of income that can put your family’s budget into a tailspin.

So, unless your kids are child actors or models, you probably don’t need life insurance for them. Skip the life insurance for children and save yourself a little bit of money. Don’t get caught up in the notion that it’s not very expensive. That’s simply a rationale used to try and get you to purchase the insurance. You could better use that money each month, no matter how small, to boost your emergency fund or invest.

Many insurance agents and brokers will recommend that you get life insurance for your children because most policies automatically transition to adult life insurance at age 18. They also often have a guaranteed insurability aspect to protect children who may not qualify for life insurance as adults because they develop pre-existing conditions. These policies are often small and inconsequential.

If you want to have $10,000 or so set aside for a child’s funeral expenses, buy a cheap rider on your personal life insurance term policy and don’t add the child on a separate policy.

Parents only want the best for their children, and unscrupulous agents often pressure parents into buying life insurance for their children thinking that they are doing what’s best. But, there are better ways to protect your family from financial trouble should the unthinkable occur.

These five life insurance plans are often too small and inconsequential to make a real difference. Most consumers would be better off by boosting their emergency fund and essentially self-insuring for these rare occurrences. Or, if you are that worried about these events, you may want to consider simply adding more term life insurance coverage to your existing policies.

Do you have life insurance? What does your policy look like? Share with us below!

About the author

Hank Coleman

Hank Coleman is the publisher or the popular personal finance blog, Money Q&A. He’s also a freelance journalist specializing in retirement planning, investing, and personal finance. You can also find him on Twitter @MoneyQandA.

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