Some insurance policies are essential, including comprehensive car and good home and contents cover but others are not really worth the paper they’re written on.
Here are six types of insurance you can definitely live without.
You’re sure to be offered an extended warranty whenever you buy an expensive new gadget or even a car. They are supposed to provide protection once the manufacturer’s guarantee ends. The biggest problem with extended warranties is the expense. Sometimes they can add up to 50% to the cost of the purchase.
The other main problem is that some of the terms and conditions are so restrictive that the “guarantee” is basically useless. Some car extended warranties, for instance, tie you to a particular repairer or even a particular brand of engine oil. If you go anywhere else to have the car repaired or use another brand of product, your warrantee is immediately void.
Lenders’ mortgage insurance
If you don’t have a big enough deposit when you take out a mortgage (at least 10%) you will be forced to take out lenders’ mortgage insurance (LMI). On a $300,000 loan over 30 years, if you only have a 5% deposit LMI will add 2.1% to the loan amount that needs to be paid at the start of the loan and will usually be put on top of the loan.
That means you end up with a $306,000 loan and will pay around $12,000 in additional interest over the life of the loan as a result of LMI. It’s unavoidable if you want a home loan with a small deposit but the other thing you need to remember is that it doesn’t offer you any protection if things go wrong.
It is actually insurance for the lender. If you default, it’s the lender who gets to make a claim on the LMI and sell your home. What a deal!
It sounds cheap on the TV ads but when you add up what you’ll pay per year over your life expectancy you will have paid enough to cover the cost of a very expensive funeral! Yes, you want to ensure your family doesn’t have to worry about financial matters when it is grieving your passing but funeral insurers are inclined to grossly over-inflate funeral costs. You would be better off putting some savings into a high-interest earning account over the same time period to cover your funeral expenses and shout your kids and grandkids a holiday on the interest.
Mobile phone insurance
The rise of smart phones and their endless applications means thieves consider them a valuable target. If your phone is expensive and technologically capable, insurance is useful but check whether your phone is already covered under your home and contents insurance. If it is you can save the phone insurance premium.
Phone policies cover loss, theft, damage and functional failure. The best policies also cover charges, potentially worth thousands, accrued by unauthorised users in the event of theft or loss.
A year’s iPhone insurance goes for around $150 for between $500 and $5,000 in cover, depending on your circumstances and the phone model.
Telcos offer insurance at the time of purchase as an optional extra but once your phone is a month old it is difficult to purchase insurance. RAC Insurance allows you to add an iPhone to your contents cover for as little as $27 a year.
Accidental death and total and permanent disability
Accidental death cover is easy to confuse with term life insurance but it falls way short. You can only make a claim under an accidental death policy if you die as a result of an accident, in other words, you need to get hit by a bus. It will not help you if you die of a heart attack, stroke, natural causes etc. These policies are cheap but you get what you pay for.
Likewise total and permanent disability. You can only make a claim under these policies if you are permanently incapacitated and will basically never work again, at any job. They should not be confused with income protection insurance which pays you a percentage of your income in the event of a reasonable range of illnesses and injuries.
Vet treatment and surgery can be expensive. Fixing a dog’s broken leg can cost between $800 and $1,500. Annual premiums cost between $100 and $600 for dogs and cats, which will buy you up to $15,000 worth of cover. Cover is difficult to get for older pets and those suffering ongoing illnesses. Some policies require pets to be vaccinated. If your pet is in good health and doesn’t stray from home you may be better off putting a little extra into a savings account where you’ll earn interest and can use the funds for other reasons if you don’t need to pay the vet.
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