Do Not Duplicate

Ever wonder where insurance came from? It seems it’s always been around. The roots can be traced back to Babylonian times, around 2100 B.C. The Code of Hammurabi was the first insurance policy. It was paid by the traders in the form of a loan to guard against the perils of transportation (robbery, bad weather and breakdowns) and guarantee the safe arrival of their goods by caravan.

As history progressed insurance expanded beyond transportation. The Romans were the first to buy insurance to cover funeral costs. The very first actual insurance contract was signed in Genoa in 1347. Prior to the formation of corporations devoted solely to the business of writing insurance, policies were signed by a number of individuals, each of whom wrote his name and the amount of risk he was assuming underneath the insurance proposal, hence the term underwriter.

Then in London, in 1688, the first insurance company was formed. It got its start at Lloyd’s Coffee House, a place where merchants, ship-owners, and underwriters met to do business. Lloyd’s grew into the first modern insurance company, Lloyd’s of London.

As trade grew – so did insurance companies. In the 17^th and 18^th centuries, British commerce was rapidly growing the risks increased. Businessmen began increasingly purchasing insurance to protect them from unforeseen losses. Next thing you know farmers wanted crop insurance. People wanted deposit insurance at their banks. Travelers wanted trip insurance.

Now insurance is the norm. Everyone has at least one form of it. Most of us have many forms of it. But how much is too much insurance? Here’s how to tell what types of insurance you don’t need.

Disability Insurance like Aflac. This type of insurance cover your bills if you get injured on the job. Most of us sit behind a desk or work inside a building. How much risk do you really have of being injured while at work? Only get this kind of insurance if you are a dog catcher, fireman, work in a warehouse, construction worker or any other job where you are physically active.

Life Insurance for children or members of your family who could support themselves in the event of your death. I understand that a funeral can be costly. While salesmen at funeral parlors and insurance company will tell you that the average cost of a funeral is between $12,000 and $15,000 you can cap this under $5000. I know this to be personally true because last Thanksgiving my uncle died unexpectedly. His widow did not have life insurance for him and had to pay for the burial out of pocket. The burial plot, cremation, flowers and service for 75+ people came in at $5,000. And I promise you the funeral was not second rate. At $5,000 this is something that could be covered by a “rainy day” fund—money that is accumulated and not frittered away in premiums to an insurance company for an occurrence that is very unlikely to happen to a relatively young person. If you’re thinking that a cash value life insurance policy on your child is a good way to save for their college education, you could do better putting that money elsewhere. Invest instead in a state sponsored college saving program, like the 529 plan.

Contents insurance or renters insurance. Homeowners that still have a mortgage on their property are required by their lender to have insurance. Lenders know you would have little incentive to continue making mortgage payments if your home was destroyed or uninhabitable. This is reasonable; most people don’t have an extra $100,000 lying around to rebuild a house in this case. However, I see no reason to pay extra to insure the contents of your home—you don’t really need to replace all that junk you’ve collected over the years, do you? The same goes for renter’s insurance; if your apartment burns down—taking your nice, new plasma TV with it—you certainly would appreciate having a policy that would let you replace this. However, can you honestly justify paying money each and every month to protect this and other non-essential belongings against something that is such a rare occurrence?

Service contracts. These “extended warranties” are usually worth skipping. A service contract is simply a promise to perform or pay for certain repairs or services. Service contracts often duplicate what’s provided in the standard warranty you get with a car or an appliance. Read your regular warranty carefully. Then compare it to the service contract. Sometimes, you can purchase service contracts later, when the original warranty expires. Also keep in mind that if you purchase such items with a credit card, the card issuer often provides its own warranty on the purchase.

Short term Health Insurance. The millions of people who are currently unemployed are currently dealing with this issue. After a job loss you must immediately make a decision about your health insurance. Under federal law you are allowed to get COBRA insurance to cover you for about 18 months after you leave. This allows you to keep your health insurance from your former employer. The kicker is that you have to pay the whole premium now instead of the discounted amount you were paying when you worked for your former employer. Typically, this doubles or triples the amount you will be paying for health insurance each month. This increase in monthly costs couldn’t come at a worse time. When you lose your job, you try to cut expenses, not increase them. The better idea is to purchase a high deductible insurance from a health care company. This insurance is much cheaper though and will bridge the gap until you find a new job and can return to full coverage health insurance.

Personal Injury Protection (PIP) Insurance. Some states require residents to carry Personal Injury Protection (PIP) insurance, with their automotive insurance. PIP insurance is required in any state that utilizes “no-fault” automobile insurance laws. If you have a good health, life or disability insurance policy, chances are that you already have PIP coverage. If your health insurance policy provides PIP coverage and you are carrying PIP insurance coverage on your automotive policy, then you are duplicating your PIP coverage, across two policies unnecessarily. Save money by eliminating this add-on from one of the two policies.

All these policies and add-ons can really cut into your budget, and worse—it is a recurring expense that you will pay every month for the rest of your life. Ahhhhhh! You are much better off to set aside money in a “rainy day” fund. That’s what insurance really is anyway is to protect you against unexpected expenses, which is the same reason people have rainy day funds.

Keeping Money in Your Pocket,

Nancy Patterson