Today: Is it Worth It?
Is insurance worth it? On the Today show this morning I discussed which insurance policies – from extended warranties to travel insurance – are really worth it.
According to Consumer Reports, their advice is to skip it! The extended warranty kicks in after the manufacturer’s own free warranty, which usually lasts one year and for many appliances and tech gear – if they break down – will usually do so within that time frame.
That said, for complex or new technologies or those you think may be more susceptible to damage or theft – a lengthier warranty which kicks in after the manufacturer’s warranty may be worth it. I personally have always benefited from extended warranties for my Mac computer and iPhone and even phones owned prior to the iPhone…I’m clumsy. I drop things and forget where I leave things. Replacing an iPhone, for example, is far more expensive than AppleCare ($99 for iPhones and iPads, $250 for Macbooks).
More and more, this is a YES, as it can be very expensive to switch or cancel your travel plans. If you are booking any non-refundable travel, then this should be a serious consideration. Airlines, as we know, tend to impose heavy fees when we want to change our travel plans. And travel insurance (aka trip insurance) –depending on the package you get – not only reimburses you in case you have to cancel your trip for any reason…it may also include medical coverage, which can be extremely smart to get if you’re going to a foreign country and your medical coverage doesn’t extend beyond the U.S.
The cost is anywhere from 4 to 8% of your trip’s value.
Whole Life Insurance
Life insurance, in general, is only necessary if you have dependents like children or others who require financial support from you. It replaces your income and can benefit the needs of your dependents in the event of your death. There are two types: WHOLE (also known as Permanent) and TERM.
Most people are fine purchasing TERM life insurance, which provides basic coverage for a limited number of years. It expires after say, 10, 15 or 20 years from the day you buy it and begin paying into it. For most people, TERM is the way to go. It’s more affordable…for example, if you’re 35 years old, healthy and take out a policy starting now and for the next 20 years, you’re looking at $150 to $250 a year. Source: https://www.trustedchoice.com/life-insurance/compare-coverage/cost/
WHOLE insurance, on the other hand, is designed to be in place for your entire lifetime and has a guaranteed death benefit. It also comes with a partial cash value that you can borrow against at any time. So it, has a lot more flexibility which may be attractive to some people who want an additional way to protect finances down the road. But the annual cost is MUCH higher, six to 8 times higher than TERM. And so high that policyholders have a hard time paying the premiums. One study by the Society of Actuaries found that 20% of whole life policies get canceled in the first three years or 40% within the first 10 years because people can’t keep affording the premiums.
I like home warranties. A home warranty protects NEW homebuyers against breakdowns related to large appliances, and electrical and plumbing issues within the first year or so of moving into a new home. According to the Executive Director and General Counsel of Service Contract Industry Council, it can cost anywhere from $300 to $500.
Sometimes the seller or homebuilder will foot the cost of the insurance as an incentive. This could be worth it because it buys peace of mind. Typically you see this type of insurance offered with homes that are newly constructed.
This is not to be confused with home insurance, which is a separate protection you buy from an insurance agent that covers your property against bigger issues like theft, certain weather damage, fire, etc.