Understand What You Are Trying To Cover

While many people are underinsured, some of us are carrying more insurance than we need. We may have too much or the wrong kind. There are times when dropping your insurance coverage makes sense. Making unnecessary premium payments is wasteful. Always seek to make the best use of your financial resources.

Consider these circumstances: 

  1. Term life insurance. This type of policy was only intended to cover you for a specified period. It might be until your youngest graduates from college or your house are paid off. 
  • If your situation has changed and you no longer need the policy, letting go of it might be a smart move. Apply the monthly premium to something else.
  1. Over-insured. Do you carry too much insurance? It happens, mainly if you ever dealt with an unscrupulous insurance salesperson. It’s important to review your level of coverage each year with a professional you trust. You might be able to drop some of your coverage.
  2. Insurance riders. Do you have additional insurance coverage for unusual or expensive items? These items commonly include jewelry, artwork, firearms, and anything unusual. Do you still own the items? If not, drop the policy.
  3. Flight insurance. If you die in a commercial airline plane crash, you should be covered by your life insurance. Flight insurance is an unnecessary expense.
  4. Private mortgage insurance. This coverage is often required if your down payment is less than 20%. You might think that the coverage is automatically dropped after you’ve paid back enough to cover the 20% requirement. In most cases, you must request in writing. 
  • Do you know when you’ll be eligible to cancel your PMI? Mark the date on your calendar. 
  1. Collision automobile insurance. Your lender requires this coverage if you’re still paying for your car. It repairs your car, even if you’re at fault in an accident. You can consider dropping this coverage after your loan has been paid in full. However, it’s often better to keep the coverage. 
  • Determine how much your payment will change and how much the vehicle is worth. Many experts advise keeping your coverage if the automobile is worth more than $5,000. If your car is worth less than this, the payments probably don’t justify the amount of coverage you’re receiving.
  1. Rental car insurance. Your auto insurance carrier might have sold you on the idea of paying for coverage that provides a rental car in case your car needs repairs. How often is this likely to happen?
  2. Insurance for rental car damages. Your existing car insurance policy probably covers any damage your rental car might suffer. You probably don’t need to pay extra for the coverage offered by the rental company.
  3. Comprehensive automobile insurance. Comprehensive insurance covers your car for non-accident-related issues. This includes storm damage, theft, fire, and vandalism. If you’re still paying for your car, you’re probably required to have comprehensive coverage. 
  • If the likely repairs are worth more than the car is worth, do some investigation. Are the repairs going to be more than the vehicle is worth? You might be better off without this coverage.

In a world with seemingly unlimited insurance opportunities, there are times when it makes sense to drop specific policies and use the money for other purposes. Sometimes dropping your insurance is the financially responsible thing to do. Determine if all your insurance policies make sense for your situation and adjust accordingly.

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