9 Types of Insurance You Don't Need

These days, it seems like every other TV commercial is for yet another insurance product. While consumer choice can be a good thing, not all insurance is as essential as the ads make it seem.

"There's a lot of sales and marketing based on fear that especially targets retirees," says Jonathan Howard, a certified financial planner with Accurate Advisory Group, as well as a former insurance salesman. "People end up buying because they're terrified of a loss rather than to cover an actual insurance need."

Although Howard believes insurance plays an important role in anyone's financial plan, some products are more about protecting the insurance company's bottom line rather than yours. Insurance decisions shouldn't be made in a vacuum.

They should consider your entire financial picture. That way, you can identify the gaps and figure out the coverage you truly need, along with any you could do without. It's also important to do an annual insurance review, as certain life events or milestones can change your insurance needs. Above all, never buy insurance hastily based on fear, especially if it involves the products on this list.

Rental car insurance

If you're renting a car in the United States, go ahead and decline that additional insurance the rental car company is trying to sell you. If you already have a standard car insurance policy, it'll cover you when you're driving the rental. You don't need rental car insurance.

If you're driving abroad, you still may not need to opt into the extra coverage if you book with one of the many credit cards that cover rental car insurance.

The same may also apply to rental car reimbursement coverage. This is an optional type of car insurance that would pay for a rental car while your car is being repaired.

But, if you live in a multi-car household, consider whether you really need rental car reimbursement coverage. It might be a hassle to borrow your spouse's or your teen's car for a few days while your car's in the shop. But, the lower premium you'd enjoy by dropping that coverage could be worth it.

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Collision and comprehensive insurance on older cars

As risky as it might sound, there is a point at which you shouldn't bother paying for more than the minimum car insurance required by your state.

If your car is older or has otherwise lost most of its market value, you'd likely be better off dropping things like collision insurance or comprehensive insurance.

The most your insurance company will ever pay out is the current market value of your car. Meanwhile, dropping to minimum coverage could save you a thousand or more per year. At a low enough market value, it makes more sense to pocket those premium savings than to pay for full coverage that would only ever pay out a few thousand dollars.

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Travel insurance if you have a good travel credit card

If you've splurged on your dream vacation, you (rightly) feel like you shouldn't expose yourself to the risk of canceled flights, closed hotels or other unexpected emergencies.

Travel insurance is a great way to make sure you'll get your money back if anything goes wrong. But, if you've got the right travel rewards card, there's a good chance you already have some basic protections already.

More and more credit cards are offering basic trip cancellation coverage and, sometimes, even throwing in lost or damaged baggage insurance.

Depending on your trip and how you book, you might need to buy some supplemental coverage for things like medical emergencies or a cruise-specific policy if your credit card's travel insurance isn't enough. But, for your quick weekend trips or low-cost vacations, your credit card's coverage is probably enough.

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Long-term disability insurance

If you're still working but nearing retirement, consider whether your long-term disability insurance is worth keeping. The premium for an employer group plan typically increases with age, says Greg Klingler, director of wealth management at the Government Employees' Benefit Association in Fort Meade, Md.

The policy also will limit the payout period until a particular age, such as 65. As this age nears, your maximum possible benefit shrinks. This is especially true for someone who could have retired earlier but is still working. "You're no longer dependent on your salary, so weigh the value of protecting this extra income versus the high insurance cost" says Klingler.

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Critical illness insurance

A stroke, heart attack, life-threatening cancer and an organ transplant are just some of the serious health issues that critical illness insurance covers. If you develop one of these conditions, the insurer sends you a lump sum cash payment, ranging between $10,000 and $50,000, that can be spent however you want.

Despite this flexibility, Howard isn't crazy about this type of insurance, "where unless a specific situation happens, you don't get anything back." He suggests reviewing your potential out-of-pocket costs for health insurance to see whether you need critical illness insurance or if you could manage the bills with savings.

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Social Security insurance if you're already retired

All the dysfunction and uncertainty in Washington has led to a new product: Social Security insurance. It's a type of annuity, an insurance contract that turns part of your savings into future income.

When you add this insurance to an annuity, the insurer promises your annuity payment will increase to cover any government shortfall that results in a smaller Social Security benefit.

Howard doesn't think this is a good return on your money. "Retirees vote, and they predominantly live in swing states," he says. "If the government ever reduced Social Security for people already claiming it, they'd never hear the end of it."

Perhaps benefits will be cut for future generations, but Howard doesn't expect those already collecting benefits to have a problem.

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Individual dental and vision policies after retirement

Travis Price, a Medicare insurance agent in Traverse City, Mich., does not think individual dental and vision policies are worth buying in retirement.

"When people are working and get group dental/vision, the insurance coverage is heavily subsidized in the group and by their employer. When they get into the individual marketplace, the coverage costs can increase 10-fold for less coverage."

Not only are premiums higher for individual plans, but they could also have high out-of-pocket costs for care, an exclusion of major services for the first year of coverage, and a limited annual coverage limit.

Price says an entry level plan meant to cover both dental and vision can be capped at $1,500 per year.

"Often, seniors are better off simply being a cash patient and negotiating cash costs with their provider," says Price. Another alternative, he says, is finding a Medicare Advantage plan that includes dental and vision coverage.

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Term life insurance if you have a decent retirement fund

Say you've got term life insurance that will provide a $500,000 payout to your beneficiaries if you pass. Once you hit $500,000 in retirement savings, you can consider dropping the insurance and just designating your beneficiaries as heirs to your retirement fund.

However, if your family would need the cash right away, one benefit of life insurance is that the proceeds aren't taxable while an inherited 401k is (if they withdraw it rather than rolling it into another retirement account).

If you want to drop life insurance but make sure your family received the full $500,000 payout, you can wait to cancel your policy until your 401k balance is high enough that your family would receive $500,000 after taxes.

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Long-term care insurance

No one disputes that long-term care in the United States is an expensive risk. A private room in a nursing home costs more than $90,000 a year, on average, according to the U.S. Department of Health and Human Services.

Still, both Howard and Klingler dislike traditional long-term care insurance policies because of their high premiums. “The cost varies based on the carrier, the amount of coverage and the applicant's health, but I've seen [premiums] around $5,000 a year for a couple in their 60s, $10,000 a year when they're in their 70s,” says Howard. He also notes that premiums rise over time based on age even after you sign up.

Howard says traditional long-term care insurance is another example of insurance that only applies under such narrow, specific circumstances that it's not worthwhile, particularly given its hefty cost.

As an alternative, he prefers an LTC-hybrid life insurance policy because that way, if someone doesn't need long-term care, the heirs receive the death benefit instead.

Klingler suggests considering other resources before buying any long-term care policy. "In almost all cases, you don't need to cover the full cost [of care]," he says, because some expenses, like food, housing and utilities, would be provided by the long-term care facility.

Even when one spouse enters long-term care while the other remains in the couple's home, some daily living expenses are still reduced. If you're considering long-term care insurance, ask yourself whether you need to cover the full cost of a nursing facility or if you could go with a partial benefit that's more affordable.

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Avoid redundant and useless insurance coverage, too

Although the classic example is rental car insurance, there's often a fair amount of overlap with the insurance people have. Your car insurance covers medical bills after a car accident, but so could your health insurance.

Your home insurance covers liability for an injury on your property and so does an umbrella policy, which should offer enough supplementary coverage, if needed, to protect your net worth.

Given this overlap, it's possible that the limits on your existing policies are higher than necessary because they cover the same risk. If you have umbrella insurance, for example, drop your liability coverage on other policies to the minimum required.

While insurers usually require a certain amount of liability coverage on your home or car insurance before they'll offer an umbrella policy, there's no reason to go above that requirement.

Another sneaky way you end up paying for redundant coverage is when life events render your policy redundant. If your teen moves out for college and gets their own car insurance, for example, there's no reason you should be paying the added cost of keeping them listed as a driver on your policy.

Review your insurance policies regularly and think about whether or not you still need the coverage you're paying for. The money you save by slashing unnecessary premiums can go toward boosting your emergency fund or toward paying for better coverage in the areas you do need it.

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David is a financial freelance writer based out of Delaware. He specializes in making investing, insurance and retirement planning understandable. He has been published in Kiplinger, Forbes and U.S. News, and also writes for clients like American Express, LendingTree and Prudential. He is currently Treasurer for the Financial Writers Society.

Before becoming a writer, David was an insurance salesman and registered representative for New York Life. During that time, he passed both the Series 6 and CFP exams. David graduated from McGill University with degrees in Economics and Finance where he was also captain of the varsity tennis team.

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