http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/07/27/BUCB1EK5FP.DTL
Kathleen Pender
Tuesday, July 27, 2010
It's hard to buy anything these days without being asked, "Would you like to purchase insurance with that?"
Earlier this month, I bought a new car and was offered an extended warranty and a separate policy that covered the paint job alone. (These sales pitches always get me wondering whether I should keep looking for a more reliable car.)
Last week, I got a story pitch on tuition insurance, which covers unreimbursed college expenses if a student has to drop out due to illness, injury, disability or death - but not if the student leaves voluntarily, graduates early, gets expelled or flees campus because of a contagious disease or epidemic.
You can buy insurance for vet bills, vacations, contact lenses and weddings.
This type of insurance is almost never necessary, and when it is, it's almost always cheaper if you buy it from someone not affiliated with the product or service being sold, says J. Robert Hunter, the Consumer Federation of America's insurance director.
That's because the sellers of these policies compete by offering the biggest kickbacks to retailers, travel providers or others involved in the sale, not the best deal to consumers.
When buying insurance, Hunter says to remember the two C's: It should protect you against a financial catastrophe (losing your contact lenses hardly qualifies). And it should be comprehensive. For example, "if you have a good term-life policy, you don't need" insurance that will pay your mortgage, auto loan or credit card if you die.
These types of credit insurance policies "usually pay very low benefits to people with claims, on average less than 40 cents of every premium dollar," Hunter says.
By comparison, auto and homeowners insurance pay out 70 to 80 cents of each premium dollar in claims.
Hunter says consumers should consider five types of insurance: health, auto, homeowners, life if you have dependents and long-term disability if you are single.
Norma Garcia, a senior attorney with Consumers Union, says she would also consider renters insurance if your landlord's policy does not cover your belongings. But she would see what an employer provides before buying disability insurance.
Hunter calls himself a dog lover but would never buy pet insurance. "I work with rescue animals, border collies. I know that there are a lot of young, healthy border collies being euthanized. If I have an old one, as much as I love it, I am not going to spend $25,000 (on vet bills) when I could get a young, healthy one."
Pet insurance might make sense if you treat your pets like children, but these policies typically have many exclusions.
They might not cover conditions that are pre-existing, preventable, hereditary, common in a certain breed, that occur in the first month of coverage or after the pet reaches a certain age.
"Frankly, there are so many exclusions, you could end up paying more than it's worth," says Garcia.
Hunter and Garcia say they would generally avoid travel insurance sold when making travel plans.
"Travel agents receive a commission on this sale, which often drives the payout ratio below 50 percent of premium," Hunter says.
Also check to see if some of your travel fears - such as fear of death or lost luggage - are covered by existing insurance such as life or homeowners. He adds that many travel policies have significant exclusions and complicated procedures for getting your money back.
Hunter says travel insurance might make sense for an older couple that have spent their life savings on a trip and are so worried they might get sick and have to cancel that they can't sleep.
If you do buy it, Garcia also advises going through a third party. "If you go through the tour operator or cruise line and they go bankrupt, you will not be protected," she says.
Before you rent a car and pay for a collision damage waiver, check to see if your auto insurance policy will cover damage to the vehicle. Most will, although you usually have to pay the deductible.
Also, many credit cards will pay for a collision if you rent with that card. Again, check to see if there is a deductible or any limitation.
Hunter's group encourages consumers to ask three questions: Do I really need this insurance? If so, do I already have coverage through my life, health, disability, homeowners or auto insurance? If not, are there less expensive options?
If you are thinking of buying insurance with a product or service, you don't have to buy it on the spot. And the price might be negotiable.
When I bought my car, after rejecting the salesman's offer for the extended warranty, the finance person offered it at half the price. I'm taking my chances.
Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com. Read her blog at sfgate.com/pender.
