You often need insurance for homes, cars and health, but related insurance
products are often unnecessary.
"In our experience, insurance offered in conjunction with the sale of other
products is often not needed or, if needed, can be purchased much less
expensively from other sources," says J. Robert Hunter, Consumer Federation
of America FA's director of insurance.
"When you find yourself buying insurance you did not plan to buy, watch
out. The person selling the insurance usually is being paid a commission or
other financial inducement which drives up the price, making the insurance
relatively expensive," he added.
Hunter says such offers come with "reverse competition." The seller of
the primary product, say, a car or camera, works with competing insurance
companies offering kickbacks. That drives up the price of the
insurance.
"In some instances, competition can more than double the price of the
insurance," Hunter warns.
Before getting insurance from sellers of other products, CFA advises
consumers to first ask these three questions:
• Do I really need this insurance?
• If so, don't I already have coverage in my normal insurance
policies, like life, health, disability, home and auto insurance?
• If the answer is "no," then ask, Are there other less expensive
option. An honest insurance company or agent can identify these options.
Examples of insurance that may not be necessary, or is too expensive
because of kickbacks, include:
• Credit insurance or debt cancellation insurance sold in
conjunction with the purchase of a car, a home, furniture or some other
product requiring a loan to fund.
Credit insurance can cover death, illness or injury or loss of a job.
Policies usually pay very low benefits averaging less than $0.40 on each
premium dollar. The payout ratio can be higher in states like New York and
Vermont and on most policies sold by credit unions.
• Title insurance sold at the closing of a home.
Title insurers guarantee that the title ownership is sound, defend the buyer
against challenges to their title, and compensate the buyer and the lender
if there is a problem with the clear ownership of the title. Many studies
over the past 30 years show how inefficiencies in the title insurance market
have harmed consumers through excessive premium prices.
• Travel insurance sold in conjunction with making travel
plans. Travel agents often try to sell this type of insurance when a
customer is making travel plans. They receive a commission on this sale,
which often drives the payout ratio below 50 percent of the premium.
• Collision damage waivers from car rental companies. These
high-priced policies, sometimes more than 10 times the cost of regular
insurance, are often not needed. Sixty percent of typical American auto
insurance policies provide coverage when you drive a rental car if you have
collision on your own vehicle. Credit cards often also cover collision
damage on rental cars.
Crystal
Chow is a DeadlineNews Group associate editor who contributed to this
article.
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