Spring Cleaning Series

Spring Cleaning Series

May 24, 2023

Part 3: Do you need insurance for these less common risks?

We all know that we need insurance for our home and vehicles and oftentimes on the lives of ourselves and our loved ones.  But these days, there are insurance products for a wide variety of other circumstances, so how does one know if they should obtain coverage for any of these less common risks? 

Before we dive into specifics, a good gauge for answering this question is to think about the purpose of insurance.  As we described in the first Spring-Cleaning installment, insurance is intended to cover risks one can’t afford to retain.  This makes it very clear that a young parent, for example, needs disability insurance so they can continue to provide for their family if they can no longer work.  But what about something like identity theft insurance, which is intended to reimburse for expenses related to recovering your identity?  That might be a little less obvious, but there are some things we can do to minimize our risk which may eliminate the need for insurance.

Following are a few insurance products that are heavily marketed these days and our thoughts on whether you need this coverage or not:

Pet insurance:  intended to reimburse for costs related to keeping your pet healthy (accident, illness, injury, etc.).  The cost of insurance can range significantly depending on how much coverage you want, the age and breed of your pet and your location.  Pre-existing conditions are almost never covered, and most policies have annual and/or lifetime reimbursement maximums, so you could end up having to pay for care out of pocket even with a policy.

  • Do you need this insurance? Probably not.  A “catastrophic” policy may defray some costs if your pet’s breed is more likely to experience health issues, but keep in mind that insurers will price in this risk in the form of higher premium payments.  Instead of purchasing insurance, make sure you have funds set aside in your rainy-day fund to cover larger, infrequent pet expenses.

Rental car insurance: most personal auto policies provide physical damage coverage to “non-owned autos” operated by the policy owner or family members of the policy owner.  Therefore, if your auto policy contains this language, a rental car should be covered, so purchasing additional coverage through the rental car company typically would not be required.  It’s important to note that the definition of “auto” typically does not cover motorcycles, jet skis and boats, or even trucks like a U-Haul, so additional insurance would be recommended in these cases.

  • Do you need this insurance? Usually not but check with your insurer or agent to verify that your personal auto policy contains the necessary language to cover your rental car (including if the rental is out of service for an extended time due to a major accident).  Most credit cards also offer some coverage, provided you use your credit card to charge the full cost of the rental.

Identity theft insurance:typically only covers legal expenses related to clearing up your credit report in the event your identity is stolen.

  • Do you need this insurance? We think you can self-insure for this risk by taking a few basic steps: freeze your credit files with the credit reporting agencies, monitor your credit report frequently and be vigilant about online security.  Don’t use your debit card for online purchases, don’t click on links in emails or texts from unknown senders and never provide your password or PIN numbers to anyone.  Also, be wary if a service you use (i.e., computer repair) reaches out to you directly and asks to take control of your computer or needs your credit card information.

Service line insurance: marketed to protect against costs related to repairing or replacing water, sewer, gas and electrical lines that run from your property to the street.  In reality, these service lines are designed to last for decades so the likelihood of large out of pocket costs for repairs is low and is even lower for full replacements.

  • Do you need this insurance? Rather than paying premiums for this type of coverage, we suggest making sure you have funds set aside in your rainy-day fund to cover larger, infrequent home repairs and maintenance costs.

The above list certainly isn’t exhaustive but covers some of the insurance products that are more heavily marketed these days.  It’s important to note that we’ve made some generalizations about these coverages, but we all have different risk profiles, so some may be more appropriate in certain circumstances than others.  As always, reach out to your financial advisor for personalized advice.

Over the course of this Spring-Cleaning series, we identified an important coverage that you should have but may not (uninsured/underinsured motorist coverage), where you may have some coverage gaps with adult children and some insurance products that cover less common risks that you can mostly avoid.  The overarching theme, in the spirit of getting our financial houses in order, was to inspire you to review your existing coverages to make sure they’re appropriate for your current circumstances since we know this will change over time.  No one likes chores, so we suggest tackling this one before the warm rays of the summer sun lure us away from our financial responsibilities.

The views expressed represent an assessment at a specific point in time, are opinions only and should not be relied upon as investment advice regarding investments, strategies, sectors or markets in general.  The above commentary has been obtained from sources we believe are reliable, but we cannot guarantee their accuracy or completeness.  Past performance is no guarantee of future results.  This is not a complete analysis of every material fact.  All expressions of opinion are subject to change without notice.

The information contained in this document does not constitute the rendering of legal, accounting, or other professional advice or opinions on specific facts or matters.  Talk to your financial advisor before acting on information in this document.