Many consumers purchase insurance for pretty much everything: their new stereo, laptop, cell phone, etc, most of which is a waste of money.  Just the other day I received a call from my car insurance company asking if I would like to purchase break-down insurance for about $10 per month.  The pitch was that if I broke down on the side of the road and had to call a tow truck, the insurance would pay the full price.  What they don’t tell you, of course, is that the total cost of buying the extra insurance would surpass the cost of a tow truck in less than a year.  In this case, it was a bad deal.

Narrowly-Focused Insurance Is Generally A Bad Deal

As it turns out, the above example is no fluke.  Insurance products that focus on a narrowly-defined set of occurrences are almost always a bad deal for the customer.  Why?  For starters, the chances of you ever actually cashing in on that insurance policy are very low.  How many times in your life have you found yourself in need of a tow-truck?  Chances are, your car will need towing once every 3 or 4 years at the absolute most.  

Another example is mortgage insurance, which promises to pay off the mortgage for your loved ones should you die prematurely.  That sounds nice on the surface, but when you consider how much you pay for a constantly-decreasing benefit, these policies are obviously written with the interests of the banks and insurance companies in mind.  Besides, your family will also have to put food on the table and pay the utility bills after you die.  A regular term life insurance policy will cover these other expenses in addition to your mortgage for close to the same price.

These kinds of narrowly-focused insurance policies are cash-cows for the insurance companies.  Insurance is meant to cover you in the event of a catastrophic loss (such as cancer, a flood, or something equally expensive), not protect you from periodic minor expenses.  Use it accordingly.