Add-On Insurance: Do You Need It?

The phrase "add-on insurance" may sound foreign, but if you've ever bought a car or booked airline tickets, then you've most likely dealt with it. Here's the skinny: Add-on insurance is the extra protection offered at sale time that promises you'll be reimbursed for the loss or damage of any goods.

Sellers of products, from cars to homes to travel packages, are also the ones hawking the add-on insurance plans. In the past, you may have encountered a check-out clerk inquiring if you want insurance for your new TV, or when making a flight reservation, an online form may have asked you if you want additional travel protection. (To find out what other policies you can avoid, see 15 Insurance Policies You Don't Need.)

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Sure, saying "yes" seems like the responsible, conservative route to go. You want to be cautious about safeguarding your shiny, new 50-inch flat screen, or you realize it's possible to get into a rental car fender-bender while tooling around an unfamiliar city. However, according to the July 26, 2010 consumer advocacy group report, "Consumers Should Be Cautious About Buying "Add-On" Insurance" from the Consumer Federation of America (CFA), add-on insurance can be extraneous and even when the coverage is needed, the policies can be overpriced.

You May Already Be Covered
Before feeling pressured to fork over extra fees, the overriding consideration should be, "Am I somehow already covered?" In many cases, consumers have security through existing insurance plans, says the CFA.

For instance, many personal automobile policies also insure you for the same amount on your rental car, or some premium credit cards provide travel protection or loss of physical property. Start by reviewing the terms of your life, health, disability, home and auto insurance plans and seeing specifically what their coverage entails. (Some things shouldn't be left to chance. Find out where you need coverage in 5 Insurance Policies Everyone Should Have.)

Why Add-On Insurance Costs More
Even if you've identified a gap in coverage, you still may want to seek sources outside the point of sale to obtain additional insurance. The reason is that add-on insurance offered by the seller is usually more expensive. In fact, the CFA says "reverse competition" can more than double the price of the insurance according to CFA's director of Insurance, former Texas Insurance Commissioner and Federal Insurance Administrator J. Robert Hunter.

This is how it works. The seller - whether it's a car sales agent or an online travel site - receives commissions from insurance companies for signing you up for their insurance package. And typically, retailers choose insurers who hand out the biggest kickbacks, upping the seller's price of insurance. That's why add-on insurance tends to be pricier than if you were to seek out insurance coverage on your own.

Alternatives to Add-On Coverage
Neglecting insurance isn't savvy either, but here's how to avoid paying for duplicate coverage and where else to find loss protection:

Credit Insurance
Credit insurance is a type of insurance sold with objects requiring a loan, like a car or home, ensures that you are going to make the payments on what you owe. According to the U.S. Federal Trade Commission, it's common that this insurance is imbedded in your loan proposal. If it's not, know that you are not obligated to buy credit insurance through your lender and be sure to shop around for the best price. (L4)

Travel Insurance
In place of tacking on traveler's insurance, see if your credit cards will reimburse for loss or damage while traveling. Some homeowners' and renters' policies also insure for the loss of baggage or belongings, such as clothing and jewelry, even when you are not at home. (For more on travel and insurance, check out Vacation Medical Insurance: Can You Afford Not To?.)

Electronics Insurance
Sometimes appliances, like your refrigerator, range and oven, and air conditioner, are protected under your homeowner's policy. If not, instead of racking up costs to insure each home appliance, seek out a comprehensive plan that would cover all of your home's appliances. (If it's time for you to leave the nest, find out how to protect your new home from disaster, check out Insurance 101 For Renters.)

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Where You May Not Be Covered
In many cases, add-on insurance may seem like a costly scam, but there are exceptions where you may be vulnerable.

Don't overlook insuring your computer(s) and in-home business equipment, which are unlikely to be reimbursed under a homeowner's policy. While some renter's insurance or premium credit cards protect the loss or damage of personal property up to a certain dollar amount, you may have valuables, such as art, jewelry or furs, which collectively exceed it. High-worth possessions either necessitate additional blanket coverage for valuables or individual floaters added on to your homeowner's policy.

What's Next?
After you decide what coverage you have - or don't have, the next step is finding a provider to cover the holes. To get the best deal, don't forget to research via the internet, call up insurance agents as well as multiple providers and compare prices.

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