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What are the Pros and Cons of No Deposit Insurance?

Article Details
  • Written By: Felicia Dye
  • Edited By: Melissa Wiley
  • Last Modified Date: 15 February 2019
  • Copyright Protected:
    2003-2019
    Conjecture Corporation
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No deposit insurance has characteristics that are generally regarded as benefits, such as accessibility to individuals who may not otherwise be able to afford coverage and increased availability. There are also drawbacks, such as higher overall costs and premiums that are affected by claims. Some features of these policies may be viewed positively by some and negatively by others. Examples include the tendency for monthly payments to be automatically deducted and the tendency for shorter periods between policy renewals.

There are a number of benefits associated with no deposit insurance. The fact that a large sum of money is not required to obtain coverage is likely to be the most attractive feature for many people. This can be especially helpful for individuals who have limited financial resources because it allows them to immediately obtain insurance that would likely be unavailable to them otherwise. Another of the pros of no deposit insurance is that growing demands for it has led to an increase in the number of providers, which in turn results in a wider range of options.

One of the largest drawbacks of no deposit insurance is the expense. The accessibility of coverage without a deposit usually involves increased costs over the term of the policy. This means that, although such coverage is often marketed as ideal for people with little money, they actually end up paying more than they would if they chose policies where they paid deposits.

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A customer’s rates are also affected by her claims. This may seem to be in accordance with other insurance policies, and it may be insignificant for individuals who make few or no claims. The impact can be greatly felt, however, by individuals who have made numerous or large claims. It is important to remember that many of the people who choose no deposit insurance do so for financial reasons. When claims elevate costs, it can be especially challenging for those customers who have grown accustomed to paying a certain amount monthly and who have limited resources to cover increases.

There are some characteristics that may be positive for some individuals but may be regarded as negatives for others. One example is the tendency for insurance providers to automatically debit bank accounts for the monthly costs of these policies. People who are financially responsible and who maintain sufficient balances in their accounts may appreciate the convenience. On the contrary, people who struggle to cover their monthly expenses may find this feature problematic.

The fact that policies are generally shorter may be viewed positively by some and negatively by others. Many no deposit insurance policies are renewed twice per year. Since premiums tend to rise faster with this type of coverage than with many other types, increases are applied more often. The fact that these policies are for shorter terms, however, may be a benefit to individuals who are interested in seeking coverage elsewhere.

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