The very nature of the insurance business is to capitalize on our fears. And while many types of insurance are absolutely necessary—home and car insurance, to name two—there are plenty of industry come-ons you can ignore, now and forever. For example, it makes no sense to buy life insurance for a child or for an adult without an income. You only need life insurance for an income-earner who is responsible for dependents.
Mortgage life insurance is another one to scratch off your list. This is different from private mortgage insurance (which you need if you borrow more than 80 percent of your home's value). Mortgage life insurance pays off your mortgage if you die. I think it is far simpler and smarter—and typically less expensive—to take care of this through a standard term life insurance policy. Another one to skip is credit-card-loss insurance. If your credit card is stolen or you are the victim of identity theft, your maximum liability is $50—no added insurance needed.
Close cousins of insurance policies are the extended warranties salespeople try to scare you into buying when you make big-ticket purchases. I say forget about them. Consumer Reports recently took a detailed look at these and concluded they are typically a bad deal for consumers. That's because most products don't break down in the first few years, and if you have a complete lemon out of the box, you're going to be covered by the standard one-year warranty you get with most purchases.
This is for all the statement hoarders and receipt keepers whose filing cabinets and closets are bursting with documents from the last century: Let go. You're not going to need most of it, and if you don't trim down, it'll only make it harder to find the really important documents. Here's what to keep, and what to shred:
Keep: Big-ticket receipts. Hold onto receipts for any expensive purchases, such as TVs, cars, and sofas; it will help if you ever need to file an insurance claim for those items. Same goes with receipts for major home improvements. When you eventually sell your house, you will owe tax on any capital gain above $250,000 ($500,000 for married couples filing a joint tax return). But improvements to your home can be added onto your cost basis (what you paid for the house), decreasing your capital gain and thereby lowering—or eliminating—any potential tax bill.
Shred: Paycheck stubs. Here's an easy one: Once you get your annual W-2 and verify that it's correct, you can toss all your pay stubs from the past year.
Shred: Old tax documents. The IRS will only go back six years for most audits, so as long as you're an upstanding citizen (and aren't committing fraud), you have my permission to dispose of your 2002 returns and any before that.
Shred: Investment-account statements. For savings accounts, 401(k) plans, and other investments, chances are your bank and/or broker offers online statements, so confirm that you can get access going back to day one and then get rid of the paper versions. That said, it doesn't hurt to print out your year-end summary and tuck it away. Also, if you've ever made a nondeductible contribution to a traditional IRA, you'd be wise to keep that paperwork. You want to have proof that you've already paid tax on the contribution when it comes time to make a withdrawal.
Shred: Credit card and ATM receipts. Check that your monthly statements correctly report all your transactions, then fire up the shredder and get rid of all the receipts from that month.
We Hear You!