I’ve made my share of bad financial decisions over the years, but nothing feels worse than when a salesperson convinces you to buy something that’s not in your best interest. These kinds of rip-offs usually occur when one party has more or better information than the other.

Think about the first time you bought a car or the first time you went to the bank to sign your mortgage documents. Who controlled the conversation? If you were like me, you probably deferred to the “expert” sitting across the desk and happily signed everything they put in front of you.

Related: 10 Fees To Avoid Paying

What you might not have known at the time is that some of the extras, such as extended warranty coverage or balance protection insurance, were completely optional and most likely a giant waste of money.

Here are four big rip-offs to avoid:

4 Big Rip-Offs To Avoid

Mortgage life insurance

If you own your home, chances are you were offered mortgage life insurance from your bank. This type of insurance is not a requirement to qualify for a mortgage, but it’s made to look that way by many lenders who suggest it at a time when you’re vulnerable and haven’t shopped around. You’ll even have to sign a waiver form to decline the coverage.

The reality is that it’s generally not a good idea to buy mortgage life insurance from your bank. It’s the one financial product that goes down in value as you continue to pay – also known as a declining benefit. Term life insurance is much cheaper and offers greater protection.

Extended warranty coverage

It’s almost guaranteed that you’ll be asked to buy an extended warranty the next time you purchase an appliance or any high-end piece of electronics. The reason for the hard sell is that retailers have big profit margins on these contracts. Stores keep 50 percent or more of what you pay for extended warranties or service plans, according to Consumer Reports research.

Consumer Reports recommends against buying extended warranty coverage. One reason is that most repairs may be covered by the manufacturer’s warranty, which should last at least 90 days or longer. Their research suggests that if a product doesn’t break while the manufacturer’s warranty is in effect, it probably won’t during the service-plan period.

Related: Gadget Insurance – Is It Worthwhile?

Many credit cards will double the manufacturer’s warranty when you use the card to make the purchase and register the product.

Balance protection insurance

One common telemarketing pitch from banks and credit card lenders is for balance protection insurance.

For a cost of about 99 cents per $100 of the average daily balance (about 1 percent per month) you can protect your credit rating against unexpected job loss or disability.

Customers might agree to add this protection to their credit card thinking that because they pay off the balance in full each month they’ll avoid the fee. Not so. The fee is based on the amount owing on your statement due date, or on your average daily balance, depending on the card issuer.

Not only that, the “protection” is riddled with exclusions, making it difficult to make a claim should you become ill or lose your job.

Balance protection insurance is aggressively marketed to unsuspecting customers and should be avoided like the plague. You’re much better off protecting yourself with a small emergency fund, proper term life insurance and disability insurance.

Door-to-door sales pitches

It may be tempting to sign up for a home security system, or switch to a new energy supplier to save a few bucks. But always be cautious about door-to-door sales pitches. They may use deceptive pitches or questionable tactics and sell substandard, but expensive products or service contracts.

Related: City Councils, Please Ban Door-to-Door Sales

A reputable business shouldn’t require your signature at the door. Take your time and read the documentation at your leisure. If the sales pitch has a limited time offer attached to it, ask the salesperson to leave immediately and close your door.

Shop around for competitive quotes from businesses offering similar services. Contact the Better Business Bureau to investigate the company or to get a list of businesses offering similar service.

Before you sign any contract, take the time to read the fine print. Don’t get pressured into signing a contract on the spot.

Final thoughts

I’ve fallen for the extended warranty pitch a few times before and I’m guilty of signing up for mortgage life insurance on my first mortgage term. These days I’m a lot more cautious and borderline skeptical of any sales pitch that comes my way. I can spot a rip-off or a scam a mile away.

Related: Why Do People Fall For Telemarketing Scams?

What other rip-offs should you watch out for?

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  1. KC on November 16, 2018 at 8:02 am

    I’ve bought the extended warranty on my car for 1 reason. It was a second generation of that particular model in which the previous model had some serious issues that was supposed to have been rectified in the 2nd generation and it did. This purchase was a hedge and I bought it for $1,500. That paid for itself and then some when I had an issue with one of my wheel bearings (supposed to last the life of the car) which was $700, then an issue with my gearshift ($600) so I ended up getting a whole new one and another wheel bearing issue (different wheel) for $600. So I came out $400 ahead and most of these major repairs came at a time when I was in between jobs. Totally worth every penny.

    Research is definitely key here and I chose to mitigate this risk. Worse case scenario, I was out $1,500 over a period of 5 years. I was lucky in this case.

    • Gabor Vajay on November 16, 2018 at 9:14 am

      You bought a Chrysler product, didn’t you? Kidding, I guess…

      If an earlier model year had issues, I would research the heck out of it to ensure fixes were made, and if not crystal clear that they were, I would assume they were not.

      Problems happen whenever complicated products are manufactured, but it depends how they are handled, both at the time, and in subsequent production runs.

      Some companies are better at fixing issues than others…

      • KC on November 16, 2018 at 10:49 am

        Actually, it wasn’t Chrysler!
        They did say previous issues were fixed which I did confirm but also new with 2nd gen was new suppliers to build this car compared to 1st gen which always bring new risks. The extended warranty fixed the new risks.

  2. John on November 16, 2018 at 8:24 am

    While I agree in principle with you regarding Mortgage Life Insurance, there are cases where it is a good buy. Let’s look at three specifics where Mortgage Life Insurance makes sense. It can be a good idea for people who 1) would not qualify for life insurance, this may be a good purchase, provided they are completely honest on the application (Research is key here as not all mortgage life insurance is created equally), 2) would cannot afford the cost of term insurance (let’s be honest – mortgage insurance premiums are usually cheaper), and 3) tend to procrastinate especially on the really important things (like life insurance). I recommend and encourage everyone to do their research on the best protection for their situation, realizing that blanket recommendations may not be appropriate for you.

    Always insurance that which you cannot afford to replace.

  3. Tom on November 16, 2018 at 8:49 am

    Twice in six months a Bell marketer arrived at my door (once after dark) trying to sign me up for the whole Fibe bundle of services. Both used the same approach—they were in my area for a limited time, the deal they were offering was time sensitive, and they named a nearby neighbour as having signed on. Both tapped away on an iPad which I couldn’t see and both started to get a little edgy when I told them I wouldn’t sign on with someone going door to door.

  4. Thomas on November 16, 2018 at 10:56 am

    There are exception on extended warranty like new auto and Costco tv or electronics. Third party life insurance to protect the mortgage also worth it for young family.

  5. Doug Boraas on November 16, 2018 at 12:36 pm

    We just purchased a new T.V. from Visions and paid the $350.00 for an extended 5 year warranty reason being that my mother bought a T.V. 3 years ago and it went caput! 3 years!

    So when we mentioned this to Visions they suggested we buy the extended 5 year 5 year warranty! Nothing seems to last these days! They also said that if we don’t have a issue after five years that we can come back and apply that $350.00 credit to something else in the store! Sounds kind of crazy but manufactures don’t build anything to last these days!

    One latest scam is Insurance companies wanting to sell insurance on balances on your credit cards! Sort of like job insurance! I think this is a rip off! Credit card balance insurance! Sounds hokey to me!

  6. Dale Roberts on November 17, 2018 at 6:27 am

    Thanks Robb, I have a long standing policy to reject all extended warranties. I am so far ahead on that. Many would say that I under-insured (life insurance) over the decades, but paying too much insurance can take away from your funds for wealth building.

    Find that sweet spot.

  7. Paul on November 17, 2018 at 7:14 am

    Remember, the only person who really cares about your finances is you. All businesses are in business to make money, not to help you out. Make sure you need what you are buying, and the price is fair.

  8. Cheryl on November 17, 2018 at 8:15 pm

    I have a credit card insurance experience that has worked out OK for me but I’m aware of the scams and the refusal to pay.

    Back in the late 1980’s I had a credit card, I think a Bank of Montreal Mastercard and this unexpected charge showed on my bill. I called in to ask what it was and it was balance protection insurance. This was back in the days of negative opt out. If you didn’t want it, you had to call in to have it removed. The phone operator told me it was to protect me in case I lost my job and asked if I wanted it removed. I was working a seasonal job where the contract was ending in a couple of months and I told him so I expected a known lay off probably wouldn’t count. The clerk said it would cover me so I left it on. When I got laid off, I did apply and get something paid, don’t recall the amount, but I found a job a couple of months later and started repaying the card. A month or so later a woman from the insurance company did a follow up phone call. I told her I’d found a job and called the credit card to inform, but they didn’t pass along the message. Anyway, whatever card that was probably had $500 on it and I don’t have it anymore.

    Fast forward 5 years ago to a divorce and about $3500 on a Visa which was mainly for emergency use, and when I called to activate a new card that came in the mail, I had to go through the balance protection insurance pitch. I was working a contract job that would end in 2 or 3 months so I said OK. Hey why not? And they did pay out on it. I was unemployed for a long time and they paid well over the minimum, like around $200/month. Of course their insurance fee plus interest is added on each month and I was paying what I could, I think I was paying the minimum. So I got a lot of that card paid off. The next job I found was a one year maternity leave coverage and I still had the balance protection insurance and I still had a balance, maybe down to $1000 by now. Again, they paid out well over the minimum for the 4 months or so until I found work, about half the balance was paid off, and I paid off the rest once I started working.

    I still have the balance protection on it. I use the card for vet bills and car repairs if its more than $200, but don’t use it for anything for else. The latest vet bill cost $2 or $3 extra in that balance protection. Even though I’m working and the card is mostly at zero, I can’t seem to bring myself to remove it. I still haven’t found a full time job. My current job was a one year contract and in September they renewed it for another 6 months. I might need help again if a big car repair bill comes in between now and then and if the company doesn’t need me any more.

  9. Steve Bridge on November 19, 2018 at 3:54 pm

    How about segregated funds and, to a lesser extent, universal life insurance? They may be appropriate for a very small percentage of people (I’ve yet to run into anyone), but because the commissions are so high, many people who should not own them, do.

  10. WhiteWulfe on May 25, 2019 at 4:15 pm

    For extended warranties, I feel it depends on what I’m picking up. I usually don’t get them, unless it’s parts for my computer, specifically ones that use fans to keep themselves cool (like video cards) or are essential to a computer functioning (like motherboard and CPU/processor)… But one has to be careful where they get it, as some stores such as Best Buy take a long time (and have more exclusions), whereas others like MemoryExpress have a maximum of five business days for turnaround on the replacement.

    Twice now, I’ve had my video card upgraded to newer, more powerful models because one of the fans wound up dying (the one that was over the hottest part of the video card too!), and once their techs verified that such a fault had indeed happened, and they couldn’t fix it in time. Sure, that $200 up front on a $1,000 product does increase it’s price by 20%, but at the same time, when you have a fan fail a year or two later that replacement $1,000 video card costs absolutely nothing – and MemoryExpress doesn’t just pro-rate the IPR, if you purchased a four year IPR, your replacement gets a full four years on it too.

    This is for a gaming computer that’s also used for photo and video editing though, so some would say I put my gear through heavy use since it sees a decent amount of use.

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