4 Big Rip-Offs To Avoid
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 for your credit card, were completely optional and most likely a giant waste of money.
Here are four big financial 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 can 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.
A CBC Marketplace investigation revealed how bank employees mislead and up-sell consumers on pricey credit card balance protection insurance. I’ve had personal experience with this, as CIBC added the insurance protection to my credit card account last year without my permission. More recently, my wife signed up for a card with TD and upon activation the customer service agent pushed balance protection coverage. When my wife declined, the agent persisted and asked, “why not?”.
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?
My new LG fridge has needed 2 major repairs just after it was out of manufacturer’s warranty. I did purchase the extended warranty and would recommend it for refrigerators.
I had a fridge from a major manufacturer and purchased the extended warranty based on the salesperson’s explanation. When the fridge broke within the first year, I was told the full replacement value of the extended warranty did not apply as it was still under manufacturer’s warranty, so I was only eligible for store credit for original sale-price purchase value. The extended warranty was a complete waste of money. I won’t fall for that BS again.
What about using the extended warranty from your credit card? any big ticket items that I purchase I make sure to use the credit card with the best coverage for the item – it has worked out in my favour a couple of times.
As for appliances I would only buy North American manufactured brands, if for nothing else parts availability.
There are times when extended warranty is worth it. We also had to use it on our Kitchenaid refrigerator and a few years back on a big screen TV (twice for the on/off switch). Major appliances are no longer made to last for much more than 5 or 6 years so drive a hard bargain on price then use the extended warranty to appease the salesperson if you know you have gotten a REAL good price
Years ago mortgage insurance was cheap and worth it but not anymore!
I too bought an extended warranty on our appliances. It took the warranty for 5 years and it was only a couple hundred dollars on all 5 appliances. The washing machine needed to be repaired twice and the dishwasher once after the one year manufacturer’s warranty was over. These days, they don’t make appliances like they used to! I will take it on a case by case basis in the future.
I agree with Robb on the subject of extended warranties with one exception, that is, major kitchen appliances. We also suffered from failures in our young refrigerator and finally had to give up on it when the compressor failed at 4 years old. The manufacturer bought the unit back for about 40% of what we paid for it. Even a little bit of research on major appliances will reveal that the entire product category has gone to the dogs on reliability. This is one case where it is reasonable to consider an extended warranty, especially on refrigerators.
Mortgage insurance is not as cheap as simple term life insurance. Also mortgage insurance uses post-claim underwriting (not good)!