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Avoid These Financial Products

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When I was younger, I remember Consumer Reports was the authority on reviews of household appliances, cars, and all the other major purchases in our lives. In the ensuing decade, where I stopped paying attention (known as high school and college), they’ve expanded to include reviews on basically everything. Today I read an article that is the epitome of what Consumer Reports is about – an article on “Financial Products That Are a Waste of Money.” (They also bought one of my favorite sites, The Consumerist, which I think is absolutely awesome)

So I’m going to share with you what I do anytime I read an article like this: I go down the list and compare it with what I’m doing (these are not recommendations for what you should do, just an illustration of what I do).

Collision on older vehicles

CR says you can save $300 a year (based on 2007 national averages) by skipping collision insurance coverage on older vehicles because older vehicles are worth less. The cost of coverage might exceed the cost of reimbursement should you car get totaled, so it makes sense to skip it. I don’t have a terribly old vehicle but I don’t have collision or comprehensive insurance on my car, instead I put the difference in premiums into a special fund (separate from my emergency fund) to cover this situation. I’ve saved nearly six thousand dollars over seven years with this strategy but that’s due to good fortune, the fund has yet to pay out on a “claim.”

Load mutual funds

A load on a mutual fund is a sales commission paid to the fund salesperson, CR says you can save $200-300 on a $5,000 investment by going with a no-load fund. I invest in Vanguard index mutual funds and there is so transaction fee and no load on those. If you prefer Fidelity funds, open a Fidelity account and you get the exact same thing. Go to the mutual fund broker whose funds you like and open an account there.

Fee-based checking

Save up to $36 to $600, plus any per-check fees each month, by going with a no-fee checking account. I’ve never paid a fee to a bank, be it overdraft or account “maintenance,” and neither should you. I figure that if my savings are earning 0% at a bank’s checking account, I’m already paying an “invisible” fee by not earning interest. I accept that because I can conveniently write checks from the account, but I won’t accept additional fees. It’s not a country club, there shouldn’t be a membership fee. Find a bank or credit union that won’t gouge you with these fees.

Credit card insurance

Credit card insurance covers your minimum monthly payment in the event you can’t work, are disabled, or die. It’s usually very “cheap,” at most a dollar or so for every $100 of your credit card balance, but it’s usually a rip off. CR recommends checking your other insurance policies, such as life and disability, to see how you’re covered in case of injury or disability, because you probably won’t need this credit card insurance. I don’t carry a balance so I’ve never even considered this.

Cancer insurance

CR says you can save $200 to $3,000 by skipping cancer and other disease specific insurances because you should already be covered by your health insurance. Check your existing coverage before considering this. If you’re on Medicare and need more, buy a Medicare supplemental policy. If you’re on Medicaid, you don’t need any extra. This is a decision that is far on the horizon for us so we haven’t even considered it.

Identity theft protection

Save $120 to $240 a year by skipping this and CR says they “might” do less than they claim, citing a Lifelock settlement of $12 million to the FTC and 35 state attorneys general. I utilize DIY identity theft protection and have been doing OK so far! (more on that this afternoon)

Cell phone insurance

Save $48 to $96 a year by skipping cell phone insurance. CR says that your home or auto insurance policy may already cover your phone and that you should keep your old phone in case you bust up your new one. I’ve never even considered cell phone insurance because I think insurance should cover the disastrous, not the routine. Keeping an old phone is probably smart but nowadays I just donate old cell phones to worthy causes.

Which one of these “wasteful financial products” do you find valuable? (I know a few clumsy people who have probably saved hundreds of dollars with cell phone insurance) Or especially wasteful? What do you do instead?

{ 20 comments, please add your thoughts now! }

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20 Responses to “Avoid These Financial Products”

  1. moljacks says:

    Depending on the person, cell phone insurance is totally worth it! I usually skip it though. With AT&T, if you bust your phone, you can buy one of those cheap pay as you go phones and put your sim card in. Just use that until your upgrade.

    • Assuming that you don’t lose the phone, with the SIM card inside :)

      I thought I bricked my phone a few months ago by dropping it into a toilet (clean water). Took out the battery and tossed it into a bag of rice overnight and it was good as new.

      I don’t have insurance on my phone, though (it’s a cheap, featureless phone with great battery life). Historically, I’ve been good with phones – but with two kids under the age of 3, a lot of weird things happen these days.

  2. Really great list. Having collision on an older vehicle just doesn’t make sense and is a waste of money. I knew a friend that wasted hundreds by doing this and recently gotten it taken off.

    The credit card insurance really annoys me. I was in the process of activating my credit card and they asked me several times about getting this service. They are really trying to push this service as most people won’t notice it and they can make tons of money off of it.

  3. Definitely a great list. I would also avoid debt consolidation (other than studen loan consolidation) too – that’s a DIY to me. Not sure if that fits in the “financial products” category, but I would think so.

  4. Thanks for the great complete list! I agree with all of the above, especially on the collision insurance and fee-identify theft protection. Using the opt-out pre-screen, PO Box, and fraud alert features you gave, you can get pretty much the same protection of your identity.

  5. zapeta says:

    I agree with everything on the list. The checking account fees really get me. If my bank were to put up a fee like that I would definitely move banks.

  6. freeby50 says:

    Good list. Cell phone insurance might be an exception for some of the more accident prone people with expensive phones. My brother in law abuses his phones and that $5 a month is well worth the cost for him.

    • cdiver says:

      Works out well for childrena also.

    • Cell phone insurance can be good, but I had bad experiences in the past when I had it with Verizon. My phone wasn’t working and because certain conditions weren’t met, I didn’t qualify to get a new phone. Instead, I would have to wait some time to have my already older phone fixed at a cost to me. Kinda made it seem worthless at the time. This is just my bad experience though.

    • Shirley says:

      Ins iss nearly a must for teens! Although it is his most prized possession, my grandson is ‘hell on wheels’ with accidents to his cellphone.

  7. Evan says:

    I go back and forth on Insurance. My phone without all the incentives was/is way over a 300 bucks (HTC Hero on Sprint)! When I cracked the screen – $100 later I received a phone over night. Kind of worth it, or at least it is until the Hero is less than the deductible on ebay

  8. Yana says:

    I agree with just about everything here, but you might call me overinsured as far as car insurance. I have a $50 deductible and all necessary coverage. My agent actually encouraged me (unsuccessfully) to increase the amount for medical should others get hurt in an accident, probably because I seem overinsured. However, I don’t want big medical coverage, because that whole industry is a rip off. I don’t want to pay for medical care or insurance for medical for myself or anyone else. My car is not older, either, but I always was well-insured even on older cars. I have car insurance because I don’t want to pay when a claim comes up – that is why I have such a low deductible. I don’t want to pay anything at all, since I am insured. The lower the deductible, the more likely you can get it waived.

    I’ve never paid for a bank account, but banks have paid me to open accounts. Cancer insurance reminds me of accident insurance – I call these special interest insurance. I prefer one for all causes, not special insurance for one circumstance. I always keep an old cell phone, but don’t buy cell phone insurance. That just seems dumb. I don’t believe in identity theft protection, as I don’t think one can be protected, but I like what Lifelock offers and think they should not have lost a lawsuit. I don’t like the credit bureaus, though. I consider them the scammers.

  9. jsbrendog says:

    my dad always used to bust out his old copies of consumer reports before we did/bought anything. good memories. i recently just bought a 9 year old car and am not sure whether it makes sense to get collision. it might the first couple years as it is still worth around 5gs but might make less sense if i still have it in 2 yrs..

  10. Shirley says:

    I took out a cancer policy with Mutual of Omaha a month before seeing a doctor when I expected to be diagnosed with cancer. It was a ten year policy with return of premiums and was to be paid in addition to any other insurance.

    I didn’t have cancer (whoopee!) and at the end of ten years, without even a request, they sent me a check for the premiums I had paid. Nice. I could have been putting that monthly amount in savings or whatever and gaining interest rather than giving them an interest-free loan, but at that time I wouldn’t have anyway. The cancer scare was enough to keep me paying the premiums. That worked out well for me, but I cancelled the policy after that.

  11. BrianC says:

    Great list. Fee-based checking seems ridiculous, especially when there are so many free accounts available.

  12. Pedro says:

    Some excellent advice re identity theft. Do your own due diligence and use common sense regarding things like ssn, drivers license number and credit card numbers. Don’t give out your personal information so freely.

  13. FlyFisher says:

    Appreciate the wisdom! What is there not insurance for now a days?

  14. Bee Happy says:

    I believe in having high coverage car insurance opposed to the minimum 15/30/15 coverages. I live in L.A. where it’s very uncommon to see $60k – $90k cars on the road. If you get in an accident with the minimal coverage, you are liable for the difference. DUH! Can you afford to pay the difference? Or would you rather be sued and garnished on wages. Yes, I believe in cell phone insurance especially if you own a smartphone. $3.00 per month doesn’t seem like a lot to replace a lost or damaged phone. Better safe than sorry.

    If insurance was FREE…. wouldn’t you want the maximum? So there’s no such thing as over insured.

    • Bee Happy says:

      I live in L.A. where it’s very uncommon to see $60k – $90k cars on the road.

      oops… that should read: VERY COMMON

  15. Walter says:

    I disagree about the load mutual fund. They have their place. Often, no load mutual funds may require that you stay invested for 180 days or you will incur a penalty. That can make it extremely difficult to rebalance your funds in volatile markets without incurring those penalties. Also, there may be other fees and charges or higher expense ratios in the no load fund that make them less appealing than a comparable load funds.

  16. raymon says:

    I think the phone insurance is a waste of money. Not only do you have to pay monhly fees, but the deductible for a new phone it’s outrageous.The deductible probably pays for the phone plus a hefty profit. The companies set the prices on these phones, but who is to tell how much they really cost. It be great if someone can find out how much does it cost to make some of these phones.
    Recently my battery went out but since it was over one year old verizon wanted around $30-35 for the battery with no guarantee that the phone would work after that, they said there was some humudity signs in the phone and should use the insurance and I did and paid the high deductible. Then my wife exact phone did the same thing, I decided to check on line for a battery and found out for a few dollars and is working like a charm.

    Recently my two year contrat was up, & I went to get a new phone and fond out that you get a $50 credit for a phone but you have to pay $30 upgrade per phone. We have 3 phones that would be $90. I am surprised that these kind of ridicolous charges are not reported in the media. Please check your bill, they add features and charges withhout letting you know.
    Since Verizon is so big, they can do whatever they want. We need some type of regulation- I don’t like goverment adding more regulations, but they are necessary to protect consumer from greedy companies. Also have you notice al of the tazes and smallc harges that add up? I counted i one bill only 21 charges.

  17. raymon says:

    Thank you for this site and for informing consumers. I have verizon packages, family plan and also the direct TV, land phone and internet. When I visited the store to renew my contract, I asked the lady if there was a plan to save, I hardly use the land line that I pay $54.99. She say yes and I signed the papers. It is a nighmare, she combine the land line to cellular, and that mean I lost the benefits of the package,caller Id and other benfits.

    Later I was notified that my internet service was going to be cancelled and transfer to another company, the combination of cable and direct TV would end up costing me much more than the saving. Called to cancel and was in the phone over hour and half and still the problem is not resolve. I have a land line on this triple package, but I hardly used it. But I guest you need it to keep your internet services. My phone bill is 10 pages long and it takes law degree to understand it. Please we need a consumer group or goverment agency to inform and educate consumers on how they can protect themselves from the giant corporations.


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