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Avoid These Financial Products

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 [3].” (They also bought one of my favorite sites, The Consumerist [4], 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 [5] 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 [6] 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?