Most Common Financial Scams

Insurance Scams -- Indexed annuities.  Insurance companies hold seminars where they promise people they will earn ten percent or more per year if they get an indexed annuity (indexed life insurance), but they don't disclose the fact that high fees will eat up a big chunk of that 10 percent.  They also don't disclose the fact that they cap your earnings at 10 percent, which means if the stock market went up 20 percent, you would only receive 10 percent of profit and the insurance company keeps the other 10 percent.

Mortgage Life Insurance -- Those selling this type of insurance promise that the homeowner's mortgage will be protected in the event of death; however, this insurance does not insure the homeowner and it usually costs ten times more than regular life insurance.  If that weren't bad enough, it actually protects the interests of the mortgage company.  Yes, if you have taken out mortgage life insurance, you are insuring the bank's interest in your home. Note:  Do not confuse mortgage life insurance with mortgage insurance -- they are two different things.

Funeral Scams -- It costs about $10,000 for the average funeral and it is this expensive because the typical funeral director will try to convince you, often by claiming you are required to purchase something per state law, to buy more expensive caskets and funeral services to jack up the bill.  The FTC requires the funeral industry to follow The Funeral Rule, which forces funeral homes to provide all customers with a price list and prevents funeral homes from requiring customers to buy services and items they don't need.  Despite this rule, a recent investigation has shown that 25% of funeral directors are dishonest and will tell customers that they must get the deceased embalmed (this is not a requirement in any state); that you must purchase a casket to have someone cremated (which is not true) and that they cannot accept caskets purchased elsewhere (as in from Costco who sells them much cheaper and will ship them within a day free).  Prepaid Funeral Plans:  Prepaying for a funeral is one of the biggest cons since they (1) significantly overcharge for preplanned funerals; and (2) they might go out of business before you need their services and you won't get your money back and is now one of the top complaints filed with many state authorities.  See Ways to Save Money on Funerals.

Gym Memberships -- Never sign up for a gym membership that lasts longer than one year since you will not get your money back if the gym goes out of business and they could make it very difficult for you to end your membership, particularly if you let them automatically debit monthly payments from your checking account.  Dishonest gyms exploit the fact that most people do not keep the original contract they signed when they took out a membership. A gym might claim you signed up for more than one year and still owe them money.  They will sell the debt to a debt collection agency and you can't prove that you don't owe the debt if you don't have the original contract.

Car Leases -- When you are turning in a car at the end of your car lease, make sure you document the condition of the car before turning it in by taking lots of pictures or a video.  If you do not document the condition of the car, it is likely that they will claim you turned the car in in very poor condition and they might charge you a few thousand as a "clean up fee".

Extended Warranties -- All the big retail stores love to sell you extended warranties on the household appliances, computers, cell phones, televisions and electronics that you buy.  Extended warranties are a complete waste of money.  Why pay $10 or $20 a month when most products come with a one or two year manufacturer's warranty? And extended warranties don't include any damage resulting from an accident.   In addition, federal and state laws require most manufacturers to give your money back if a product breaks too soon.  If you purchased the item with an American Express or MasterCard, you might get an extra warranty from your credit card company.  Extended warranties are a complete waste of money.

Automatic Reenrollment -- Be careful when you sign up for products or services that come with an automatic reenrollment.  Some of these companies require you to send them a certified letter 30 to 60 days before your account is up for re-enrollment in order to cancel the automatic re-enrollment. If you don't cancel the automatic reenrollment within the specified time period, you are automatically enrolled for another year and there is nothing you can do about it.


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