Hidden costs are a genuine issue, and insurance policies are no different. If the fine print is taking a little too much out of your pocket, you may be a victim of junk insurance practices. Here’s what you can do to fix that.
Understand what junk insurance is
While additional fees are always annoying, junk insurance is outright unethical. It is the practice of stacking an agreement with various clauses and conditions that aren’t likely to ever come about, but still have to be paid for. Think of them as extensions to your insurance package, except they’re entirely useless to you. Sometimes they take the form of policies that sound sensible, but which you’d never be able to claim on. Sometimes they’re worded vaguely, slipped in between regular clauses, so you’re not even aware that they’re there to begin with. If you need some help navigating the jargon, watch out for the phrase “add-on insurance.”
Identify if you’ve been paying it
You can clarify your suspicions by looking at your old loan statements or credit card statements. Request copies from your bank if you don’t already have a personal archive. Read through the policies and see if you catch any junk legalese.
Some phrases to look for are:
* Extended warranty
* Mechanical breakdown insurance
* GAP insurance/ Guaranteed Asset Protection
* Consumer credit insurance/ CCI
* Loan protection
* Loan termination insurance
* Mortgage protection
* Contents insurance
If you find any of these, you may have a basis for claiming a refund. Double-check what you’ve paid and what it covers. If you believe that you’ve been charged useless unethical fees, consult an expert on how to get junk insurance back.
Understand the different types
These unwanted fees come in several different categories. These are the most common ones:
Consumer credit insurance (CCI)
This type of junk comes with things like vehicle loans, home loans, personal loans, and credit cards. It’s typically sold by insurance companies and banks. In theory, it should cover you if you can’t make your minimum monthly repayment - for example, if you’re sick, injured, become unemployed, or still have outstanding loans when you pass away. In practice, CCI is entirely optional and you can exclude it when you apply for a loan or credit card. Many sellers don't tell you this, however, or they pressure you into signing up for it.
Guaranteed asset protection (a.k.a. GAP insurance)
This is a type of vehicle insurance clause. As the name implies, it’s supposed to cover a gap - the difference between the price of your vehicle at the moment of purchase and the moment when you claim the insurance on it. Let’s put that into context. If your car is damaged in an accident, your insurance company will pay you only its market price at that time. This is usually less than the loan you took out to buy it. That’s the difference that GAP is supposed to cover. However, it only applies if you have a comprehensive insurance policy on your vehicle. If you don’t, you shouldn’t have been sold GAP either.
Mechanical breakdown insurance (MBI, a.k.a. extended warranty)
MBI is so ubiquitous that it even became a meme format: “We’ve been trying to reach you about your car’s extended warranty.” It works as a simple trade: you purchase some goods that have a warranty. Your warranty provider agrees to replace or repair parts of those goods if they fail or are proven to be defective within the period specified by the warranty. In return for that guarantee, you pay a fee. The catch here is that it’s only practical for brand-new goods. If you buy something second-hand, chances are that the warranty will have so many exceptions and exclusions as to be useless. You’d be paying for a service that you wouldn’t be allowed to claim.
Look for a list of common offenders
If you’re changing your insurance provider or choosing one for the first time, do a little background check. Visit the website (or call an office) of a regulatory body, such as a Securities and Investments Commission (or whatever your governmental equivalent is called).
They should have a database of insurance companies, banks, warranty providers, vehicle dealers, etc. who have been caught selling junk policies to consumers. Make sure the institution you’re considering isn’t on that list. Additionally, you could research recent legal proceedings in your area and see which financial houses to steer clear of.